<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
ANALOG DEVICES, INC.
(Name of Registrant as Specified In Its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
ANALOG LETTERHEAD
February 6, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Stockholders to
be held at 10:00 a.m. on March 10, 1998 at the Hilton Hotel at Dedham Place,
Dedham, Massachusetts.
As shown in the stock performance chart included in the Proxy Statement,
Analog Devices' stock price has outperformed both the S&P 500 and the S&P
Technology Sector over the last five years. At Analog, we are proud of this
performance. During this five-year period, we transformed Analog from a company
with a significant portion of its business derived from high performance
military signal processing applications into a company which is now serving the
high performance signal processing needs for many of the world's fastest growing
industrial, communications and computer companies. I encourage you to read the
enclosed Annual Report to Stockholders to learn more about how we have
positioned Analog Devices for the future.
An important item at the Annual Meeting, recommended unanimously for
approval by the Board of Directors, is the proposed 1998 Stock Option Plan. Like
our competitors, Analog Devices has long utilized employee stock options as an
important means of attracting and retaining talented employees. Stock options
have become particularly important in recent years as competition for scarce
talent has become intense. Our employees are the most critical resource required
for growth in the rapidly changing technological environment in which we
compete.
Analog Devices has always believed that its employee stock options should
have a long-term focus to more closely align our employees' long-term interests
to those of the Company's shareholders. Therefore, the vesting of its employee
stock options has historically been deferred until three years after the grant
date. They then become exercisable in installments of one third each year, in
the third, fourth and fifth years after the grant date. It is the intention of
the Company to continue this practice under the new plan. This vesting
requirement has resulted in a large number of outstanding options at any point
in time. Currently only 22% of outstanding options are exercisable and almost
one half are not exercisable until the year 2000 or later.
We also believe that stock options should be granted to a broad group of
employees who are critical to the long-term success of the Company. For example,
the options granted in December 1997 were distributed among approximately 1,600
employees, of which only 14% were granted to corporate officers.
The December 1997 stock option grants for fiscal year 1998 equalled
approximately 3.5% of the outstanding shares. A survey of various other
companies indicated that while this is competitive with some companies, it is
significantly less than the percentages being granted by many of our
competitors. Although we continually review our practice relative to
competitors, we presently believe the 15 million shares being requested for
shareholder approval at the Annual Meeting should provide sufficient shares for
option grants for approximately the next three years.
Your support of the Board of Directors' recommendations is important to the
Company's ability to attract and retain a talented and motivated workforce.
Please review the enclosed proxy materials and take the time to cast your vote.
Sincerely yours,
<TABLE>
<S> <C>
/s/ Ray Stata /s/ Jerald G. Fishman
Ray Stata Jerald G. Fishman
Chairman of the Board President and Chief Executive Officer
</TABLE>
<PAGE> 3
ANALOG DEVICES, INC.
ONE TECHNOLOGY WAY
NORWOOD, MASSACHUSETTS 02062-9106
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 10, 1998
To the Stockholders:
The 1998 Annual Meeting of Stockholders of Analog Devices, Inc. (the
"Company") will be held at the Hilton at Dedham Place, 25 Allied Drive, Dedham,
Massachusetts 02026, on Tuesday, March 10, 1998 at 10:00 a.m. (Local Time) to
consider and act upon the following matters:
1. To elect two members to the Board of Directors to serve as Class II
Directors for a term of three years.
2. To approve the Company's 1998 Stock Option Plan.
3. To approve amendments to the Company's 1994 Director Option Plan.
4. To ratify the selection by the Board of Directors of Ernst & Young
LLP as the Company's independent auditors for the fiscal year ending
October 31, 1998.
5. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Stockholders of record at the close of business on January 23, 1998 will be
entitled to notice of and to vote at the meeting. The stock transfer books of
the Company will remain open for the purchase and sale of the Company's Common
Stock.
All stockholders are cordially invited to attend the meeting.
By order of the Board of Directors,
PAUL P. BROUNTAS, Clerk
Norwood, Massachusetts
February 6, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND PROMPTLY MAIL IT IN THE ENCLOSED ENVELOPE IN
ORDER TO ASSURE REPRESENTATION OF YOUR SHARES AT THE MEETING. NO POSTAGE NEED BE
AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
<PAGE> 4
ANALOG DEVICES, INC.
ONE TECHNOLOGY WAY
NORWOOD, MASSACHUSETTS 02062-9106
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
MARCH 10, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Analog Devices, Inc. (the "Company") for
use at the 1998 Annual Meeting of Stockholders to be held on March 10, 1998 and
at any adjournment of that meeting (the "Meeting"). All proxies will be voted in
accordance with the instructions contained therein, and if no choice is
specified, the proxies will be voted in favor of the proposals set forth in the
Notice of Meeting. Any proxy may be revoked by a stockholder at any time before
it is exercised by giving written notice to that effect to the Clerk of the
Company.
On January 23, 1998, the record date for the determination of stockholders
entitled to notice of and to vote at the Meeting, there were outstanding and
entitled to vote an aggregate of 162,276,676 shares of Common Stock of the
Company, $.16 2/3 par value per share ("Common Stock"). Stockholders are
entitled to one vote per share.
The Company's Annual Report for the fiscal year ended November 1, 1997 is
being mailed to stockholders concurrently with this Notice and Proxy Statement
on or about February 6, 1998.
VOTING SECURITIES AND VOTES REQUIRED
A majority of the issued and outstanding shares of Common Stock entitled to
vote constitutes a quorum at the Meeting. Shares of Common Stock represented by
executed proxies received by the Company will be counted for purposes of
establishing a quorum at the Meeting, regardless of how or whether such shares
are voted on any specific proposal. The affirmative vote of the holders of a
plurality of the votes cast at the Meeting is required for the election of
directors. The affirmative vote of the holders of a majority of the shares of
Common Stock present or represented and voting at the Meeting is required for
the approval of other matters to be voted at the Meeting.
Both abstentions and broker non-votes are counted as present for the
purpose of determining the existence of a quorum for the transaction of
business. However, for purposes of determining the number of shares voting on a
particular proposal, abstentions and broker non-votes are not counted as votes
cast or shares voting.
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as otherwise indicated, the table set forth below provides
information, as of December 31, 1997, regarding the ownership of the Company's
Common Stock by (i) each director and nominee for director; (ii) each executive
officer named in the Summary Compensation Table; and (iii) all directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE
COMMON OF
STOCK COMMON
BENEFICIALLY STOCK
BENEFICIAL OWNER(1) OWNED(2) OUTSTANDING(3)
--------------------------------------------------------- ------------- --------------
<S> <C> <C>
Directors, Nominees for Director and Executive Officers:
John L. Doyle....................................... 62,399(4) *
Jerald G. Fishman................................... 65,964(5) *
Samuel H. Fuller.................................... 31,000(6) *
Charles O. Holliday, Jr. ........................... 220 *
Gordon C. McKeague.................................. 71,000(6) *
Joel Moses.......................................... 34,748(7) *
F. Grant Saviers.................................... -- *
Ray Stata........................................... 2,852,957(8) 1.8%
Lester C. Thurow.................................... 76,180(9) *
David D. French..................................... 160,276(10) *
Brian P. McAloon.................................... 136,404(11) *
Joseph E. McDonough................................. 122,248(12) *
All directors and officers as a group (19 persons)....... 4,281,127(13) 2.6%
</TABLE>
- ---------------
* Percentage is less than 1% of the total number of outstanding shares of
Common Stock of the Company.
