<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by 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 Rule 14a-11(c) or Rule 14a-12
DYNAMIC MATERIALS CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
DYNAMIC MATERIALS CORPORATION
551 ASPEN RIDGE DRIVE
LAFAYETTE, COLORADO 80026
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1998
To the Stockholders of
DYNAMIC MATERIALS CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of DYNAMIC
MATERIALS CORPORATION, a Delaware corporation (the "Company"), will be held on
Friday, May 22, 1998 at 9:00 a.m. local time at 551 Aspen Ridge Drive,
Lafayette, Colorado, 80026 for the following purposes:
1. To elect two directors to hold office until the 2001 Annual
Meeting of Stockholders.
2. To approve the amendment and restatement of the Company's 1997
Equity Incentive Plan to increase the aggregate number of shares of Common
Stock authorized for issuance under such plan by 150,000 shares.
3. To approve the Company's Employee Stock Purchase Plan.
4. To ratify the indemnification agreements entered into between the
Company's directors and officers and to approve the Company's entering into
similar agreements with future directors and officers.
5. To ratify the selection of Arthur Andersen LLP as independent
accountants of the Company for its fiscal year ending December 31, 1998.
6. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 9, 1998, as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors,
/s/ RICHARD A. SANTA
RICHARD A. SANTA
Vice President, Finance, Chief Financial Officer
and Secretary
Lafayette, Colorado
April 22, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
DYNAMIC MATERIALS CORPORATION
551 ASPEN RIDGE DRIVE
LAFAYETTE, COLORADO 80026
_______________
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1998
_______________
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Dynamic Materials Corporation, a Delaware corporation (the "Company"), for use
at the Annual Meeting of Stockholders to be held on Friday, May 22, 1998 at 9:00
a.m. local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at 551 Aspen Ridge Drive,
Lafayette, Colorado, 80026. The Company intends to mail this proxy statement and
accompanying proxy card on or about April 22, 1998, to all stockholders entitled
to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April 9,
1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 9, 1998, the Company had outstanding and entitled to
vote 2,789,508 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of elections appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes will be
considered present at the Annual Meeting for the purpose of establishing a
quorum.
With regard to the election of directors, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect.
Abstentions may be specified on the proposals to approve the amendment and
restatement of the 1997 Equity Incentive Plan, to approve the Employee Stock
Purchase Plan, to ratify the director and officer indemnification agreements and
to ratify the Company's auditors. Abstentions on the proposal to approve the
amendment and restatement of the 1997 Equity Incentive Plan, to approve the
Employee Stock Purchase Plan, to ratify the indemnification agreements and to
ratify the Company's auditors will have no effect.
Brokerage firms who hold shares in "street name" for customers have the
authority to vote those shares with respect to the election of directors and the
ratification of the appointment of the Company's auditors if such firms have
<PAGE>
not received voting instructions from a beneficial owner. Brokers will not have
authority to vote shares with respect to the proposals to approve the amendment
and restatement of the 1997 Equity Incentive Plan or to approve the Employee
Stock Purchase Plan. The failure of a broker to vote shares in the absence of
instructions (a "broker non-vote") will have no effect with respect to any other
matter considered at the Annual Meeting.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 551 Aspen
Ridge Road, Lafayette, Colorado 80026, a written notice of revocation or a duly
executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy. If no direction is indicated, the shares will be voted FOR the
election of each of the nominees for director, FOR the amendment and restatement
of the 1997 Equity Incentive Plan, FOR the Employee Stock Purchase Plan, FOR the
director and officer indemnification agreements and FOR the selection of Arthur
Andersen LLP as the Company's independent accountants for the current fiscal
year. The persons named in the proxies will have discretionary authority to vote
all proxies with respect to additional matters that are properly presented for
action at the Annual Meeting.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received by the Company
not later than December 23, 1998 in order to be included in the proxy statement
and proxy relating to that Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation and Bylaws provide that the
Board of Directors shall be divided into three classes, with each class having a
three-year term. Directors are assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. Vacancies on the
Board may be filled only by persons elected by a majority of the remaining
directors. A director elected by the Board to fill a vacancy (including a
vacancy created by an increase in the Board of Directors) shall serve for the
remainder of the full term of the class of directors in which the vacancy
occurred and until such director's successor is elected and qualified.
The authorized size of the Board of Directors is presently five members.
There are two nominees for the two directorships in the class whose term of
office expires in 1998. One nominee is a current director of the Company who
was previously elected by the stockholders, and the other nominee has not
previously served the Company as a director. If elected at the Annual Meeting,
each of the nominees would serve until the 2001 annual meeting and until his
successor is elected and has qualified, or until such director's earlier death,
resignation or removal.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the two nominees named below. In the event
that any nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as management may propose. Each person nominated for election has agreed
to serve if elected and management has no reason to believe that any nominee
will be unable to serve. Directors are elected by a plurality of the votes
present in person or represented by proxy and entitled to vote at the meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2001 ANNUAL MEETING
The names of the nominees and certain information about them are set forth
below.
MR. MICHAEL C. FRANSON. Mr. Franson, age 43, has been appointed for
election as a new director of the Company. Mr. Franson is currently a partner
at The Wallach Company, Inc., an investment banking firm, where he is
responsible for its Information Technology investment banking practice and has
served since 1988. Mr. Franson is a member of the advisory board for the
Center for Entrepreneurship at the University of Colorado at Boulder and a
member
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<PAGE>
of the Board of Directors of Koala Corporation, a manufacturer of child
protection products. He is also a Chartered Financial Analyst.
DR. GEORGE W. MORGENTHALER. Dr. Morgenthaler, age 71, has served as a
director of the Company since June 1986 and during the period from 1971 to 1976.
Dr. Morgenthaler has been a Professor of Aerospace Engineering, Department Chair
and Associate Dean of Engineering at the University of Colorado at Boulder since
1986. He is currently Director of the University of Colorado's BioServe
Commercial Space Center. Previously, Dr. Morgenthaler was Vice President
Primary Products Division of Martin Marietta Aluminum Co. and Vice President and
General Manager of the Baltimore Division of Martin Marietta Aerospace Co. Dr.
Morgenthaler has served on the Board of CTA, Inc. since 1993 and served on the
Board of Columbia Aluminum Company from 1987 to 1996. He chairs the Company's
Compensation Committee.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
DIRECTOR CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
MR. DEAN K. ALLEN. Mr. Allen, age 62, has served the Company as a director
since July 1993. Mr. Allen is President of Parsons Europe, Middle East and South
Africa, a position he has held since February 1996. Mr. Allen was Vice President
and General Manager of Raytheon Engineers and Constructors, Europe, from
February 1994 to December 1995, and was President of Allen & Associates from
April 1992 to 1994.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING
MR. DAVID E. BARTLETT. Mr. Bartlett, age 45, has served the Company as a
director since February 1996. Mr. Bartlett is a partner with Davis, Graham &
Stubbs LLP, beginning November 1997, and was a partner with Cooley Godward LLP
from September 1987 to August 1996 and BartlettStuder from June 1997 through
October 1997. Mr. Bartlett was Vice President of Business Development, General
Counsel and Secretary of NetSage Corporation from September 1996 through May
1997.
MR. PAUL LANGE. Mr. Lange, age 45, has served as President, Chief
Executive Officer and a director of the Company since October 1993. Prior to
joining the Company Mr. Lange was Vice President and General Manager of the
Engineered Materials Group of Englehard Corporation, Director at
Englehard/Hankuk and Chairman of the Board of Englehard Canada, from 1989 to
1993.
EXECUTIVE OFFICERS
The following individuals serve as executive officers of the Company. Each
executive officer is elected by the Board of Directors and serves at the
pleasure of the Board.
<TABLE>
<CAPTION>
Name Position Age
---- -------- ---
<S> <C> <C>
Mr. Paul Lange President and Chief Executive Officer 45
Mr. Richard A. Santa Vice President, Finance, Chief Financial Officer and Secretary 47
Mr. Joseph P. Allwein Vice President and General Manager of the Spin Forge Division 47
Mr. Michael W. Beam Vice President of Marketing and Sales 46
Mr. Edward G. Reineke Vice President of Operations 40
</TABLE>
MR. PAUL LANGE. Mr. Lange has served as President, Chief Executive Officer
and a director of the Company since October 1993. Prior to joining the Company
Mr. Lange was Vice President and General Manager of the Engineered Materials
Group of Englehard Corporation, Director at Englehard/Hankuk and Chairman of the
Board of Englehard Canada, from 1989 to 1993.
MR. RICHARD A. SANTA. Mr. Santa has served as Vice President of Finance,
Chief Financial Officer and Secretary of the Company since 1996. Prior to
joining the Company, Mr. Santa was Corporate Controller of Scott Sports
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<PAGE>
Group Inc. from 1993 to 1996. From 1992 to 1993 Mr. Santa was Chief Financial
Officer of Scott USA, a division of Scott Sports Group Inc.
MR. JOSEPH P. ALLWEIN. Mr. Allwein has served as Vice President and
General Manager of Spin Forge, a division of the Company since March 1998, when
the Company acquired certain assets of Spin Forge, LLC, for which Mr. Allwein
was the President since 1996. From 1991 to 1996, Mr. Allwein was President of
Hoover Containment Systems, Inc. ("HCS"), a subsidiary of Hoover Group, Inc.
("Hoover"). Mr. Allwein served as the President and principal shareholder of
HCS (then known as Lube Cube Inc.) from 1988 until its acquisition by Hoover in
1991.
MR. MICHAEL W. BEAM. Mr. Beam has served as Vice President of Marketing
and Sales of the Company since April 1995. Prior to joining the Company, Mr.
Beam was Director of Worldwide Sales at Indium Corporation, a producer and
manufacturer of indium-based products, from 1990 to 1995.
MR. EDWARD G. REINEKE. Mr. Reineke has served as Vice President of
Operations of the Company since January 1996 and has been employed by the
Company since April 1986 in various positions, including Engineering Manager
(1991-1994), New Business Development Manager (January to July 1995) and
Director of Manufacturing (1994-1996).
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1997, the Board of Directors held
eight meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent accountants at
least annually to review the results of the annual audit and discuss the
financial statements; recommends to the Board the independent accountants to be
retained; and receives and considers the accountants' comments as to controls,
adequacy of staff and management performance and procedures in connection with
audit and financial controls. During the year ended December 31, 1997, the Audit
Committee was composed of three non-employee directors, Mr. Edward A. Keible
(until May 1997), Mr. Bartlett and Dr. Morgenthaler. Mr. Keible did not stand
for re-election to the Board of Directors at the 1997 Annual Meeting. The Audit
Committee met three times during such fiscal year. The Audit Committee is
currently composed of two non-employee directors, Mr. Bartlett and Dr.
Morgenthaler.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and non-employee
directors under the Company's stock option plans and otherwise determines
compensation levels and performs such other functions regarding compensation as
the Board may delegate. During the year ended December 31, 1997, the
Compensation Committee was composed of four non-employee directors, Mr. Allen,
Mr. Bartlett, Mr. Keible (until May 1997) and Dr. Morgenthaler. It met twice
during such fiscal year. The Compensation Committee is currently composed of
three non-employee directors, Mr. Allen, Mr. Bartlett and Dr. Morgenthaler.
During the fiscal year ended December 31, 1997, each Board member attended
75% or more of the meetings of the Board and of the committees on which he
served that were held during the period for which he served as a director or
committee member, respectively.
PROPOSAL 2
APPROVAL OF THE AMENDMENT AND RESTATEMENT
OF THE 1997 EQUITY INCENTIVE PLAN
In March 1997, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1997 Equity Incentive Plan (the "1997
Plan"). At April 1, 1998, there were 925,000 shares of the Company's Common
Stock authorized for issuance under the 1997 Plan.
At April 1, 1998, options (net of canceled or expired options) covering an
aggregate of 752,250 shares of the Company's Common Stock had been granted under
the 1997 Plan, and 172,750 shares remained available for future grant
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under the 1997 Plan, plus those shares, if any, that might in the future be
returned to the plan as a result of the cancellation or expiration of options.
On February 18, 1998, the Board approved the amendment and restatement of
the 1997 Plan, subject to stockholder approval, to enhance the flexibility of
the Board and the Compensation Committee in granting stock awards to the
Company's employees, consultants and non-employee directors. The amendment and
restatement increases the number of shares authorized for issuance under the
1997 Plan by 150,000 shares, from a total of 925,000 shares to 1,075,000 shares.
The amendment and restatement also reflects certain other changes to the 1997
Plan, which are reflected in the summary of the 1997 Plan that appears below.
The Board approved the amendment and restatement of the 1997 Plan to ensure that
the Company can continue to grant stock awards to employees, consultants and
non-employee directors at levels determined appropriate by the Board and the
Compensation Committee.
Stockholders are requested in this Proposal 2 to approve the amendment and
restatement of the 1997 Plan. The affirmative vote of the holders of a majority
of the shares present in person or represented by proxy at the meeting and
entitled to vote will be required to approve the amendment and restatement of
the 1997 Plan. Broker non-votes and abstentions are counted towards a quorum,
but are not counted for any purpose in determining whether this matter has been
approved. A copy of the 1997 Plan is attached hereto as Exhibit A. The summary
of the 1997 Plan below is subject in all respects to the 1997 Plan.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the amended and restated 1997 Plan are outlined
below:
GENERAL
The 1997 Plan provides for the grant of incentive stock options,
nonstatutory stock options, stock bonuses and rights to purchase restricted
stock (collectively, "stock awards"). Incentive stock options granted under the
1997 Plan are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Nonstatutory stock options granted under the 1997 Plan are not
intended to qualify as incentive stock options under the Code. See "Federal
Income Tax Information" for a discussion of the tax treatment of the stock
awards.
PURPOSE
The 1997 Plan was adopted to provide a means by which selected officers and
employees of and consultants to the Company and its affiliates could be given an
opportunity to purchase stock in the Company, to assist in retaining the
services of employees holding key positions, to secure and retain the services
of persons capable of filling such positions and to provide incentives for such
persons to exert maximum efforts for the success of the Company. All of the
Company's approximately 195 employees are eligible to participate in the 1997
Plan.
ADMINISTRATION
The 1997 Plan is administered by the Board of Directors of the Company. The
Board has the power to construe and interpret the 1997 Plan and, subject to the
provisions of the 1997 Plan, to determine the persons to whom and the dates on
which stock awards will be granted, whether a stock award will be an incentive
stock option, nonstatutory stock option, a stock bonus, a right to purchase
restricted stock or a combination of the foregoing, the number of shares to be
subject to each stock award, and the provisions of each stock award granted
(which need not be identical), including the time or times during the term of
each stock award within which all or a portion of such stock award may be
exercised, the exercise price and the type of consideration. The Board of
Directors is authorized to delegate administration of the 1997 Plan to a
committee composed of not fewer than two members of the Board. The Board has
delegated administration of the 1997 Plan to the Compensation Committee of the
Board. As used herein with respect to the 1997 Plan, the "Board" refers to the
Compensation Committee as well as to the Board of Directors itself.
Regulations under Section 162(m) of the Code require that the directors who
serve as members of the Compensation Committee must be "outside directors." The
1997 Plan provides that, in the Board's discretion, directors
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serving on the Compensation Committee will also be "outside directors" within
the meaning of Section 162(m). This limitation excludes from the Compensation
Committee (i) current employees of the Company, (ii) former employees of the
Company receiving compensation for past services (other than benefits under a
tax-qualified pension plan) during the year, (iii) current and former officers
of the Company, and (iv) directors currently receiving direct or indirect
remuneration from the Company in any capacity (other than as a director).
Remuneration (with a de minimis exception for indirect remuneration) is paid if
it is paid directly to the director personally or to an entity in which the
director has a beneficial ownership interest greater than fifty percent.
ELIGIBILITY
Incentive stock options may be granted under the 1997 Plan only to
employees (including officers) of the Company and its affiliates. Employees
(including officers), directors and consultants are eligible to receive stock
awards other than incentive stock options under the 1997 Plan.
No incentive stock option may be granted under the 1997 Plan to any person
who, at the time of the grant, owns (or is deemed to own) stock possessing more
than 10% of the total combined voting power of the Company or any affiliate of
the Company, unless the option exercise price is at least 110% of the fair
market value of the stock subject to the option on the date of grant, and the
term of the option does not exceed five years from the date of grant. The
aggregate fair market value, determined at the time of grant, of the shares of
Common Stock with respect to which incentive stock options are exercisable for
the first time by an optionee during any calendar year after 1997 (under all
such plans of the Company and its affiliates) may not exceed $100,000. In
addition, the 1997 Plan contains a per-employee, per calendar year limitation
equal to options covering 200,000 shares of Common Stock.
STOCK SUBJECT TO THE 1997 PLAN
If stock awards granted under the 1997 Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such stock
awards again becomes available for issuance under the 1997 Plan.
TERMS OF STOCK AWARDS
The following is a description of the permissible terms of stock awards
under the 1997 Plan. Individual stock award grants may be more restrictive as
to any or all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the 1997 Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above) may not be less than 110% of such fair market value.
The exercise price of nonstatutory options and other stock awards under the 1997
Plan may not be less than 85% of the fair market value of the Common Stock
subject to the stock award on the date of grant. Notwithstanding the foregoing,
the Board may determine to award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit. If options are granted with exercise prices below market value,
deductions for compensation attributable to the exercise of such options could
be limited by Section 162(m). See "Federal Income Tax Information." At April 1,
1998, the closing price of the Company's Common Stock as reported on the Nasdaq
Stock Market (National Market) was $9.00 per share.
The Board has the authority to reprice any options outstanding and to offer
employees the opportunity to replace outstanding higher priced options, whether
incentive or nonstatutory, with new lower priced options. To the extent required
by Section 162(m), an option repriced under the 1997 Plan is deemed to be
canceled and a new option granted. Both the option deemed to be canceled and the
new option deemed to be granted will be counted against the 200,000 share per
calendar year limitation.
The exercise price of options and the purchase price of other stock awards
granted under the 1997 Plan must be paid either: (a) in cash or with respect to
options, by check at the time the option is exercised; (b) at the discretion of
the Board, (i) with respect to options, by delivery of other Common Stock of the
Company or (ii) pursuant to a deferred payment or other arrangement (except for
the payment of the par value of the shares and except for the payment of the
exercise price of stock options automatically granted to non-employee directors
which cannot be deferred); or (c) in any other form of legal consideration
acceptable to the Board.
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Vesting. Options granted under the 1997 Plan may become exercisable
("vest") in cumulative increments as determined by the Board. The Board
typically determines that shares covered by options granted under the 1997 Plan
will vest at the rate of 25% on each anniversary of the date of grant over four
years, except with respect to option grants to non-employee directors which the
Board typically determines will vest in full on the first anniversary of the
date of the grant. Shares covered by options granted in the future under the
1997 Plan may be subject to different vesting terms. The Board has the power to
accelerate the time during which an option may be exercised. In addition,
options granted under the 1997 Plan may permit exercise prior to vesting, but in
such event the optionee may be required to enter into an early exercise stock
purchase agreement that allows the Company to repurchase shares not yet vested
at their exercise price should the optionee leave the employ of the Company
before vesting. Shares of stock sold or awarded under the 1997 Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board. To the
extent provided by the terms of a stock award, a participant may satisfy any
federal, state or local tax withholding obligation relating to the exercise of
such option or acquisition of stock by a cash payment upon exercise or purchase,
by authorizing the Company to withhold a portion of the stock otherwise issuable
to the participant, by delivering already-owned stock of the Company or by a
combination of these means.
Term. The maximum term of options under the 1997 Plan is 10 years, except
that in certain cases (see "Eligibility") the maximum term is five years.
Options under the 1997 Plan terminate three months after termination of the
optionee's employment or relationship as a consultant or director of the Company
or any affiliate of the Company, unless: (a) such termination is due to such
person's disability in which case the option may be exercised at any time within
the earlier of (i) twelve months of such termination and (ii) the expiration of
the term of the option; (b) the optionee dies while employed by or serving as a
consultant or director of the Company or any affiliate of the Company, or within
such periods after termination of such relationship as the option may specify,
in which case the option may be exercised (to the extent the option was
exercisable at the time of the optionee's death) within the earlier of (i)
twelve months of the optionee's death and (ii) the expiration of the term of the
option by the optionee's estate, by a person who acquired the right to exercise
the option by bequest or inheritance or by a person the optionee has designated
to exercise the option upon the optionee's death; or (c) the option by its terms
specifically provides otherwise. Individual options by their terms may provide
for exercise within a shorter or longer period of time following termination of
employment or the consulting relationship. The option term may also be extended
in the event that exercise of the option within these periods is prohibited for
specified reasons. With respect to stock awards, in the event that the
participant's employment or relationship as a consultant or director of the
Company or any affiliate of the Company terminates, the Company may repurchase
or otherwise reacquire any or all shares of stock held by that person which have
not vested as of the date of such termination to the extent that participant's
stock bonus or restricted stock purchase agreement so provides.