(1) The Company is not aware of any stockholder who owned more than 5% of the
shares of the outstanding shares of Common Stock as of December 31, 1997.
(2) The number of shares of Common Stock beneficially owned by each person is
determined under rules promulgated by the Securities and Exchange
Commission (the "Commission"). Under such rules, beneficial ownership
includes any shares as to which the person has sole or shared voting power
or investment power, and also includes any shares which the person has the
right to acquire within 60 days after December 31, 1997. Unless otherwise
indicated, each person referred to above has sole voting and investment
power with respect to the shares listed. The inclusion herein of any shares
deemed beneficially owned does not constitute an admission of beneficial
ownership of such shares.
(3) Number of shares deemed outstanding with respect to any particular
stockholder includes 162,201,029 shares outstanding as of December 31,
1997, plus any shares subject to options held by the person or persons in
question that are exercisable within 60 days after December 31, 1997.
(4) Includes options for the purchase of 60,000 shares of Common Stock which
are exercisable within 60 days after December 31, 1997.
(5) Includes options for the purchase of 53,180 shares of Common Stock which
are exercisable within 60 days after December 31, 1997.
(6) Includes options for the purchase of 31,000 shares of Common Stock which
are exercisable within 60 days after December 31, 1997.
(7) Excludes 269 shares of Common Stock held by Mr. Moses' wife, as to which
Mr. Moses disclaims beneficial ownership. Includes options for the purchase
of 31,000 shares of Common Stock held by Mr. Moses which are exercisable
within 60 days after December 31, 1997.
(8) Excludes 603,354 shares of Common Stock held by Mr. Stata's wife, as to
which Mr. Stata disclaims beneficial ownership. Includes 2,203,059 shares
of Common Stock held in charitable lead trusts. Also
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<PAGE> 6
includes options for the purchase of 160,000 shares of Common Stock held by
Mr. Stata which are exercisable within 60 days after December 31, 1997.
(9) Includes options for the purchase of 56,000 shares of Common Stock which
are exercisable within 60 days after December 31, 1997.
(10) Includes options for the purchase of 80,000 shares of Common Stock which
are exercisable within 60 days after December 31, 1997.
(11) Includes options for the purchase of 56,002 shares of Common Stock which
are exercisable within 60 days after December 31, 1997.
(12) Includes options for the purchase of 40,000 shares of Common Stock which
are exercisable within 60 days after December 31, 1997.
(13) Includes options for the purchase of 861,282 shares of Common Stock held by
eleven officers and five outside directors which are exercisable within 60
days after December 31, 1997.
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes, two of
which consist of three directors each (Class I and Class III) and one of which
consists of two directors (Class II). One class of directors is elected each
year to serve for a three-year term. Class III Directors were elected at the
1996 Annual Meeting of Stockholders; Class I Directors were elected at the 1997
Annual Meeting of Stockholders; and Class II Directors will be elected at the
Meeting. Members of each class will hold office until their successors have been
duly elected and qualified.
The nominees for Class II Directors, Messrs. Fishman and Saviers, are
presently serving as directors of the Company. Mr. Fishman has been a director
of the Company since 1991, and Mr. Saviers has been a director since December
1997. Gordon C. McKeague, who has served as a director since 1977, will retire
from the Board at the Meeting and no director is being nominated at this time to
take his place as a Class II Director; however, a third Class II Director may be
appointed in the future by action of the Board of Directors. The persons named
in the enclosed proxy will vote for the election of each of the nominees for
Class II Directors unless the proxy is marked otherwise or unless one or more
nominees are unable or unwilling to serve. Each of the nominees has indicated
his willingness to serve, if elected. However, if any nominee should be unable
or unwilling to serve, the proxies may be voted for a substitute nominee
designated by the Board of Directors or the Board of Directors may reduce the
number of directors.
The following table sets forth the name, age, length of service as a
director of each member of the Board of Directors, including the nominees for
Class II Directors, information given by each concerning all positions he holds
with the Company, his principal occupation and business experience for the past
five years and the names of other publicly held companies of which he serves as
a director. Information with respect to the number of shares of Common Stock
beneficially owned by each director, directly or indirectly, as of December 31,
1997, appears under the heading "Security Ownership of Certain Beneficial Owners
and Management."
NOMINEES FOR CLASS II DIRECTORS
(TERMS WILL EXPIRE AT THE 2001 ANNUAL MEETING)
JERALD G. FISHMAN, age 52, has been a director of the Company since 1991.
Mr. Fishman has been the President and Chief Executive Officer of the Company
since November 1996 and he served as President and Chief Operating Officer of
the Company from November 1991 to November 1996. Mr. Fishman served as Executive
Vice President of the Company from 1988 to November 1991. He served as the Group
Vice President-Components of the Company from 1982 to 1988. Mr. Fishman also
serves as a director of Aware, Inc., Kollmorgen Corporation and Cognex
Corporation.
F. GRANT SAVIERS, age 53, has been a director of the Company since December
1997. Mr. Saviers has been Chairman of Adaptec, Inc. ("Adaptec") since August
1997 and President and Chief Executive
3
<PAGE> 7
Officer of Adaptec since July 1995. He was President and Chief Operating Officer
of Adaptec from August 1992 to July 1995. Prior to joining Adaptec, Mr. Saviers
was employed with Digital Equipment Corporation for more than five years, last
serving as Vice President of its Personal Computer and Peripherals Operation.
Mr. Saviers also serves as a director of Ridge Technologies, Inc.
CLASS III DIRECTORS
(TERMS EXPIRE AT THE 1999 ANNUAL MEETING)
JOHN L. DOYLE, age 66, has been a director of the Company since 1987. Mr.
Doyle is retired. He was employed formerly by the Hewlett-Packard Company where
he served as the Executive Vice President of Business Development from 1988
through 1991; Executive Vice President, Systems Technology Sector from 1986 to
1988; Executive Vice President, Information Systems and Networks from 1984 to
1986; and Vice President, Research and Development, from 1981 to 1984. Mr. Doyle
was Co-Chief Executive Officer of Hexcel Corp. from July 1993 to December 1993.
Mr. Doyle also serves as a director of DuPont Photomasks, Inc. and Xilinx, Inc.
SAMUEL H. FULLER, age 51, has been a director of the Company since 1994.
Mr. Fuller has served as the Chief Scientist and Vice President of Technical
Strategy of Digital Equipment Corporation since January 1996. He was Vice
President of Research of Digital Equipment Corporation since 1983. Mr. Fuller is
a member of the National Academy of Engineering and an IEEE Fellow. Mr. Fuller
also serves as a director of INSO Corporation.