Automatic Grants to Non-Employee Directors. Each non-employee director of
the Company receives automatic grants of nonstatutory stock options under the
1997 Plan. Upon the initial election or appointment of a non-employee director
to the Company's Board of Directors, such director is automatically granted,
without further action by the Company, the Board of Directors or the
stockholders of the Company, an option to purchase 7,500 shares of Common Stock
of the Company. On the date of each annual meeting of the Company's
stockholders, each person who is then a non-employee director is automatically
granted an option to purchase that number of shares of Common Stock of the
Company determined by multiplying 5,000 shares by a fraction the numerator of
which is the number of days the person continuously has been a non-employee
director as of the date of grant and the denominator of which is 365. The
exercise price of such options may not be less than 85% of the fair market value
of the Common Stock subject to the option on the date of the option grant. The
options may be exercised as provided in each option agreement which typically
states that the option may not be exercised until the date upon which the
optionee has provided one year of continuous service as a non-employee director
following the date of grant of the option. The term of each option is 10 years.
If the non-employee director's continuous status as a director terminates, the
option will terminate on the earlier of its expiration date and three months
following the date of such termination.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1997 Plan or subject to
any stock award granted under the 1997 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the 1997 Plan and stock awards
outstanding
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thereunder will be appropriately adjusted by the Board of Directors as to the
types and the maximum number of shares subject to such plan, the maximum number
of shares which may be granted to an employee during a calendar year, and the
class, number of shares and price per share of stock subject to such outstanding
stock awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1997 Plan provides that, in the event of a dissolution or liquidation
of the Company, sale of all or substantially all of the assets of the Company or
specified types of mergers or other corporate reorganizations, to the extent
permitted by law, any surviving corporation will be required to either assume
stock awards outstanding under the 1997 Plan or substitute similar stock awards
for those outstanding under such plan. In the event that any surviving
corporation declines to assume stock awards outstanding under the 1997 Plan, or
to substitute similar stock awards, then the time during which such stock awards
may be exercised will be accelerated and the stock awards terminated if not
exercised during such time. The acceleration of stock awards in the event of an
acquisition or similar corporate event may be viewed as an anti-takeover
provision, which may have the effect of discouraging a proposal to acquire or
otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1997 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1997 Plan will terminate on March 3, 2007.
The Board may also amend the 1997 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company to the extent such approval is necessary in order for the 1997 Plan
to satisfy Section 422 of the Code or any Nasdaq or securities exchange listing
requirements. The Board may submit any other amendment to the 1997 Plan for
stockholder approval, including, but not limited to, amendments intended to
satisfy the requirements of Section 162(m) of the Code and the regulations
promulgated thereunder regarding the exclusion of performance-based compensation
from the limitation on the corporate deductibility of compensation paid to
certain executive officers.
RESTRICTIONS ON TRANSFER
Under the 1997 Plan, incentive stock options and rights under a stock bonus
or restricted stock purchase agreement (as long as the stock awarded remains
subject to its terms) may not be transferred by the participant otherwise than
by will or by the laws of descent and distribution. Incentive stock options
during the lifetime of the optionee may be exercised only by the optionee. A
nonstatutory stock option may be transferred to the extent provided in the
option agreement. In addition, shares subject to repurchase by the Company
under an early exercise stock purchase agreement may be subject to restrictions
on transfer which the Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1997 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may create or increase the
optionee's alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock for a gain before the expiration of either of these
holding periods (a "disqualifying disposition"), at the time of disposition, the
optionee will realize taxable ordinary income equal to the lesser of (a) the
excess of the stock's fair market value on the date of exercise over the
exercise price, or (b) the optionee's actual gain, if any, on the purchase and
sale. The optionee's additional gain, or any loss, upon the disqualifying
disposition will be a capital gain or loss, which will be long-term or short-
term generally depending on whether the stock was held for more than eighteen
months (or in certain cases, one year). Long-term capital gains currently are
generally
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subject to lower tax rates than ordinary income. The maximum long-term capital
gains rate for federal income tax purposes is currently 20% while the maximum
ordinary income rate is effectively 39.6% at the present time. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
1997 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be long
or short-term depending on whether the stock was held for more than eighteen
months (or in certain cases, one year). Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
Restricted Stock. In general, a participant will not recognize taxable
income upon the receipt of restricted stock, because such stock will be subject
to restrictions which constitute a "substantial risk of forfeiture" within the
meaning of Section 83 of the Code (including, for this purpose, any restriction
under Section 16(b) of the Exchange Act). Rather, the participant will
recognize ordinary income at such time as the restrictions no longer apply, in
an amount equal to the fair market value of the stock at that time over the
amount, if any, paid for the stock. However, a participant may elect to be
taxed currently upon receipt of the stock (without regard to such restrictions)
by making an election under Section 83(b) of the Code within 30 days of receipt.
In this event, the participant will recognize ordinary income at the time of the
receipt of the stock in an amount equal to the excess, if any, of the fair
market value of the stock at that time over the amount, if any, paid for the
stock. However, if the shares are later forfeited, the participant will not be
entitled to any loss (except for any amount actually paid for the stock). Any
future appreciation in the stock will be treated as capital gain upon the sale
or exchange of the stock. The amount of compensation income to the participant
generally is deductible by the Company. Any dividends paid to the participant
on restricted stock before the stock is taken into income are ordinary
compensation income to the participant and generally are deductible by the
Company.
Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to options, when combined with all other types of
compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with proposed regulations issued under Section 162(m), compensation
attributable to options will qualify as performance-based compensation, provided
that the option is granted by a compensation committee comprised solely of
"outside directors" and either: (i) the plan contains a per-employee limitation
on the number of shares for which options may be granted during a specified
period, and the amount of compensation the employee could receive is based
solely on an increase in the value of the stock after the date of the grant; or
(ii) the option is granted (or exercisable) only upon the achievement (as
certified in writing by the compensation committee) of an objective performance
goal established in writing by the compensation committee while the outcome is
substantially uncertain, and the option is approved by stockholders.
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NEW PLAN BENEFITS
The following table presents certain information with respect to options
granted under the 1997 Plan in 1998 through April 1, 1998 to the Named Executive
Officers (as defined in "Executive Compensation" below), all executive officers
as a group and all non-executive officer employees as a group, and during the
fiscal year ended December 31, 1997 to all non-executive officer directors as a
group.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
1997 EQUITY INCENTIVE PLAN
-----------------------------------------
NUMBER OF SHARES SUBJECT
NAME AND POSITION DOLLAR VALUE(1) TO OPTIONS GRANTED
----------------- --------------- ------------------------
<S> <C> <C>
Paul Lange(2) $ 393,750 50,000
Richard A. Santa(2) $ 196,875 25,000
Michael W. Beam(2) $ 157,500 20,000
Edward G. Reineke(2) $ 157,500 20,000
All Executive Officers as a Group (5 persons)(2) $1,198,750 150,000
All Non-Executive Officer Directors as a Group $ 135,000(3) 15,000
All Non-Executive Officer Employees as a Group(2) $ 847,875 105,000
</TABLE>
- ------------------
(1) Exercise price multiplied by the number of shares underlying the option(s).
(2) Option grants to this person or group of persons will be made at the
discretion of the Board. This table sets forth information regarding
option grants actually made to such person or group of persons in 1998
through April 1, 1998.
(3) Based on an assumed exercise price of $9.00 per share, the closing price of
the Company's Common Stock on April 1, 1998, as reported on the Nasdaq
Stock Market (National Market). The actual exercise price for options to be
granted in 1998 will be equal to the closing price on May 22, 1998.
PROPOSAL 3
APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
On January 9, 1998, the Board of Directors adopted the Employee Stock
Purchase Plan (the "Purchase Plan") authorizing the issuance of 50,000 shares of
the Company's Common Stock.
Stockholders are requested in this Proposal 3 to approve the Purchase Plan.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the Purchase Plan. Broker non-votes and abstentions are
counted towards a quorum, but are not counted for any purpose in determining
whether this matter has been approved. A copy of the Purchase Plan is attached
as Exhibit B. The summary of the Purchase Plan below is subject in all respects
to the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the Purchase Plan are outlined below:
PURPOSE
The purpose of the Purchase Plan is to provide a means by which employees
of the Company (and any parent or subsidiary of the Company designated by the
Board of Directors to participate in the Purchase Plan) may be given an
opportunity to purchase Common Stock of the Company through payroll deductions,
to assist the Company in retaining the services of its employees, to secure and
retain the services of new employees, and to provide incentives for such persons
to exert maximum efforts for the success of the Company.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan" as
that term is defined in Section 423(b) of the Code.
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<PAGE>
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors, which has the
final power to construe and interpret the Purchase Plan and the rights granted
under it. The Board has the power, subject to the provisions of the Purchase
Plan, to determine when and how rights to purchase Common Stock of the Company
will be granted, the provisions of each offering of such rights (which need not
be identical), and whether any parent or subsidiary of the Company shall be
eligible to participate in such plan. The Board has delegated administration of
such plan to the Compensation Committee.
OFFERINGS
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board. Generally, each such offering is of
six months' duration.
ELIGIBILITY
Any person who is customarily employed at least 20 hours per week and five
months per calendar year by the Company (or by any parent or subsidiary of the
Company designated from time to time by the Board) on the first day of an
offering period is eligible to participate in that offering under the Purchase
Plan, provided such employee has been in the continuous employ of the Company
for such continuous period not equal to or greater than two years as the Board
may require. The Board may provide that officers of the Company who are "highly
compensated" as defined in the Code are not eligible to participate in an
offering.
Notwithstanding the foregoing, no employee is eligible for the grant of any
rights under the Purchase Plan if, immediately after such grant. the employee
would own, directly or indirectly, stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or of any
parent or subsidiary of the Company (including any stock which such employee may
purchase under all outstanding rights and options), nor will any employee be
granted rights that would permit him or her to buy more than $25,000 worth of
stock (determined at the fair market value of the shares at the time such rights
are granted) under all employee stock purchase plans of the Company in any
calendar year.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the Purchase Plan by delivering
to the Company, within the time period specified in the offering date for the
offering, an agreement authorizing payroll deductions of up to 15% of such
employees' earnings (as defined by the Board for each offering) during the
specified purchase period.