RAY STATA, age 63, has been a director of the Company since 1965. He has
served as the Chairman of the Board of Directors since 1973, as Chief Executive
Officer from 1973 to November 1996 and as the President of the Company from 1971
to November 1991. Mr. Stata has also served as Acting General Manager,
Micromachined Products Division, since September 1996. Mr. Stata also serves as
a director of INSO Corporation, and Open Market, Inc.
CLASS I DIRECTORS
(TERMS EXPIRE AT THE 2000 ANNUAL MEETING)
JOEL MOSES, age 56, has been a director of the Company since 1982. Mr.
Moses has been Provost of the Massachusetts Institute of Technology since June
1995. Mr. Moses was the Dean of the School of Engineering at the Massachusetts
Institute of Technology from January 1991 to June 1995. He has been the D.C.
Jackson Professor of Computer Science and Engineering at the Massachusetts
Institute of Technology since September 1989 and was a Visiting Professor of
Business Administration at Harvard University from September 1989 to June 1990.
Mr. Moses was the Head of the Department of Electrical Engineering and Computer
Science at the Massachusetts Institute of Technology from 1981 to 1989. Mr.
Moses also serves as a director of Coltec Industries, Inc.
LESTER C. THUROW, age 59, has been a director of the Company since 1988. He
is a Professor of Management and Economics at the Massachusetts Institute of
Technology and, from 1987 to 1993, was the Dean of the Sloan School of
Management at the Massachusetts Institute of Technology. Mr. Thurow also serves
as a director of Grupo Casa Autrey S.A. de CV.
CHARLES O. HOLLIDAY, JR., age 49, has been President of E. I. duPont de
Nemours and Company ("DuPont") since October 1997 and member of the Office of
Chief Executive of DuPont since October 1995. Mr. Holliday served as Chairman of
DuPont Asia Pacific from July 1995 until November 1997, and as President of
DuPont Asia Pacific from November 1990 to October 1995. He was Senior Vice
President of DuPont from November 1992 to October 1995. From 1970 through
November 1990, Mr. Holliday served in a number of positions with DuPont,
including Vice President of DuPont Asia Pacific and global business manager of
certain product lines. Mr. Holliday also serves as a director of DuPont
Photomasks, Inc. and Pioneer Hi-Bred International, Inc.
4
<PAGE> 8
BOARD AND COMMITTEE MEETINGS
The Company has a standing Audit Committee which held five meetings during
the fiscal year ended November 1, 1997. The members of the Audit Committee
during the fiscal year ended November 1, 1997 were Messrs. Doyle, Holliday,
McKeague and Moses. The principal functions of the Audit Committee are to make
recommendations to the Board of Directors regarding the selection, retention and
termination, if necessary, of the Company's independent auditors. The Audit
Committee also reviews the general scope of the Company's accounting and
reporting policies, annual audits and internal control programs, matters
relating to internal control systems and fees charged by the independent
auditors.
The Company has a standing Compensation Committee, which held three
meetings during the fiscal year ended November 1, 1997. The members of the
Compensation Committee during the fiscal year ended November 1, 1997 were
Messrs. McKeague, Thurow and Fuller. The principal functions of the Compensation
Committee are to make recommendations to the Board of Directors as to
compensation arrangements, including the granting of stock options and
restricted stock awards to officers of the Company.
The Company has a standing Nominating Committee, which held two meetings
during the fiscal year ended November 1, 1997. The members of the Nominating
Committee during the fiscal year ended November 1, 1997 were Messrs. Doyle,
Fuller and Stata. The principal functions of the Nominating Committee are to
nominate persons to serve as members of the Company's Board of Directors, to
recommend directors to serve on the various Board Committees and to recommend a
successor to the chief executive officer whenever a vacancy occurs for any
reason. The Nominating Committee will consider for nomination to the Board of
Directors candidates suggested by the stockholders, provided that such
recommendations are delivered to the Company, with an appropriate biographical
summary, no later than the deadline for submission of stockholder proposals. See
"Deadline for Submission of Stockholders Proposals for the 1999 Annual Meeting."
During the fiscal year ended November 1, 1997, the Board of Directors of
the Company held seven meetings. All directors, during the time which they
served as directors, attended at least 75% of the total number of meetings of
the Board of Directors and of all committees of the Board on which they
respectively served.
DIRECTORS' COMPENSATION
Each Director who is not an employee of the Company is paid an annual fee
of $20,000, up to $2,500 for attendance at each meeting of the Board and $1,000
for each committee meeting, plus expenses.
Directors who are not employees of the Company ("Non-Employee Directors")
are entitled to participate in the Company's 1994 Director Option Plan ("1994
Director Plan"). Each Non-Employee Director who was a member of the Board of
Directors on December 7, 1994 received an option on that date to purchase 10,500
shares of Common Stock and is entitled to receive an annual option grant of
10,500 shares for each of the three succeeding anniversaries of the initial
grant date. Each Non-Employee Director who was first elected to the Board after
December 7, 1994 received an initial option on the date of his election to
purchase 10,500 shares of Common Stock and is entitled to receive an annual
option grant of 10,500 shares on each of the three succeeding anniversaries of
the date he was first elected. Each option granted under the 1994 Director Plan
has an exercise price equal to the fair market value of the Company's Common
Stock on the date of grant and becomes exercisable, subject to the optionee's
continued service as a director of the Company, on a cumulative basis in three
equal annual installments on the succeeding three anniversaries of the date of
grant. On March 11, 1997, Mr. Holliday was granted an option for the purchase of
10,500 shares of Common Stock at an exercise price of $22.50 per share. On
December 7, 1997, Messrs. Doyle, Fuller, McKeague, Moses and Thurow were each
granted an option for the purchase of 10,500 shares of Common Stock, at an
exercise price of $29.94 per share. On December 10, 1997, Mr. Saviers was
granted an option for the purchase of 10,500 shares of Common Stock at an
exercise price of $27.19. As of December 31, 1997, options for the purchase of a
total of 241,500 shares of Common Stock had been granted under the 1994 Director
Plan.
5
<PAGE> 9
For information relating to amendments to the 1994 Director Option Plan to
be voted upon at the Meeting, see "APPROVAL OF AMENDMENTS TO 1994 DIRECTOR
OPTION PLAN."
TRANSACTIONS WITH DIRECTORS
The Company purchases certain products from DuPont. Mr. Holliday is
President of DuPont. During fiscal 1997, the Company purchased an aggregate of
approximately $320,000 of products from DuPont and its affiliates.
The Company sells certain products to Acacia Networks, Inc. ("Acacia"). Mr.
Stata is Chairman of the Board of Directors of Acacia. In addition, he
beneficially owns approximately 42.9% of Acacia's outstanding shares. During
fiscal 1997, the Company sold an aggregate of approximately $397,000 of products
to Acacia.
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth certain information concerning the
compensation for each of the last three fiscal years of the Company's Chief
Executive Officer and the Company's four other most highly compensated executive
officers who were serving as executive officers on November 1, 1997
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS
--------------------------------------------- ----------------------
OTHER RESTRICTED
ANNUAL STOCK OPTIONS/ ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS SARS COMPENSATION
PRINCIPAL POSITIONS YEAR ($)(1) ($)(1) ($)(2) ($)(3) (#)(4) ($)(5)
- ------------------------------- ---- ------- ------- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jerald G. Fishman 1997 660,253 494,684 129,314 -- 270,000(6) 90,208
President and Chief 1996 621,596 710,453 52,845 -- 300,000(6) 90,913
Executive Officer 1995 610,569 549,110 -- -- 270,000(6) 1,161
Ray Stata 1997 507,958 349,091 -- -- 100,000 69,546
Chairman of the Board(7) 1996 595,350 680,419 -- -- 200,000 87,618
1995 630,611 566,830 -- -- 270,000 10,500
Brian P. McAloon 1997 323,622 149,147 28,250 345,000 27,000 38,133
Vice President, Sales 1996 310,475 236,569 11,997 325,000 40,000 37,813
1995 297,922 185,160 -- -- 105,000 10,500
Joseph E. McDonough 1997 302,509 139,477 27,099 345,000 27,000 34,166
Vice President, Finance 1996 283,541 216,051 9,872 325,000 40,000 34,159
and Chief Financial Officer 1995 261,172 163,193 -- -- 90,000 10,500
David D. French 1997 245,031 112,976 2,813 345,000 27,000 26,914
Vice President and 1996 232,017 154,688 511 325,000 30,000 26,590
General Manager, Computer
Products Division(8)
</TABLE>
- ---------------
(1) Amounts shown represent compensation earned by the Named Executive Officers
in the fiscal years presented, including amounts contributed at the election
of these officers to the Company's defined and deferred contribution plans.
(2) Amounts shown as "Other Annual Compensation" represent amounts earned by the
Named Executive Officers at "above market" rates on deferred compensation
for each fiscal year.
(3) The value of restricted stock awards was determined by multiplying the fair
market value of the Company's Common Stock on the date of grant by the
number of shares awarded. As of the end of fiscal 1997, the number and value
of aggregate restricted stock holdings were as follows: 65,000 shares
($1,986,400) by Mr. McAloon, 65,000 shares ($1,986,400) by Mr. McDonough and
65,000 shares ($1,986,400) by Mr. French.
(4) Each option has an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant and becomes exercisable, subject
to the optionee's continued service as an employee of the
6
<PAGE> 10
Company, in three equal installments, on a cumulative basis on the third,
fourth and fifth anniversaries of the date of grant (except as set forth in
note (6) below).
(5) Amounts shown as "All Other Compensation" are amounts contributed or accrued
by the Company for each fiscal year for the Named Executive Officers under
the Company's retirement arrangements.
(6) Option is not exercisable until the fifth anniversary of the date of grant.
(7) Mr. Stata has also served as Acting General Manager, Micromachined Products
Division, since September 1996.
(8) Mr. French was elected an executive officer of the Company effective March
12, 1996. Amounts reflected in the table includes compensation paid to Mr.
French in all capacities during fiscal 1996.
OPTION GRANT TABLE
The following table sets forth certain information regarding options
granted during the fiscal year ended November 1, 1997 by the Company to the
Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------
PERCENT
OF POTENTIAL REALIZABLE
TOTAL VALUE AT
NUMBER OF OPTIONS/ ASSUMED ANNUAL
SECURITIES SARS RATES OF STOCK
UNDERLYING GRANTED PRICE APPRECIATION
OPTIONS/ TO EXERCISE FOR OPTION
SARS EMPLOYEES OR BASE TERM(4)
GRANTED IN FISCAL PRICE EXPIRATION -----------------------
NAME (#)(1) YEAR(2) ($/SH)(3) DATE 5%($) 10%($)
- ------------------------ --------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jerald G. Fishman....... 270,000 6.7% 23.00 2/20/07 3,905,436 9,897,141
Ray Stata............... 100,000 2.5% 23.00 2/20/07 1,446,458 3,665,608
Brian P. McAloon........ 27,000 0.7% 23.00 2/20/07 390,544 989,714
Joseph E. McDonough..... 27,000 0.7% 23.00 2/20/07 390,544 989,714
David D. French......... 27,000 0.7% 23.00 2/20/07 390,544 989,714
</TABLE>
- ---------------
(1) Represents options granted pursuant to the Company's 1988 Stock Option Plan.
The option granted to Mr. Fishman first becomes exercisable in its entirety
on the fifth anniversary of the date of grant. Options granted to Messrs.
Stata, McAloon, McDonough and French become exercisable on a cumulative
basis with respect to one-third of the shares subject to the option on each
of the third, fourth and fifth anniversaries of the date of grant.
(2) Calculated based on an aggregate of 4,007,704 options granted under the
Company's 1988 Stock Option Plan to employees during fiscal 1997.
(3) The exercise price is equal to the fair market value of the Company's Common
Stock on the date of grant.
(4) Potential realizable value is based on an assumption that the market price
of the stock will appreciate at the stated rate, compounded annually, from
the date of grant until the end of the 10-year term. These values are
calculated based on rules promulgated by the Commission and do not reflect
the Company's estimate or projection of future stock prices. Actual gains,
if any, on stock option exercises will be dependent upon the future
performance of the price of the Company's Common Stock.
On December 16, 1997, Messrs. Fishman, Stata, McAloon, McDonough and French
were granted options to purchase 300,000, 100,000, 35,000, 35,000 and 35,000
shares of Common Stock of the Company, respectively, at an exercise price of
$24.06, the fair market value per share on the date of grant. The option granted
to Mr. Fishman first becomes exercisable in its entirety on the fifth
anniversary of the date of grant, except that it becomes exercisable in
accordance with the Company's normal vesting schedule after three years in the
event that the Company terminates Mr. Fishman's employment for any reason other
than for cause after the third anniversary but prior to the fifth anniversary of
the grant date. In addition, options previously granted to Mr. Fishman in 1993
provide that if his employment is terminated without cause prior to
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<PAGE> 11
the fifth anniversary of the grant date, all of such options shall become
immediately exercisable in full. The options granted to Messrs. Stata, McAloon,
McDonough and French become exercisable on a cumulative basis with respect to
one-third of the shares subject to the option on each of the third, fourth and
fifth anniversaries of the date of grant. In addition, Messrs. McAloon,
McDonough and French were granted restricted stock awards of 12,500 shares each.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth certain information concerning the exercise
of stock options during the fiscal year ended November 1, 1997 by each of the
Named Executive Officers and the number and value of unexercised options held by
each of the Named Executive Officers on November 1, 1997:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
SHARES AT FISCAL AT FISCAL YEAR-END
ACQUIRED YEAR-END ($)(2)
ON VALUE ----------------- --------------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)(1) UNEXERCISABLE UNEXERCISABLE
- ------------------------------ -------- --------- ----------------- --------------------
<S> <C> <C> <C> <C>
Jerald G. Fishman............. 260,838 6,545,285 53,180/1,080,000 1,450,219/17,462,700
Ray Stata..................... 200,000 4,632,028 100,000/ 810,000 2,727,000/14,746,500
Brian P. McAloon.............. 29,000 627,982 6,002/ 202,000 163,675/ 3,614,670
Joseph E. McDonough........... 35,000 838,600 -- / 177,000 -- / 3,074,820
David D. French............... -- -- 40,000/ 167,000 1,053,300/ 2,931,720
</TABLE>
- ---------------
(1) Value represents the difference between the closing price of the Common
Stock on the date of exercise and the exercise price, multiplied by the
number of shares acquired on exercise.