PURCHASE PRICE
The purchase price per share at which shares are sold in an offering under
the Purchase Plan may not be less than the lower of (a) 85% of the fair market
value of a share of Common Stock on the date of commencement of the offering, or
(b) 85% of the fair market value of a share of Common Stock on the date on which
rights are exercised and purchases of such shares are made ("Purchase Date").
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the offering period. A participant may reduce (including to zero) or increase
or begin such payroll deductions after the beginning of any offering period only
as provided for in the offering. All payroll deductions made for a participant
are credited to his or her account under the Purchase Plan and deposited with
the general funds of the Company. A participant may make additional payments
into such account only if specifically provided for in the offering and only if
the participant has not had the maximum amount withheld during the offering
period.
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<PAGE>
PURCHASE OF STOCK
By executing an agreement to participate in the Purchase Plan, the employee
is entitled to purchase shares under such plan. In connection with offerings
made under the Purchase Plan, the Board may specify a maximum number of shares
any employee may be granted the right to purchase and the maximum aggregate
number of shares which may be purchased pursuant to such offering by all
participants. In addition, in connection with any offering that contains more
than one Purchase Date, the Board may specify a maximum aggregate number of
shares which may be purchased pursuant to such offering by all eligible
employees. If the aggregate number of shares to be purchased upon exercise of
rights granted in the offering would exceed any such maximum aggregate number,
the Board would make a pro rata allocation of shares available in a uniform and
equitable manner. Unless the employee's participation is discontinued, his or
her right to purchase shares is exercised automatically at the applicable price
on one or more Purchase Dates established by the Board.
WITHDRAWAL
While each participant in the Purchase Plan is required to sign an
agreement authorizing payroll deductions, the participant may withdraw from a
given offering and terminate his or her payroll deductions by delivering to the
Company a notice of withdrawal from the Purchase Plan. Such withdrawal may be
elected at any time prior to the end of the applicable offering period except as
provided by the Board in the offering.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, and such employee's interest in the offering will be automatically
terminated. The employee is not entitled to again participate in such offering.
An employee's withdrawal from an offering will not have any effect upon such
employee's eligibility to participate in subsequent offerings under the Purchase
Plan.
TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the Purchase Plan terminate
immediately upon cessation of an employee's employment for any reason, and the
Company will distribute to such employee all of his or her accumulated payroll
deductions, without interest.
RESTRICTIONS ON TRANSFER
Rights granted under the Purchase Plan are not transferable otherwise than
by will or the laws of descent and distribution or by designation of a
beneficiary to receive rights, shares or accumulated payroll deductions upon the
participant's death. Rights may be exercised, during his or her lifetime, only
by the person to whom such rights are granted.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Purchase Plan at any time.
The Board may amend the Purchase Plan at any time. Any amendment of the
Purchase Plan must be approved by the Company's stockholders within 12 months of
its adoption by the Board if the amendment would (a) increase the number of
shares of Common Stock reserved for issuance under the Purchase Plan, (b) modify
the requirements relating to eligibility for participation in the Purchase Plan
(to the extent such modification requires stockholder approval in order for the
Purchase Plan to obtain employee stock purchase plan treatment under Section 423
of the Code or in order to comply with the requirements of Rule 16b-3 under the
Exchange Act), or (c) modify the Purchase Plan in any other way if such
modification requires stockholder approval in order for the Purchase Plan to
obtain employee stock purchase plan treatment under Section 423 of the Code or
in order to comply with the requirements of Rule 16b-3 under the Exchange Act.
Rights and obligations under any rights granted before amendment or
termination of the Purchase Plan will not be altered or impaired by any
amendment or termination of such plan without the consent of the person to whom
such
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<PAGE>
rights were granted or except as necessary to comply with any laws or
governmental regulations or to ensure that the Purchase Plan or rights granted
under it comply with the requirements of Section 423 of the Code.
EFFECT OF CERTAIN CORPORATE EVENTS
If any change is made in the stock subject to the Purchase Plan or to any
rights granted under the plan, the Purchase Plan and outstanding rights will be
appropriately adjusted in the class(es) and maximum number of shares subject to
the plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights as the Board determines.
In the event of a dissolution, liquidation or specified type of merger or
acquisition of the Company, then, as determined by the Board in its sole
discretion, the surviving or acquiring corporation may assume the rights under
the Purchase Plan or substitute similar rights, such rights may continue in full
force and effect, or participants' accumulated payroll deductions may be used to
purchase Common Stock immediately prior to any such event and the participants'
rights under the offering may be terminated.
STOCK SUBJECT TO PURCHASE PLAN
If rights granted under the Purchase Plan for any reason terminate without
having been exercised, the Common Stock not purchased under such rights again
becomes available for issuance under such plan.
FEDERAL INCOME TAX INFORMATION
Rights granted under the Purchase Plan are intended to qualify for
favorable federal income tax treatment associated with rights granted under an
employee stock purchase plan which qualifies under provisions of Section 423 of
the Code.
A participant will be taxed on amounts withheld for the purchase of shares
as if such amounts were actually received. Other than this, no income will be
taxable to a participant until disposition of the shares acquired, and the
method of taxation will depend upon the holding period of the purchased shares.
There generally are no federal income tax consequences to the participant
or the Company by reason of the grant of an option or acquisition of stock under
an employee stock purchase plan.
If the participant holds stock more than two years after the beginning of
the option grant and more than one year after the stock is transferred to the
participant, gain or any loss will be taxed as a capital gain or loss. Long-
term capital gains currently are generally subject to lower tax rates than
ordinary income. The maximum capital gains rate for federal income tax purposes
is 20% while the maximum ordinary rate is effectively 39.6% at the present time.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the exercise date over the exercise price will be treated as ordinary
income at the time of such disposition, and the Company may, in the future, be
required to withhold income taxes relating to such ordinary income from other
payments made to the participant. The balance of any gain will be treated as
capital gain. The Company is entitled to a deduction to the extent amounts are
taxed as ordinary income to a participant by reason of a disposition before the
expiration of the holding periods described above (subject to the requirement of
reasonableness and, perhaps, satisfaction of a withholding obligation). Even if
the stock is later disposed of for less than its fair market value on the
exercise date, the same amount of ordinary income is attributed to the
participant, and a capital loss is recognized equal to the difference between
the sales price and the fair market value of the stock on such exercise date.
Any capital gain or loss will be long or short-term depending on whether the
stock has been held for more than eighteen months (or in certain cases, one
year).
NEW PLAN BENEFITS
The benefits that will be received by the Named Executive Officers, all
executive officers as a group and all non-executive officer employees as a group
under the Purchase Plan are not determinable at the present time because the
Purchase Plan was not in effect in 1997 and the number and dollar value of
shares that may be purchased in the future
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<PAGE>
are at the discretion of each participant. Non-employee directors are not
eligible to purchase shares under the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
PROPOSAL 4
RATIFICATION OF INDEMNIFICATION AGREEMENTS
Effective August 22, 1997, the Company entered into Indemnification
Agreements with each of its executive officers (Paul Lange, Richard A. Santa,
Michael W. Beam, and Edward G. Reineke) and its directors (Dean K. Allen, David
E. Bartlett, and George W. Morgenthaler). Effective March 19, 1998, the Company
also entered into an Indemnification Agreement with Joseph Allwein, who became
an executive officer on such date. In addition, the Company proposes to enter
into substantially similar Indemnification Agreements with executive officers
who may be hired in the future, as well as persons who may become directors in
the future, including Michael C. Franson, if elected at the meeting.
Stockholders are being asked to ratify the Indemnification Agreements that have
been entered into, as well as to approve the execution of similar
Indemnification Agreements in the future. This approval is being sought under
the provisions of Sections 144 and 145 of the General Corporation Law of the
State of Delaware (the "GCL").
Background. In May 1997, the Company's stockholders approved a change of
the Company's state of incorporation from Colorado to Delaware. As part of the
approval of the reincorporation, the stockholders approved the assumption of the
indemnification agreements which were in effect at the time of the
reincorporation. However, those indemnification agreements reflected Colorado
law and, subsequent to the Delaware reincorporation, the Company determined that
it would be advisable to revise its indemnification agreements to reflect
Delaware statutory and case law.
Reasons for Indemnification Agreements. Under (S) 145 of the GCL,
statutory indemnification is not the exclusive means by which Delaware
corporations may indemnify officers, directors and others. The statute permits
additional indemnification arrangements under bylaws, agreement, vote of
stockholders or independent directors, or otherwise. The Company's certificate
of incorporation and bylaws (each of which were approved by stockholders as part
of the Delaware reincorporation) contain provisions detailing the Company's
indemnification policies. Common practice has developed among Delaware
corporations to provide, in addition to charter and bylaw provisions, specific
indemnification agreements with officers and directors incorporating additional
indemnification protections.
The Company believes that providing the strongest possible indemnification
protection permits it to attract and retain qualified directors and to encourage
them to continue to make independent decisions in good faith on behalf of the
Company. A broad indemnification policy allows directors to serve without fear
of personal economic jeopardy, and permits the Company to select directors, and
permits directors to agree to serve, without regard to their ability to incur
liabilities in excess of their means. This policy becomes even more important
in light of policies of the Securities and Exchange Commission that seek to
increase the duties and responsibilities of directors of public companies.
Similarly, private litigants have become more likely to name individual
directors and officers in breach of fiduciary duty and securities laws actions.
Description of Indemnification Agreement. A form of Indemnification
Agreement is attached to this Proxy Statement as Exhibit C. The summary of the
Indemnification Agreement contained herein is subject in all respects to the
Indemnification Agreement.
The Company agrees to indemnify the officer or director ("Agent") to the
fullest extent authorized or permitted by the GCL and the Company's bylaws, and
incorporates subsequent amendments to the GCL and bylaws to the extent they
provide broader indemnification rights. In addition, the Company agrees,
subject to the exceptions set forth below, to indemnify the Agent for all
expenses, including attorney's fees, damages, amounts paid in settlement and any
other amount the Agent is legally obligated to pay because of claims against him
in connection with litigation in which the Agent is, or is threatened to be, a
party by reason of his acting as an officer, director, employee or agent of the
Company or of any other entity on behalf of the Company. The indemnification
will continue even after termination of employment or directorship so long as
the Agent may be subject to such liability. Exceptions to the indemnification
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<PAGE>
provided to Agents by the Company include: (i) claims under (S) 16(b) of the
Securities Exchange Act of 1934 for an accounting for profits by reason of the
purchase and sale of stock; (ii) conduct that is knowingly fraudulent,
deliberately dishonest or that constitutes willful misconduct; (iii) conduct
that constitutes a breach of loyalty to the Company or results in personal
profit or advantage to which the Agent is not legally entitled; (iv) claims for
which payment is made under an insurance policy or other indemnity provision;
(v) claims that may not lawfully be indemnified, including certain claims under
federal and state securities laws; and (vi) with certain exceptions, claims in
connection with proceedings initiated by the Agent against the Company.