(2) Value of unexercised in-the-money options represents the difference between
the closing price of the Company's Common Stock on the last business day of
fiscal 1997 and the exercise price of the option, multiplied by the number
of shares subject to the option.
SEVERANCE AND OTHER AGREEMENTS
The Company has Employee Retention Agreements (the "Agreements") with each
of its 12 current executive officers and with 22 additional key managers. The
Retention Agreements are automatically extended on an annual basis unless the
Company provides at least three months' notice that an agreement will not be
extended. The Retention Agreements provide for severance benefits if either (i)
the employment of the employee is terminated by the Company (other than for
cause or by reason of his death or disability) or by the employee for Good
Reason (as defined in the Retention Agreements) within 24 months after a Change
in Control (as defined in the Retention Agreements) which is approved by the
Board of Directors; or (ii) the employment of the employee terminates or is
terminated for any reason (other than for cause or by reason of his death or
disability) within 12 months after a Change in Control which is not approved by
the Board of Directors. Each Retention Agreement provides that, in the event of
a Potential Change in Control (as defined in the Retention Agreements), the
employee shall not voluntarily resign as an employee, subject to certain
conditions, for at least six months after the occurrence of such Potential
Change in Control.
The Retention Agreements provide for the following severance benefits: (i)
a lump-sum payment equal to 200% of the sum of the employee's annual base salary
plus the aggregate cash bonuses paid or awarded to him in respect of the four
fiscal quarters preceding his termination (299% in the case of 11 of the 34
employees who are parties to such agreements, including Messrs. Stata, Fishman,
McAloon, McDonough and French); and (ii) the continuation of life, disability,
dental, accident and group health insurance benefits for a period of 24 months.
In addition, to the extent that payments to the employee pursuant to his
Retention
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<PAGE> 12
Agreement (together with any other payments or benefits, such as the accelerated
vesting of stock options or restricted stock awards, received by the employee in
connection with a Change in Control) would result in the triggering of the
provisions of Sections 280G and 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), the Retention Agreement provides for the payment of an
additional amount such that the employee receives, net of excise taxes, the
amount he would have been entitled to receive in the absence of the excise tax
provided in Section 4999 of the Code.
The Company's Employee Change in Control Severance Policy and Senior
Management Change in Control Severance Policy provide each employee of the
Company (other than those who are party to Retention Agreements) with a lump-sum
severance payment, based on length of service with the Company, in the event of
the termination of his or her employment under certain circumstances within 18
months after a Change in Control (as defined in such policies). Such severance
payments range from a minimum of two weeks of annual base salary (for an hourly
employee with less than five years of service) to a maximum of 104 weeks of base
salary plus an amount equal to the aggregate cash bonuses paid or awarded to the
employee in respect of the four fiscal quarters preceding termination (for a
senior management employee with at least 21 years of service).
In addition to the foregoing agreements and policies, the Company's 1988
Stock Option Plan and 1991 Restricted Stock Plan provide for immediate vesting
of all outstanding awards upon any Change in Control (as defined in such plans)
of the Company. For information relating to accelerated vesting of stock options
to be granted under the 1998 Stock Option Plan, see "APPROVAL OF 1998 STOCK
OPTION PLAN."
REPORT OF THE COMPENSATION COMMITTEE
The Company's executive compensation program is designed to attract, retain
and reward executives who are responsible for leading the Company in achieving
its business objectives. The Compensation Committee makes decisions each year
regarding executive compensation, including annual base salaries, bonus awards
and stock option grants and restricted stock awards. All executive officers are
reviewed by the full Board of Directors. This report is submitted by the
Compensation Committee and addresses the compensation policies for fiscal 1997
as they affected each of the executive officers.
Compensation Philosophy
The Company's executive compensation philosophy is based on the belief that
competitive compensation is essential to attract, motivate and retain highly
qualified and industrious employees. The Company's policy is to provide total
compensation that is competitive for comparable work and comparable corporate
performance. The compensation program includes both motivational and
retention-related compensation components. Bonuses are included to encourage
effective performance relative to current plans and objectives. Stock options
are included to promote longer-term focus, to help retain key contributors and
to more closely align their interests with those of stockholders.
In executing its compensation policy, the Company seeks to relate
compensation with the Company's financial performance and business objectives,
reward high levels of individual performance and tie a significant portion of
total executive compensation to both the annual and long-term performance of the
Company. While compensation survey data are useful guides for comparative
purposes, the Company believes that a successful compensation program also
requires the application of judgment and subjective determinations of individual
performance, and to that extent, the Compensation Committee applies judgment in
reconciling the program's objectives with the realities of retaining valued
employees.
Executive Compensation Program
Annual compensation for the Company's executives consists of three
principal elements -- base salary, cash bonus and equity in the form of stock
options and restricted stock awards.
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<PAGE> 13
- - CASH COMPENSATION
Annual cash compensation consists of two elements -- base salary and bonus.
In setting the annual cash compensation for Company executives, the Compensation
Committee reviews compensation for comparable positions in a group of
approximately 20 companies selected by the Committee for comparison purposes.
Most of these companies are engaged in the manufacture and sale of semiconductor
devices, instruments and computer software. The Company also regularly compares
its pay practices with other leading companies through reviews of survey and
proxy data.
Increases in annual base salary are based on a review and evaluation of the
performance of the operation or activity for which the executive has
responsibility, the impact of that operation or activity on the Company and the
skills and experience required for the job, coupled with a comparison of these
elements with similar elements for other executives both within and outside the
Company.
The cash bonus is tied directly to the attainment of financial performance
targets approved by the Board of Directors. The ratio of bonus ("variable" pay)
to base salary ("fixed" pay) varies significantly across the levels in the
organization to reflect the ability of the individual to impact the performance
of the Company and to absorb the risk of variable pay. The cash bonus is
dependent solely on corporate performance.
All of the Company's employees, including its executive officers,
participated in the Company's bonus plan (the "Bonus Plan") in fiscal 1997,
except those employees on commission plans or in some non-U.S. locations. The
purpose of the Bonus Plan is to recognize and reward the contribution of all
employees in achieving the Company's goals and objectives. In fiscal 1997 the
Bonus Plan provided for the payment of a semi-annual cash bonus based on the
average of the Company's revenue growth over the same period in the prior year
and the Company's Operating Profit Before Taxes ("OPBT") as a percentage of
sales. Each employee, including executives, is assigned a Bonus Target,
calculated as a percentage of such employee's base salary, determined by
comparing competitive data by position. Depending on revenue growth and OPBT
levels achieved, the cash bonus is paid as a multiple of the Bonus Target,
ranging from zero to a maximum of 2.5.