The Company may assume the defense in any action, but is required to pay
for separate counsel for the Agent if there is a conflict of interest between
the Company and the Agent. The Company is required to advance to the Agent
expenses incurred in connection with any proceeding upon receipt of an
undertaking by the Agent to repay amounts if it is ultimately determined that
the Agent is not entitled to indemnification under the certificate of
incorporation, bylaws or Indemnification Agreement. The Agent may enforce the
Indemnification Agreement in court and, if successful, may collect the expenses
of prosecuting the claim. A prior determination by the Board that
indemnification is not proper does not create a presumption that Agent is not
entitled to indemnification, or constitute a defense in the enforcement action.
The rights of Agents under the Indemnification Agreements exceed in several
significant respects rights to indemnification under the GCL. First, the GCL
standard of conduct empowers the corporation to indemnify for conduct "in good
faith and in a manner . . . reasonably believed to be in or not opposed to the
best interests of the corporation." The exceptions in the Indemnification
Agreement prohibit indemnification for conduct that has a higher degree of
culpability, i.e., is knowingly fraudulent. This contractual standard is based
on the standard of liability in Delaware for breach of the fiduciary duty of
care, which is gross negligence. Indemnification under the GCL requires a
determination by the Board in the specific case that the applicable standard of
conduct has been met. No such determination is required under the
Indemnification Agreement, and any such determination that may be made creates
no presumptions regarding entitlement to indemnification. All determinations
regarding rights to indemnification are made by a court. This gives additional
protection to Agents, particularly in a change of control situation, and
overrides certain business judgment presumptions regarding the rights and
responsibilities of boards of directors. A second significant expansion of the
GCL is in the mandatory nature of the indemnification and advance of expense
requirements, which are permissive under the GCL.
There is currently some uncertainty under Delaware law as to the public
policy limits of the non-exclusivity provision of the GCL and, while the Company
believes the Indemnification Agreements are enforceable, there can be no
assurance regarding such enforceability. If enforceable, the mandatory nature
of indemnification and advancement of expenses precludes the Board from taking
into account the costs, extent of potential damages and attorney's fees, and
consideration of whether the personal assets of the Agent would permit repayment
of advances if indemnification proves not to be available. Such considerations
are left to directors under the GCL, to be decided under business judgment
principles, but are taken out of the Board's control by the Indemnification
Agreements. Stockholders should also be aware that the Indemnification
Agreements inure to the benefit of directors, and the interest of the Board in
recommending this ratification may be in conflict with the interests of
stockholders. Stockholders who vote in favor of ratification of the
Indemnification Agreements may be prevented from challenging the validity of the
Indemnification Agreements in a subsequent court proceeding.
The Board has considered the potential disadvantages and advantages of the
Indemnification Agreements and believes that the potential benefits provided by
the attraction and retention of directors outweigh the possible disadvantages.
The foregoing discussion summarizes the provisions of the Indemnification
Agreements, and while it highlights certain differences between the protections
afforded therein and under the GCL, it does not purport to be an exhaustive
discussion of all differences. A vote for the Indemnification Agreements
constitutes approval of the existing agreements and of agreements in
substantially the form of Exhibit C that may be entered into in the future.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
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<PAGE>
PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP as the Company's
independent accountants for the fiscal year ending December 31, 1998 and has
further directed that management submit the selection of independent accountants
for ratification by the stockholders at the Annual Meeting. Arthur Andersen LLP
has audited the Company's financial statements since 1991. Representatives of
Arthur Andersen LLP are expected to be present at the Annual Meeting. They will
have an opportunity to make a statement if they so desire and will be available
to respond to appropriate questions.
Although stockholder ratification of the selection of Arthur Andersen LLP
as the Company's independent accountants is not required by the Company's Bylaws
or otherwise, the Board is submitting the selection to the stockholders for
ratification as a matter of good corporate practice. If the stockholders fail to
ratify the selection, the Audit Committee and the Board will reconsider whether
or not to retain that firm. Even if the selection is ratified, the Audit
Committee and the Board in their discretion may direct the appointment of
different independent accountants at any time during the year if they determine
that such a change would be in the best interests of the Company and its
stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Arthur Andersen LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 5.
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<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of April 1, 1998 by: (i) each director and
nominee for director; (ii) each executive officer (including each Named
Executive Officer); (iii) all executive officers and directors of the Company as
a group; and (iv) each person known by the Company to be the beneficial owner of
more than five percent of the Company's Common Stock.
BENEFICIAL
OWNERSHIP(1)
---------------------
NUMBER PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES OF TOTAL
- ------------------------------------ ---------- ---------
Woodland Partners LLC(2).......................... 419,300 15.4%
60 South Sixth Street, Suite 3750
Minneapolis, MN 55402
Heartland Advisors, Inc........................... 272,000 10.0%
790 North Milwaukee Street
Milwaukee, WI 53202
Okabena Partnership K and
Kohler Capital Management, Inc.(3)................ 264,000 9.7%
5140 Norwest Center
Minneapolis, MN 55402
Norwest Corporation and affiliates and
Norwest Bank Minnesota, National Association(4)... (4) (4)
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-1026
Paul Lange(5)..................................... 165,000 5.9%
551 Aspen Ridge Drive
Lafayette, CO 80026
Mr. Richard A. Santa(6).......................... 6,250 *
Mr. Michael W. Beam(7)............................ 25,500 *
Mr. Edward G. Reineke(8).......................... 30,375 1.1%
Mr. Joseph Allwein(9)............................. 57,500 2.1%
Mr. Dean K. Allen(10)............................. 18,250 *
Mr. David E. Bartlett(6).......................... 12,500 *
Mr. Michael C. Franson............................ 0 *
Dr. George W. Morgenthaler(11).................... 111,328 4.0%
All executive officers and directors as a group
(8 persons)(12)................................. 426,703 1.5%
________________
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G, if any, filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise indicated
in the footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
2,789,508 shares outstanding on April 1, 1998, adjusted as required by
rules promulgated by the SEC.
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<PAGE>
(2) Woodland Partners LLC has shared voting power over 65,900 shares.
(3) The reporting persons have shared dispositive power, but do not have voting
power, over the shares reported.
(4) The reporting persons have sole voting power over the shares reported,
which are held for the Okabena Partnerships with respect to a portion of
whose assets Norwest Bank Minnesota, N.A. acts as custodian. See Note 3
above.
(5) Includes 24,315 shares subject to stock options exercisable within 60 days
of April 1, 1998.
(6) Consists solely of shares subject to stock options exercisable within 60
days of April 1, 1998.
(7) Includes 14,500 shares subject to stock options exercisable within 60 days
of April 1, 1998.
(8) Includes 14,625 shares subject to stock option exercisable within 60 days
of April 1, 1998.
(9) Mr. Allwein has sole voting power over the shares reported, the voting
power over 50,000 of such shares being held by him as manager of Spin
Forge, LLC, the record owner of such shares. The sole members of Spin
Forge, LLC are Mr. Allwein and his wife. Mr. Allwein has sole dispositive
power over 12,500 of the shares reported. Of the 50,000 shares held of
record by Spin Forge, LLC, 37,500 shares are subject to repurchase at fair
market value if Mr. Allwein terminates his employment with the Company.
Such right of repurchase terminates to the extent of 33% of the shares per
year over the next three years. 7,500 of the shares reported are subject to
forfeiture if Mr. Allwein terminates his employment with the Company. Such
shares will no longer be subject to forfeiture to the extent of 25% of the
shares per year over the next four years.
(10) Includes 16,250 shares subject to stock options exercisable within 60 days
of April 1, 1998.
(11) Includes 17,250 shares subject to stock options exercisable within 60 days
of April 1, 1998.
(12) See Notes 5 through 10 above.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and officers, and persons who own more than 10%
of a registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
10% stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives a quarterly retainer of
$1,000 and per meeting fees of $1,000 for attendance at non-telephonic Board
meetings, $500 for attendance at telephonic Board meetings and $250 for
attendance at committee meetings. In the fiscal year ended December 31, 1997,
the aggregate compensation paid to all non-employee directors was $38,250. The
members of the Board of Directors are also eligible for reimbursement for their
expenses incurred in connection with attendance at Board meetings, in accordance
with Company policy.
Each non-employee director of the Company also receives automatic grants of
nonstatutory stock options under the 1997 Plan. Upon the initial election or
appointment of a non-employee director to the Company's Board of Directors, such
director is automatically granted, without further action by the Company, the
Board of Directors or the stockholders of the Company, an option to purchase
7,500 shares of Common Stock of the Company. On the date of each annual meeting
of the Company's stockholders, each person who is then a non-employee director
is automatically granted an option to purchase that number of shares of Common
Stock of the Company determined by multiplying 5,000 shares by a fraction the
numerator of which is the number of days the person continuously has been a non-
employee director as of the date of grant and the denominator of which is 365.
The exercise price of such options may not be less than 85% of the fair market
value of the Common Stock subject to the option on the date of the option grant.
The options may be exercised as provided in each option agreement which
typically states that the option may not be exercised until the date upon
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<PAGE>
which the optionee has provided one year of continuous service as a non-employee
director following the date of grant of the option. The term of each option is
10 years. If the non-employee director's continuous status as a director
terminates, the option will terminate on the earlier of its expiration date and
three months following the date of such termination. For a description of other
terms of such options, see "Proposal 2 -- Approval of the Amendment and
Restatement of the 1997 Equity Incentive Plan."
During the fiscal year ended December 31, 1997, the Company granted options
covering an aggregate of 15,000 shares to three individuals serving as non-
employee directors of the Company, at a weighted-average exercise price of $9.03
per share. As of April 1, 1998, 4,000 options had been exercised under a
nonstatutory option granted outside of any plan by an individual currently
serving as a non-employee director.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows compensation awarded or paid to, or earned by,
the Company's executive officers (the "Named Executive Officers") during the
fiscal years ended December 31, 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION PAYOUTS
---------------------- ----------------
AWARDS
-----------
NAME AND PRINCIPAL FISCAL OTHER ANNUAL ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)(1) OPTIONS (#) COMPENSATION ($)
------------------ ------ ---------- --------- ------------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Paul Lange................. 1997 210,000 189,000 484,894(2) -- 1,462(4)
President and 1996 166,333 100,000 29,515(3) 25,000 79,331(5)
Chief Executive Officer 1995 158,250 40,000 -- 31,000 43,410(6)
Richard A. Santa........... 1997 120,000 34,800 -- -- 1,044(4)
Vice President, Finance, 1996 21,846 16,263 -- 25,000 --
Chief Financial Officer
and Secretary(7)
Michael W. Beam............ 1997 115,546 38,297 -- -- 10,807(9)
Vice President, 1996 109,750 36,300 -- 20,000 10,886(10)
Marketing and Sales(8) 1995 80,250 22,069 -- 28,000 7,607(11)
Edward G. Reineke.......... 1997 93,800 42,600 -- -- 366(12)
Vice President, 1996 79,922 24,180 -- 17,500 112(12)
Operations 1995 72,212 14,493 -- 16,000 --
</TABLE>
- -----------------
(1) Except as disclosed in this column, the amount of perquisites provided to
each Named Executive Officer did not exceed the lesser of $50,000 or 10% of
total salary and bonus for each fiscal year.
(2) Includes $473,640 which represents the dollar value of the difference
between the fair market value and exercise price of options exercised
during 1997 and $11,254 for the cost of a Company-provided automobile.
(3) Includes $28,596 paid to Mr. Lange in consideration for earned but unused
vacation time.
(4) Represents life insurance premiums paid by the Company.
(5) Includes $78,628 paid to Mr. Lange in reimbursement of relocation expenses,
including reimbursement of rental payments, relocation agent services and
other moving expenses. Also includes $703 of life insurance premiums.
(6) Includes $42,707 of relocation expenses and $703 of life insurance
premiums.
(7) Mr. Santa joined the Company in October 1996.
(8) Mr. Beam joined the Company in April 1995.
(9) The Company made a relocation loan in the principal amount of $30,000 to
Mr. Beam in July 1995, in connection with his joining the Company. The loan
is being forgiven by the Company in monthly installments over a three-year
period beginning in April 1995. $10,000 of such loan was forgiven during
1997. Also includes $807 of life insurance premiums paid by the Company.
(10) Includes $10,147 for forgiveness of the relocation loan (see Note 9) and
$739 of life insurance premiums.
(11) Represents forgiveness of relocation loan (see Note 9).
(12) Represents life insurance premiums.
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<PAGE>
STOCK OPTION EXERCISES
The Company grants options to its executive officers under its 1997 Plan.
As of April 1, 1998, options to purchase a total of 591,815 shares were
outstanding under the 1997 Plan and options to purchase 172,750 shares remained
available for grant thereunder. The Company did not grant options to any of the
Named Executive Officers in the fiscal year ended December 31, 1997.
The following table shows for the fiscal year ended December 31, 1997,
certain information regarding options exercised by, and held at year-end by, the
Named Executive Officers:
OPTION EXERCISES IN FISCAL 1997 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997 (1)
----------------- ---------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ---------------- ------------ ----------------- ---------------------
<S> <C> <C> <C> <C>
Paul Lange......... 120,885 $1,465,628 23,365/41,750 $98,549/$125,906
Richard A. Santa... -- -- 6,250/18,750 -- / --
Michael W. Beam.... -- -- 19,000/29,000 $ 79,183/$80,433
Edward G. Reineke.. 11,750 $ 85,563 11,875/24,875 $ 38,984/$64,641
</TABLE>
- ----------------
(1) I.e., value of options for which the fair market value of the Company's
Common Stock at December 31, 1997 ($8.00) exceeds the exercise price.
EMPLOYMENT AGREEMENTS
Mr. Beam has an employment agreement with the Company under which he is
entitled to 20 weeks of salary if he is involuntarily terminated by the Company
without cause. Mr. Santa has an employment agreement with the Company under
which he is entitled to received 26 weeks of salary if (i) he is involuntarily
terminated without cause or (ii) there is a change of control of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be made a party by
reason of his position as a director, officer or other agent of the Company, and
otherwise to the full extent permitted under Delaware law and the Company's
Bylaws.
In 1997, the Company advanced Mr. Lange $221,274 to assist him in paying
taxes on income he recognized as a result of his exercising options to purchase
shares of the Company's Common Stock in 1997. The terms of such advance are in
the process of being negotiated between the Company and Mr. Lange.
Mr. Bartlett, a director of the Company, was a partner in the law firm of
BartlettStuder from June to October 1997 and is a partner in the law firm of
Davis, Graham & Stubbs LLP, beginning November 1997. Both of these firms acted
as counsel to the Company during the fiscal year ended December 31, 1997.
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<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors,
/s/ RICHARD A. SANTA
RICHARD A. SANTA
Vice President, Finance,
Chief Financial Officer and Secretary
April 22, 1998
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 IS
AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY, DYNAMIC
MATERIALS CORPORATION, 551 ASPEN RIDGE DRIVE, LAFAYETTE, COLORADO 80026.
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<PAGE>
EXHIBIT A
DYNAMIC MATERIALS CORPORATION
1997 EQUITY INCENTIVE PLAN
ADOPTED MARCH 4, 1997
APPROVED BY STOCKHOLDERS MAY 23, 1997
AS AMENDED MARCH __, 1998
1. PURPOSES.
a. The purpose of the Plan is to provide a means by which selected
Employees and Directors and Consultants may be given an opportunity to benefit
from increases in value of the stock of the Company through the granting of (i)
Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses,
and (iv) rights to purchase restricted stock. The Plan is intended to be an
amendment of and continuation of the Company's 1992 Incentive Stock Option Plan
and 1994 Nonemployee Director Stock Option Plan.
b. The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
c. The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 or 7 hereof, including
Incentive Stock Options and Nonstatutory Stock Options or (ii) stock bonuses or
rights to purchase restricted stock granted pursuant to Section 8 hereof. All
Options shall be separately designated Incentive Stock Options or Nonstatutory
Stock Options at the time of grant and a separate certificate or certificates
will be issued for shares purchased on exercise of each type of Option.
2. DEFINITIONS.
a. "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
b. "Board" means the Board of Directors of the Company.
c. "Code" means the Internal Revenue Code of 1986, as amended.
d. "Committee" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
e. "Company" means Dynamic Materials Corporation, a Delaware corporation.
f. "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
g. "Continuous status as an employee, director or consultant" means that
the service of an individual to the Company, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Board or the chief executive
officer of the Company may determine, in that party's sole discretion, whether
Continuous Status as an Employee, Director or Consultant shall be considered
interrupted in the case of: (i) any leave of absence approved by the Board or
the chief executive officer of the Company, including sick leave, military
leave, or any other personal leave; or (ii) transfers between the Company,
Affiliates or their successors.
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<PAGE>
h. "Covered employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
i. "Director" means a member of the Board.
j. "Employee" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
k. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
l. "Fair market value" means, as of any date, the value of the common
stock of the Company determined as follows.
(i) If the common stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the
Fair Market Value of a share of common stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the
greatest volume of trading in the Company's common stock) on the last
market trading day prior to the day of determination, as reported in The
Wall Street Journal or such other source as the Board deems reliable.
(ii) In the absence of such markets for the common stock, the Fair
Market Value shall be determined in good faith by the Board.
m. "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
n. "Non-employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-
employee director" for purposes of Rule 16b-3.
o. "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
p. "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
q. "Option" means a stock option granted pursuant to the Plan.
r. "Option Agreement" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
s. "Optionee" means a person to whom an Option is granted pursuant to the
Plan or, if applicable, such other person who holds an outstanding Option.
t. "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for
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<PAGE>
services in any capacity other than as a Director, or (ii) is otherwise
considered an "outside director" for purposes of Section 162(m) of the Code.
u. "Plan" means this 1997 Equity Incentive Plan.
v. "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.
w. "Securities Act" means the Securities Act of 1933, as amended.
x. "Stock Award" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.
y. "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3. ADMINISTRATION.
a. The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
b. The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option,
a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted
stock, or a combination of the foregoing; the provisions of each Stock
Award granted (which need not be identical), including the time or times
when a person shall be permitted to receive stock pursuant to a Stock
Award; and the number of shares with respect to which a Stock Award shall
be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 13.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
c. The Board may delegate administration of the Plan to a committee of
the Board composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee may be, in the discretion of the Board, Non-
Employee Directors and/or Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Notwithstanding anything in this Section 3 to the
contrary, the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons who
(1) are not then subject to Section 16 of the Exchange Act and/or (2) are either
(i) not then Covered Employees and
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<PAGE>
are not expected to be Covered Employees at the time of recognition of income
resulting from such Stock Award, or (ii) not persons with respect to whom the
Company wishes to comply with Section 162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
a. Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate one million seventy-five thousand (1,075,000) shares
of the Company's common stock. If any Stock Award shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full,
the stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan.
b. The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
a. Incentive Stock Options may be granted only to Employees. Stock Awards
other than Incentive Stock Options may be granted only to Employees, Directors
or Consultants.
b. No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Incentive Stock Option is at
least one hundred ten percent (110%) of the Fair Market Value of such stock at
the date of grant and the Incentive Stock Option is not exercisable after the
expiration of five (5) years from the date of grant.
c. Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options covering
more than two hundred thousand (200,000) shares of the Company's common stock in
any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
a. Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
b. Price. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
c. Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment arrangement (however, in the event the Company
reincorporates in Delaware, then payment of the common stock's "par value" (as
defined in the Delaware General Corporation Law) shall not be made by deferred
payment), or other arrangement (which may include, without limiting the
generality of the foregoing, the use of other common stock of the Company) with
the person to whom the Option
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is granted or to whom the Option is transferred pursuant to subsection 6(d), or
(C) in any other form of legal consideration that may be acceptable to the
Board.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
d. Transferability. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Option is granted only
by such person. A Nonstatutory Stock Option may be transferable to the extent
provided in the Option Agreement. The person to whom the Option is granted may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the Optionee,
shall thereafter be entitled to exercise the Option.
e. Vesting. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
f. Termination of Employment or Relationship as a Director or Consultant.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise the Option (to the extent that the Optionee was entitled
to exercise it as of the date of termination) but only within such period of
time ending on the earlier of (i) the date three (3) months following the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, at the date of termination, the Optionee is not entitled to
exercise the entire Option, the shares covered by the unexercisable portion of
the Option shall revert to and again become available for issuance under the
Plan. If, after termination, the Optionee does not exercise the Option within
the time specified in the Option Agreement, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in the first paragraph of this
subsection 6(f), or (ii) the expiration of a period of three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant during which the exercise of the Option would not be in violation of
such registration requirements.