- - EQUITY OWNERSHIP
Total compensation at the executive level also includes long-term
incentives afforded by stock options and restricted stock awards. The purpose of
the Company's stock ownership program is to (i) reinforce the mutuality of
long-term interests between employees and the stockholders; and (ii) to assist
in the attraction and retention of critically important key executives, managers
and individual contributors, mostly engineers, who are essential to the
Company's success.
The design of the Company's stock programs includes longer vesting periods
to optimize the retention value of these options and to orient the Company's
managers to longer-term success. Generally, stock options vest in three equal
installments on a cumulative basis on the third, fourth and fifth anniversaries
of the date of grant. Restricted stock awards vest 100% after five years.
Generally, if employees leave the Company before these vesting periods, they
forfeit the unvested portions of these awards. While the Company believes that
these longer vesting periods are in the best interest of stockholders, they tend
to increase the number of options outstanding compared to companies with shorter
vesting schedules.
The size of stock option awards is generally intended to reflect the
significance of the executive's current and anticipated contributions to the
Company. The exercise price of options granted by the Company is set at 100% of
the fair market value per share on the date of grant. Prior to determining the
fiscal 1997 option grants to the Company's executives (as described below), the
Compensation Committee reviewed survey information of the stock option programs
of competitors and other companies with comparable capitalizations. The value
realizable from exercisable options is dependent upon the extent to which the
Company's performance is reflected in the price of the Company's Common Stock at
any particular point in time. However, the decision as to whether such value
will be realized through the exercise of an option in any particular year is
primarily determined by each individual within the limits of the vesting
schedule, and not by the Compensation Committee.
10
<PAGE> 14
The Company's 1991 Restricted Stock Plan provides for the award of
restricted stock for a nominal, if any, purchase price. Shares awarded under the
plan are subject, for a period of five years (the "Restricted Period"), to
certain restrictions upon transfer and provisions relating to forfeiture in the
event of termination of employment. If the employment of a recipient of an award
is terminated prior to the end of the Restricted Period for any reason other
than death or disability, all shares of Common Stock covered by the award shall
be offered promptly for resale by the recipient to the Company at the original
purchase price per share. Since the restricted shares are issued at nominal
consideration, the entire value of the shares will constitute additional
compensation to the individual at the time of vesting.
Chief Executive Officer Fiscal 1997 Compensation
Mr. Fishman, in his capacity as President and Chief Executive Officer, is
also eligible to participate in the same executive compensation program
available to the Company's other senior executives. The Compensation Committee
has set Mr. Fishman's total annual compensation, including compensation derived
from the Company's bonus program and stock option program, at a level it
believes to be competitive with other companies in the industry.
During fiscal 1997, Mr. Fishman's annual base salary was increased $61,100
from $610,900 to $672,000. He was awarded a fiscal 1997 bonus of $494,684 which
represented approximately 115% of his Bonus Target (based on a target bonus of
65% of his base salary received during fiscal 1997), reflecting the Company's
attainment of revenue growth of 4% and OPBT of 18.8% for the entire fiscal year.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Code generally disallows a tax deduction to public
companies for compensation over $1 million paid to its chief executive officer
or any one of its four other most highly compensated executive officers.
Qualifying performance-based compensation is not subject to the deduction limit
if certain requirements are met. The Company has limited the number of shares
subject to stock options which may be granted to Company employees in a manner
that complies with the performance-based requirements of Section 162(m). While
the Committee does not currently intend to qualify the Bonus Plan as a
performance-based plan, it will continue to monitor the impact of Section 162(m)
on the Company.
Compensation Committee,
Samuel H. Fuller, Chairman
Gordon C. McKeague
Lester C. Thurow
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. Fuller, McKeague and
Thurow.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of copies of reports filed pursuant to Section
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or written representations from persons required to file such reports
("Reporting Persons"), the Company believes that, except as follows, all such
filings required to be made by such Reporting Persons were timely made in
accordance with the requirements of the Exchange Act. In August 1997, Mr. Brown
filed a Form 4 for the month of July 1997 that was 10 days late.
11
<PAGE> 15
STOCK PERFORMANCE GRAPH
The following graph compares cumulative total stockholder return on the
Company's Common Stock since October 31, 1992 with the cumulative total return
for the Standard & Poor's 500 Index and the Standard & Poor's Technology Sector
Index. This graph assumes the investment of $100 on October 31, 1992 in the
Company's Common Stock, the Standard & Poor's 500 Index and the Standard &
Poor's Technology Sector Index and assumes dividends are reinvested. Measurement
points are at October 31 for each respective year.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG ANALOG DEVICES, INC., THE S&P 500 INDEX
AND THE S&P TECHNOLOGY SECTOR INDEX
<TABLE>
<CAPTION>
10/92 10/93 10/94 10/95 10/96 10/97
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Analog Devices, Inc. $100 $185 $298 $452 $488 $764
S&P 500 $100 $115 $119 $151 $187 $247
S&P Technology Sector $100 $124 $151 $228 $276 $403
</TABLE>
APPROVAL OF 1998 STOCK OPTION PLAN
On January 15, 1998, the Board of Directors (the "Board") of the Company
adopted, subject to stockholder approval, the 1998 Stock Option Plan (the "1998
Plan"). Up to 15 million shares of Common Stock (subject to adjustment in the
event of stock splits, stock dividends and other similar events) may be issued
pursuant to options granted under the 1998 Plan. The Board believes that the
attraction and retention of talented, motivated employees are essential to the
Company's continued growth and success and that an incentive plan such as the
1998 Plan is necessary for the Company to remain competitive in its compensation
practices.
The 1998 Plan is intended to replace the Company's 1988 Stock Option Plan
(the "1988 Plan"), which expires by its terms on December 15, 1999. As of
December 31, 1997, options to purchase 21,304,934 shares of Common Stock were
outstanding under the 1988 Plan and an additional 1,930,462 shares were reserved
for future option grants. Therefore, if the 1998 Plan is not approved, only
1,930,462 shares will be available for future option grants, except for shares
which may become available upon termination or cancellation of outstanding
options. If the 1998 Plan is approved by the stockholders, no additional options
will be granted under the 1988 Plan.
12
<PAGE> 16
PLAN ADMINISTRATION
The 1998 Plan is administered by the Board. The Board has the authority to
adopt, amend and repeal the administrative rules, guidelines and practices
relating to the 1998 Plan and to interpret the provisions of the 1998 Plan.
Pursuant to the terms of the 1998 Plan, the Board may delegate authority to one
or more committees of the Board, and subject to certain limitations, to one or
more executive officers of the Company. The Board has authorized the
Compensation Committee (composed solely of outside directors) to administer the
1998 Plan, including the grant of options to executive officers. The
Compensation Committee or any executive officer to whom the Compensation
Committee may delegate authority selects the recipients of options and
determines (i) the number of shares of Common Stock covered by the options, (ii)
the dates upon which such options become exercisable, (iii) the exercise price
of such options and (iv) the duration of such options.