g. Disability of Optionee. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise the Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise the entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee
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does not exercise the Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
h. Death of Optionee. In the event of the death of an Optionee during,
or within a period specified in the Option Agreement after the termination of,
the Optionee's Continuous Status as an Employee, Director or Consultant, the
Option may be exercised (to the extent the Optionee was entitled to exercise the
Option as of the date of death) by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date twelve (12) months following the date of death (or such longer or shorter
period specified in the Option Agreement), or (ii) the expiration of the term of
such Option as set forth in the Option Agreement. If, at the time of death, the
Optionee was not entitled to exercise the entire Option, the shares covered by
the unexercisable portion of the Option shall revert to and again become
available for issuance under the Plan. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
i. Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
7. OPTION GRANTS FOR NON-EMPLOYEE DIRECTORS.
a. Initial Grant For Non-Employee Directors. Each person who is elected
for the first time to be a Non-Employee Director automatically shall, upon the
date of such initial election, be granted an option to purchase seven thousand
five hundred (7,500) shares of common stock of the Company on the terms and
conditions set forth herein.
b. Annual Grant. On the date of each annual meeting of the Company's
stockholders, (i) each person who is then a Non-Employee Director and
continuously has been a Non-Employee Director since the last annual meeting
automatically shall be granted an option to purchase five thousand (5,000)
shares of common stock of the Company on the terms and conditions set forth
herein and (ii) each other person who is then a Non-Employee Director
automatically shall be granted an option to purchase, on the terms and
conditions set forth herein, the number of shares of common stock of the Company
(rounded up to the nearest whole share) determined by multiplying five thousand
(5,000) shares by a fraction, the numerator of which is the number of days the
person continuously has been a Non-Employee Director as of the date of such
grant and the denominator of which is 365.
c. Term. The term of each Non-Employee Director's option commences on the
date it is granted and, unless sooner terminated as set forth herein, expires on
the date ("Expiration Date") ten (10) years from the date of grant (or such
shorter period specified in the Option Agreement). If the Non-Employee
Director's Continuous Status as an Employee, Director or Consultant terminates,
the option shall terminate on the earlier of the Expiration Date or the date
three (3) months following the date of termination of such Continuous Status. In
any and all circumstances, a Non-Employee Director's option may be exercised
following termination of his or her Continuous Status as an Employee, Director
or Consultant only as to that number of shares as to which it was exercisable on
the date of termination of such status under the provisions of subsection 7(g).
d. Price. The exercise price of each Non-Employee Director's option shall
be not less than eighty-five percent (85%) of the Fair Market Value of the stock
subject to the Option on the date such option is granted.
e. Consideration. Payment of the exercise price of each option may be
made under one of the following alternatives, as specified in the Option
Agreement:
(1) Payment of the exercise price per share in cash or by check at
the time of exercise; or
(2) Provided that at the time of the exercise the Company's common
stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of shares of common stock of the Company already owned
by the optionee, held for the period required to avoid a charge to the
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Company's reported earnings, and owned free and clear of any liens, claims,
encumbrances or security interest, which common stock shall be valued at
its fair market value on the date preceding the date of exercise; or
(3) Payment by a combination of the methods of payment specified in
paragraphs (1) and (2) above.
Notwithstanding the foregoing, a Non-Employee Director's option may be
exercised pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board which results in the receipt of cash (or check) by the
Company prior to the issuance of shares of the Company's common stock.
f. Transferability. A Non-Employee Director's option shall be
transferable only to the extent provided in the Option Agreement.
g. Vesting. A Non-Employee Director's option shall become exercisable as
described in the Option Agreement.
8. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
a. Purchase Price. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such Stock Award Agreement, but in no event shall the
purchase price be less than eighty-five percent (85%) of the stock's Fair Market
Value on the date such award is made. Notwithstanding the foregoing, the Board
or the Committee may determine that eligible participants in the Plan may be
awarded stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
b. Transferability. Rights under a stock bonus or restricted stock
purchase agreement shall be transferable only by will or the laws of descent and
distribution, so long as stock awarded under such Stock Award Agreement remains
subject to the terms of the Agreement.
c. Consideration. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment arrangement (however, in the event the Company reincorporates
in Delaware, then payment of the common stock's "par value" (as defined in the
Delaware General Corporation Law) shall not be made by deferred payment), or
other arrangement with the person to whom the stock is sold; or (iii) in any
other form of legal consideration that may be acceptable to the Board or the
Committee in its discretion. Notwithstanding the foregoing, the Board or the
Committee to which administration of the Plan has been delegated may award stock
pursuant to a stock bonus agreement in consideration for past services actually
rendered to the Company or for its benefit.
d. Vesting. Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or the Committee.
e. Termination of Employment or Relationship as a Director or Consultant.
In the event a Participant's Continuous Status as an Employee, Director or
Consultant terminates, the Company may repurchase or otherwise reacquire,
subject to the limitations described in subsection 8(d), any or all of the
shares of stock held by that person which have not vested as of the date of
termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.
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9. CANCELLATION AND RE-GRANT OF OPTIONS.
a. The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options under
the Plan and/or (ii) with the consent of the affected holders of Options, the
cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of stock, but having an exercise price per share not
less than eighty-five percent (85%) of the Fair Market Value (one hundred
percent (100%) of the Fair Market Value in the case of an Incentive Stock
Option) or, in the case of a 10% stockholder (as described in subsection 5(b))
receiving a new grant of an Incentive Stock Option, not less than one hundred
ten percent (110%) of the Fair Market Value) per share of stock on the new grant
date. Notwithstanding the foregoing, the Board or the Committee may grant an
Option with an exercise price lower than that set forth above if such Option is
granted as part of a transaction to which section 424(a) of the Code applies.
b. Shares subject to an Option canceled under this Section 9 shall
continue to be counted against the maximum award of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The repricing of an Option
under this Section 9, resulting in a reduction of the exercise price, shall be
deemed to be a cancellation of the original Option and the grant of a substitute
Option; in the event of such repricing, both the original and the substituted
Options shall be counted against the maximum awards of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The provisions of this
subsection 9(b) shall be applicable only to the extent required by Section
162(m) of the Code.
10. COVENANTS OF THE COMPANY.
a. During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
b. The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act either the Plan, any Stock Award or any stock issued or
issuable pursuant to any such Stock Award. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such Stock Awards
unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
12. MISCELLANEOUS.
a. The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
b. Neither an Employee, Director or Consultant nor any person to whom a
Stock Award may be transferred shall be deemed to be the holder of, or to have
any of the rights of a holder with respect to, any shares subject to such Stock
Award unless and until such person has satisfied all requirements for exercise
of the Stock Award pursuant to its terms.
c. Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or any
Affiliate (or to continue acting as a Director or Consultant) or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without cause the right of the Company's Board of Directors
and/or the Company's stockholders to remove any Director as provided in the
Company's Bylaws and the provisions of the applicable laws of the Company's
state of incorporation, or the right to terminate the relationship of any
Consultant subject to the terms of such Consultant's agreement with the Company
or Affiliate.
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d. To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds One Hundred Thousand Dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
e. The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award may be transferred, as a condition of
exercising or acquiring stock under any Stock Award, (1) to give written
assurances satisfactory to the Company as to such person's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters, and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award; and (2) to give written assurances
satisfactory to the Company stating that such person is acquiring the stock
subject to the Stock Award for such person's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act, or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
f. To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the common stock
of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
a. If any change is made in the stock subject to the Plan, or subject to
any Stock Award (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the type(s) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person during any calendar year pursuant to subsection 5(c), and
the outstanding Stock Awards will be appropriately adjusted in the type(s) and
number of securities and price per share of stock subject to such outstanding
Stock Awards. Such adjustments shall be made by the Board or the Committee, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company".)
b. In the event of: (1) a dissolution, liquidation or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors then: (i) any surviving corporation or
acquiring corporation shall assume any Stock Awards outstanding under the Plan
or shall substitute similar stock awards (including an award to acquire the same
consideration paid to the stockholders in the transaction described in this
subsection 13(b)) for those outstanding under the Plan, or (ii) in the event any
surviving corporation or acquiring corporation refuses to assume such Stock
Awards or to substitute similar stock awards for those outstanding under the
Plan, (A) with respect to Stock Awards held by persons then performing services
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as Employees, Directors or Consultants, the vesting of such Stock Awards (and,
if applicable, the time during which such Stock Awards may be exercised) shall
be accelerated prior to such event and the Stock Awards terminated if not
exercised (if applicable) after such acceleration and at or prior to such event,
and (B) with respect to any other Stock Awards outstanding under the Plan, such
Stock Awards shall be terminated if not exercised (if applicable) prior to such
event.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
a. The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent such approval is necessary for the Plan to satisfy the
requirements of Section 422 of the Code or any Nasdaq or securities exchange
listing requirements.
b. The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
c. It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.
d. Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
e. The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
a. The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on the day before the tenth anniversary of
the date the Plan was adopted by the Board or approved by the stockholders of
the Company, whichever is earlier. No Stock Awards may be granted under the Plan
while the Plan is suspended or after it is terminated.
b. Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the written consent of the person to whom the Stock Award was granted.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
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EXHIBIT B
DYNAMIC MATERIALS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
ADOPTED JANUARY 9, 1998
APPROVED BY THE STOCKHOLDERS ON _____________________, 19____
1. PURPOSE
a. The purpose of the Employee Stock Purchase Plan (the "Plan") is to
provide a means by which employees of Dynamic Materials Corporation, a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase stock of the Company.
b. The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
c. The Company, by means of the Plan, seeks to retain the services of its
employees, to secure and retain the services of new employees, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
d. The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION
a. The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
b. The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
c. To determine when and how rights to purchase stock of the Company
shall be granted and the provisions of each offering of such rights (which need
not be identical).
d. To designate from time to time which Affiliates of the Company shall
be eligible to participate in the Plan.
e. To construe and interpret the Plan and rights granted under it, and to
establish, amend and revoke rules and regulations for its administration. The
Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan, in a manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective.
f. To amend the Plan as provided in paragraph 13.
g. Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company
and its Affiliates and to carry out the intent that the Plan be treated as an
"employee stock purchase plan" within the meaning of Section 423 of the Code.