The 1998 Plan provides for appropriate adjustments to the shares authorized
for issuance under the 1998 Plan and to any outstanding options to reflect stock
dividends, stock splits, recapitalizations and certain other similar events. If
any option expires or is terminated, surrendered, canceled or forfeited, the
unused shares of Common Stock covered by such option will again be available for
grant under the 1998 Plan to the extent permitted by applicable laws.
The 1998 Plan is designed to meet the requirements for tax deductibility
under Section 162(m) of the Internal Revenue Code ("Code") with respect to
certain compensation. Under the Code, the Company may not deduct compensation
paid to certain executive officers to the extent that aggregate compensation
exceeds $1 million in any one year for any one such officer. Section 162(m)
provides exceptions for performance-based compensation meeting certain
requirements.
STOCK OPTIONS
Eligibility
Officers, employees, directors, consultants and advisors of the Company and
its subsidiaries are eligible to be granted options under the 1998 Plan. Under
present law, however, incentive stock options may only be granted to employees.
To satisfy the requirements of Section 162(m) of the Code, the 1998 Plan
provides that the maximum number of shares upon which options may be granted to
an optionee may not exceed 750,000 shares in any calendar year. The specific
individuals and classes of individuals who are to receive grants pursuant to the
1998 Plan, and the specific amounts of such grants, have not yet been determined
and are not currently determinable.
Option Exercise Price; Option Exercise
The 1998 Plan provides for the grant of incentive stock options (intended
to qualify under Section 422 of the Code) and non-statutory options at specified
option exercise prices. The exercise price of each option shall not be less than
100% (110% in the case of incentive stock options granted to 10% or greater
stockholders) of the fair market value of the Common Stock at the time the
option is granted.
Options shall vest and be exercisable in such installments and during such
periods as may be fixed by the Compensation Committee at the time of grant.
Generally, the vesting of options will be subject to continued employment by the
Company; however, the Compensation Committee has the authority to accelerate
vesting at its discretion. Incentive stock options may not be exercisable after
the expiration of ten years from the date of grant.
Payment
Payment of the exercise price shall be made upon exercise of all or a
portion of any option. The 1998 Plan permits the Board to determine the manner
of payment of the exercise price of options, including payment by cash, check or
in connection with a "cashless exercise" through a broker, by surrender to the
Company of shares of Common Stock, by delivery to the Company of a promissory
note, or by any other lawful means.
13
<PAGE> 17
Termination of Employment
Termination of employment with the Company shall terminate remaining rights
under options then held, provided, that vested options will generally be
exercisable for a specified period of time after termination; and the length of
such period will vary depending on the reason for termination, e.g. termination
with or without cause, or by reason of death or disability. The Compensation
Committee may extend the post-termination period of exercisability of an option
provided that the extension does not extend the original maximum term of the
option.
Transferability of Options
Except as the Compensation Committee may otherwise provide, options shall
not be transferable other than by will or the laws of descent and distribution.
Options are exercisable during the optionee's lifetime only by the optionee, or
by the optionee's authorized representative in case of the optionee's disability
or incapacity.
OTHER PLAN PROVISIONS
Amendment/Cancellation and New Option Grants
The 1998 Plan authorizes the Board, with the consent of the applicable
optionees, to amend any or all outstanding stock options to provide an option
exercise price per share which may be lower or higher than the original exercise
price and/or to cancel any such options and in substitution therefor to grant
new options covering the same or different number of shares of Common Stock
having an option exercise price per share which may be lower or higher than the
exercise price of the canceled options, provided that the per share exercise
price is not less than the then fair market value per share of Common Stock.
While this authority has previously existed, the Board has only exercised it
once, in 1987, when the exercise prices of the Company's then outstanding stock
options significantly exceeded the then trading price of the Common Stock.
LIQUIDATION; CHANGE IN CONTROL; ACQUISITION EVENT
The 1998 Plan provides that in the event of a liquidation or dissolution of
the Company, all then unexercised options, including unvested options, shall
become exercisable in full prior to the effective date of the liquidation or
dissolution.
In the event of a Change in Control, one-half of the shares of Common Stock
subject to then outstanding non-vested options shall become immediately
exercisable and the remaining one-half of the non-vested options shall continue
to vest in accordance with the original vesting schedules of such options,
provided that any remaining non-vested options held by an optionee shall vest
and become exercisable in full if, on or prior to the first anniversary of the
Change in Control, such optionee's employment is terminated without Cause or for
Good Reason.
A Change in Control occurs if: (i) any person becomes a beneficial owner of
30% or more of the Company's outstanding shares of Common Stock, subject to
certain specified exceptions; (ii) if and when a majority of the members of the
Board is comprised of individuals who were not members of the Board on the date
of adoption of the 1998 Plan ("Controlling Directors") or who were not nominated
or elected subsequent to that date by at least a majority of the Controlling
Directors; or (iii) the Company's stockholders approve a merger, consolidation,
reorganization or statutory share exchange involving the Company or a sale of
all or substantially all of the assets of the Company, unless the owners of the
Company's voting stock immediately prior to such event own more than 50% of the
Company's outstanding voting stock immediately after such event and no person
owns 30% or more of the outstanding shares of the acquiring entity or of the
combined voting power of the acquiring entity. The acceleration of the vesting
of options in the event of a Change in Control may have the incidental effect of
increasing the net cost of such change, and, theoretically, could render a
Change in Control more difficult or discourage it.
The 1998 Plan also provides that if an Acquisition Event occurs, the Board
shall provide that all the outstanding options shall be assumed, or equivalent
options shall be substituted, by the acquiring or succeeding entity, and if not,
all then unexercised options, including all non-vested options, will become
14
<PAGE> 18
exercisable in full and will terminate immediately prior to the consummation of
the Acquisition Event except to the extent previously exercised. If such options
are assumed or replaced with substituted options, they will continue to vest in
accordance with their original vesting schedules; provided, however, that if the
Acquisition Event also constitutes a Change in Control, one-half of the then
outstanding non-vested options shall become immediately exercisable in full and
the remaining one-half held by an optionee shall vest and become exercisable if,
on or prior to the first anniversary of the Acquisition Event, such optionee's
employment is terminated without Cause or for Good Reason.
An "Acquisition Event" means (i) any merger or consolidation of the Company
with or into another entity as a result of which the Common Stock is converted
into or exchanged for the right to receive cash, securities or other property,
or (ii) any exchange of shares of the Company for cash, securities or other
property pursuant to a statutory share exchange.
"Good Reason" means any significant diminution in an optionee's title,
authority or responsibilities after a Change in Control or Acquisition Event, a
reduction in compensation or a relocation of the optionee beyond a specified
distance; and "Cause" means willful failure by an optionee to perform his or her
material responsibilities to the Company or willful misconduct by the Optionee
which affects the business reputation of the Company.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to options granted under the
1998 Plan and with respect to the sale of Common Stock acquired under the 1998
Plan.