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h. The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN
a. Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to rights granted under
the Plan shall not exceed in the aggregate fifty thousand (50,000) shares of the
Company's common stock (the "Common Stock"). If any right granted under the Plan
shall for any reason terminate without having been exercised, the Common Stock
not purchased under such right shall again become available for the Plan.
b. The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING
a. The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 5 through 8 hereof, inclusive.
b. lf an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later granted right, if two
rights have identical exercise prices) will be exercised.
5. ELIGIBILITY
a. Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan, unless, on the Offering Date, such employee's customary employment with
the Company or such Affiliates is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
b. The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the
exercise price of such right;
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(ii) the period of the Offering with respect to such right shall
begin on its Offering Date and end coincident with the end of such
Offering; and
(iii) the Board or the Committee may provide that if such person
first becomes an eligible employee within a specified period of time before
the end of the Offering, he or she will not receive any right under that
Offering.
c. No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
d. An eligible employee may be granted rights under the Plan only if such
rights, together with any other rights granted under "employee stock purchase
plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such employee's rights to purchase stock of the Company
or any Affiliate to accrue at a rate which exceeds twenty-five thousand dollars
($25,000) of fair market value of such stock (determined at the time such rights
are granted) for each calendar year in which such rights are outstanding at any
time.
e. Officers of the Company and any designated Affiliate shall be eligible
to participate in Offerings under the Plan, provided, however, that the Board
may provide in an Offering that certain employees who are highly compensated
employees within the meaning of Section 423(b)(4)(D) of the Code shall not be
eligible to participate.
6. RIGHTS; PURCHASE PRICE
a. On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in subparagraph 7(a)) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
b. In connection with each Offering made under the Plan, the Board or the
Committee may specify a maximum number of shares that may be purchased by any
employee as well as a maximum aggregate number of shares that may be purchased
by all eligible employees pursuant to such Offering. In addition, in connection
with each Offering that contains more than one Purchase Date, the Board or the
Committee may specify a maximum aggregate number of shares which may be
purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
c. The purchase price of stock acquired pursuant to rights granted under
the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION
a. An eligible employee may become a participant in the Plan pursuant to
an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides.
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Each such agreement shall authorize payroll deductions of up to the maximum
percentage specified by the Board or the Committee of such employee's Earnings
(as defined by the Board for each Offering) during the Offering. The payroll
deductions made for each participant shall be credited to an account for such
participant under the Plan and shall be deposited with the general funds of the
Company. A participant may reduce (including to zero) or increase such payroll
deductions, and an eligible employee may begin such payroll deductions, after
the beginning of any Offering only as provided for in the Offering. A
participant may make additional payments into his or her account only if
specifically provided for in the Offering and only if the participant has not
had the maximum amount withheld during the Offering.
b. At any time during an Offering, a participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides. Such
withdrawal may be elected at any time prior to the end of the Offering except as
provided by the Board or the Committee in the Offering. Upon such withdrawal
from the Offering by a participant, the Company shall distribute to such
participant all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.
c. Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating employee's employment with the
Company and any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), under the Offering, without
interest.
d. Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such rights
are granted.
8. EXERCISE
a. On each Purchase Date specified therefor in the relevant Offering,
each participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares shall be issued upon the exercise of rights granted under the
Plan. The amount, if any, of accumulated payroll deductions remaining in each
participant's account after the purchase of shares which is less than the amount
required to purchase one share of stock on the final Purchase Date of an
Offering shall be held in each such participant's account for the purchase of
shares under the next Offering under the Plan, unless such participant withdraws
from such next Offering, as provided in subparagraph 7(b), or is no longer
eligible to be granted rights under the Plan, as provided in paragraph 5, in
which case such amount shall be distributed to the participant after such final
Purchase Date, without interest. The amount, if any, of accumulated payroll
deductions remaining in any participant's account after the purchase of shares
which is equal to the amount required to purchase whole shares of stock on the
final Purchase Date of an Offering shall be distributed in full to the
participant after such Purchase Date, without interest.
b. No rights granted under the Plan may be exercised to any extent unless
the shares to be issued upon such exercise under the Plan (including rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is
in material compliance with all applicable state, foreign and other securities
and other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
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9. COVENANTS OF THE COMPANY
a. During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
b. The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
10. USE OF PROCEEDS FROM STOCK
Proceeds from the sale of stock pursuant to rights granted under the Plan
shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's share holdings acquired upon
exercise of rights hereunder are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK
a. If any change is made in the stock subject to the Plan, or subject to
any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a transaction not involving the receipt of consideration by
the Company.")
b. In the event of: (1) a dissolution or liquidation of the Company; (2)
a merger or consolidation in which the Company is not the surviving corporation,
(3) a reverse merger in which the Company is the surviving corporation but the
shares of the Company's Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or (4) the acquisition by any person,
entity or group within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then, as determined by the Board in its
sole discretion (i) any surviving or acquiring corporation may assume
outstanding rights or substitute similar rights for those under the Plan, (ii)
such rights may continue in full force and effect, or (iii) participants'
accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants' rights under the
ongoing Offering terminated.
13. AMENDMENT OF THE PLAN
a. Board at any time, and from time to time, may amend the Plan. However,
except as provided in paragraph 12 relating to adjustments upon changes in
stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
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(i) Increase the number of shares reserved for rights under the Plan;
Modify the provisions as to eligibility for participation in the Plan (to
the extent such modification requires stockholder approval in order for the
Plan to obtain employee stock purchase plan treatment under Section 423 of
the Code or to comply with the requirements of Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended ("Rule 16b-3")); or
(ii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to employee stock purchase plans and/or to bring the
Plan and/or rights granted under it into compliance therewith.
b. Rights and obligations under any rights granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or rights granted under the Plan comply
with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY
a. A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
b. Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its sole discretion, may deliver such shares
and/or cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN
a. The Board in its discretion, may suspend or terminate the Plan at any
time. No rights may be granted under the Plan while the Plan is suspended or
after it is terminated.
b. Rights and obligations under any rights granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or rights granted under the Plan comply with the requirements of Section 423
of the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on January 1, 1998 (the "Effective Date"),
but no rights granted under the Plan shall be exercised unless and until the
Plan has been approved by the stockholders of the Company within twelve (12)
months before or after the date the Plan is adopted by the Board or the
Committee, which date may be prior to the Effective Date.
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EXHIBIT C
DYNAMIC MATERIALS CORPORATION
FORM OF INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this ______ day of ____________,
1997 by and between Dynamic Materials Corporation, a Delaware corporation (the
"Corporation"), and _______________________________________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his
capacity as __________________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as _______________
of the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
__________________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
_______________ of the Corporation or as a director, officer or other fiduciary
of an affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
a. against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitration,
administrative or investigative (including an action by or in the right of
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the Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of the
Corporation, or is or was serving or at any time serves at the request of the
Corporation as a director, officer, employee or other agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise; and
b. otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and of the
Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by the Corporation:
a. on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
b. on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
c. on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
d. for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
e. if indemnification is not lawful (and, in this respect, both the
Corporation and the Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers vested in the
Corporation under the Code, or (iv) the proceeding is initiated pursuant to
Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitration, administrative
or investigative, by reason of the fact that Agent was serving in the capacity
referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
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a. the Corporation will be entitled to participate therein at its
own expense;
b. except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded that there may be a conflict of interest
between the Corporation and Agent in the conduct of the defense of such action
or (iii) the Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of Agent's
separate counsel shall be at the expense of the Corporation. The Corporation
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of the Corporation or as to which Agent shall have made
the conclusion provided for in clause (ii) above; and
c. the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the full
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of
Directors or its stockholders) to have made a determination prior to the
commencement of such enforcement action that indemnification of Agent is proper
in the circumstances, nor an actual determination by the Corporation (including
its Board of Directors or its stockholders) that such indemnification is
improper shall be a defense to the action or create a presumption that Agent is
not entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
12. SURVIVAL OF RIGHTS.
a. The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a
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director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Agent's heirs, executors and administrators.
b. The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
17. HEADINGS. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
a. If to Agent, at the address indicated on the signature page
hereof.
b. If to the Corporation, to:
Dynamic Materials Corporation
551 Aspen Ridge Drive
Lafayette, Colorado 80026
Attention: Secretary
or to such other address as may have been furnished to Agent by the
Corporation.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
DYNAMIC MATERIALS CORPORATION
By:____________________________________________
Paul Lange
President and CEO
Agent Print Name and Address:
_______________________________________________
Name
_______________________________________________
Address
_______________________________________________
_______________________________________________
_______________________________________________
Signature
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PROXY DYNAMIC MATERIALS CORPORATION PROXY
551 ASPEN RIDGE DRIVE, LAFAYETTE, COLORADO 80026
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
FOR THE ANNUAL MEETING OF STOCKHOLDERS -- MAY 22, 1998
The undersigned hereby constitutes and appoints Paul Lange and Richard A.
Santa, and each of them, his true and lawful agents and proxies with full power
of substitution in each, to represent the undersigned at the Annual Meeting of
Stockholders of Dynamic Materials Corporation to be held at the Company's
executive offices at 551 Aspen Ridge Drive, Lafayette, Colorado, on Friday, May
22, 1998, at 9:00 a.m. local time, and at any postponements, continuations and
adjournments thereof, on all matters coming before said meeting.
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1. Election of Directors. / / FOR / / WITHHELD
Nominees: Michael C. Franson and George W. Morgenthaler
(To withhold vote for any individual nominee, write that name below)
2. Approval of the amendment and restatement of the / / FOR / / AGAINST / / ABSTAIN
1997 Equity Incentive Plan.
3. Approval of Employee Stock Purchase Plan. / / FOR / / AGAINST / / ABSTAIN
4. Ratification of Director and Officer Indemnification / / FOR / / AGAINST / / ABSTAIN
Agreements.
5. Ratification of Selection of Independent Accountants. / / FOR / / AGAINST / / ABSTAIN
6. In their discretion, upon such other matters as may properly come before the meeting.
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YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE
BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH
THE BOARD OF DIRECTORS' RECOMMENDATIONS. The persons named herein as agents and
proxies cannot vote your shares unless you sign and return this card.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned. If no direction is made, this proxy will be voted
FOR Proposals 1 through 5.
Dated __________________________, 1998
______________________________________
Signature(s)
Please mark, sign and return promptly
using the enclosed envelope.
Executors, administrators, trustees,
etc. should give a title as such. If
the signer is a corporation, please
sign full corporate name by duly
authorized officer.