Incentive Stock Options
In general, a participant will not recognize taxable income upon the grant
or exercise of an Incentive Stock Option ("ISO"), but instead will recognize
taxable income only upon the sale of Common Stock acquired through the exercise
of an ISO. The exercise of an ISO, however, may subject the participant to the
alternative minimum tax.
Generally, the tax consequences of selling Common Stock acquired upon
exercise of an ISO ("ISO Stock") will vary with the length of time that the
participant has owned the ISO Stock prior to the time it is sold. If the
participant sells ISO Stock at least two years after the date the option was
granted (the "Grant Date") and one year after the date the option was exercised
(the "Exercise Date"), then the participant will recognize a long-term capital
gain in an amount equal to the excess of the sale price of the ISO Stock over
the exercise price.
If the participant sells ISO Stock for more than the exercise price and
less than two years after the Grant Date or one year after the Exercise Date (a
"Disqualifying Disposition"), then all or a portion of the gain recognized by
the participant will be ordinary compensation income and the remaining gain, if
any, will be a capital gain. This capital gain will be a long-term capital gain
if the participant has held the ISO Stock for more than one year prior to the
date of sale.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize a capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the participant has held the ISO Stock for more than
one year prior to the date of sale.
Non-statutory Stock Options
As in the case of an ISO, a participant will not recognize taxable income
upon the grant of a non-statutory stock option ("NSO"). Unlike the case of an
ISO, however, a participant who exercises a NSO generally will recognize
ordinary compensation income in an amount equal to the excess of the fair market
value of the Common Stock acquired upon exercise of the NSO ("NSO Stock") over
the exercise price.
15
<PAGE> 19
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize a capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. The capital gain or loss will be a
long-term gain or loss if the participant has held the NSO Stock for more than
one year prior to the date of the sale.
Maximum Income Tax Rates on Capital Gain and Ordinary Income
Long-term capital gains will be taxable at a maximum rate of 20% if
attributable to Common Stock held for more than eighteen months and at a maximum
rate of 28% if attributable to Common Stock held for more than one year but not
more than eighteen months. Short-term capital gains and ordinary income will be
taxable at a maximum rate of 39.6%. Phaseouts of personal exemptions and
reductions of allowable itemized deductions at higher levels of income may
result in slightly higher marginal tax rates. Ordinary compensation income will
also be subject to a medicare tax and, under certain circumstances, a social
security tax.
Tax Consequences to the Company
The grant of an option under the 1998 Plan will have no tax consequences to
the Company. Moreover, in general, neither the exercise of an ISO nor the sale
of any Common Stock acquired under the 1998 Plan will have any tax consequences
to the Company. The Company generally will be entitled to a business-expense
deduction, however, with respect to any ordinary compensation income recognized
by a participant under the 1998 Plan or as a result of the exercise of a NSO or
a Disqualifying Disposition. Any such deduction will be subject to the
limitations of Section 162(m) of the Code. The Company will have a withholding
obligation with respect to any ordinary compensation income recognized by
participants under the 1998 Plan who are employees or otherwise subject to
withholding in connection with the exercise of a NSO.
The Board of Directors believes approval of the 1998 Plan is in the best
interests of the Company and its stockholders and recommends a vote FOR its
approval.
APPROVAL OF AMENDMENTS TO 1994 DIRECTOR OPTION PLAN
The Board of Directors believes that the continued growth and success of
the Company depends, in part, on encouraging ownership in the Company by
Non-Employee Directors whose continued services are considered essential to the
Company's future progress and to provide them with a further incentive to remain
as directors of the Company. A total of 400,000 shares (after adjusting for
stock splits) of the Company's Common Stock is authorized to be issued under the
1994 Director Option Plan (the "1994 Director Plan"). On January 15, 1998, the
Board of Directors adopted, subject to stockholder approval, amendments to the
Company's 1994 Director Plan. Options for an aggregate of 241,500 shares of
Common Stock, net of forfeitures, have been granted under the 1994 Director Plan
since the adoption of the Plan on December 7, 1994, leaving a balance of 158,500
shares of Common Stock available for future option grants.
The amendments provide for:
(i) An increase in the number of shares available for issuance under
the plan from 400,000 (as adjusted for stock splits) shares to 550,000.
(ii) Extension of the plan's termination date from December 6, 1999 to
March 31, 2001.
(iii) Deletion of the provision which authorizes annual grants for
each of the three years from December 7, 1994 and substitution therefor of
a new provision which authorizes the grant of an annual option on each
Anniversary Date (as defined below) until the date of termination of the
Plan.
(iv) Amendment of the section of the plan which requires that any
option be exercised (to the extent then exercisable) by a Non-Employee
Director within 90 days after he ceases to serve as a Director to provide
that if he terminates his service as a Director to become an employee of
the Company, all options granted to him as a Non-Employee Director shall
continue to vest so long as he remains as an employee and must be exercised
within 90 days after he is no longer employed by the
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<PAGE> 20
Company, except for such longer periods of exercise applicable if his
employment terminates by reason of retirement, death, or disability.
The Company believes that the amendment described under clause (iv) is
beneficial to the Company because it enables a Non-Employee Director who is
asked to give up his directorship to become an employee of the Company to retain
the benefit of options previously granted to him in his capacity as a director.
ADMINISTRATION; ELIGIBILITY AND NUMBER OF SHARES
The Board supervises and administers the 1994 Director Plan. Directors of
the Company who are not employees of the Company or any subsidiary of the
Company are eligible to participate in the 1994 Director Plan.
The 1994 Director Plan, as currently in effect, provides for the grant of
an option to purchase 10,500 shares of Common Stock (as adjusted for stock
splits) to all Non-Employee Directors serving as members of the Board on the
date such Plan was adopted, December 7, 1994 ("Incumbent Director"). It also
provides for the grant to each Non-Employee Director, who was first elected to
the Board after December 7, 1994 ("New Director") of an option to purchase
10,500 shares of Common Stock. In addition, the 1994 Director Plan provides that
on December 7 of each of the three years after 1994 with respect to Incumbent
Directors, and on each of the three anniversaries of the date of first election
with respect to New Directors, the Company will grant each Non-Employee Director
an option to purchase 10,500 shares of Common Stock (each December 7 and each
such date of first election, an "Anniversary Date").
TERMS OF OPTIONS
Each option granted under the 1994 Director Plan will have an exercise
price equal to the fair market value of the Common Stock on the date of grant
and will be exercisable on a cumulative basis in annual installments of
one-third each on the succeeding three anniversaries of the date of grant.
Exercisability of these options is conditional upon continuous service as a
director.
The exercise price of each such option may be paid in cash or check payable
to the order of the Company, by the delivery of Common Stock of the Company
already owned by the optionee having a fair market value equal in amount to the
exercise price of the options being exercised, or a combination of such methods
of payment. Each option granted is not transferable except by the laws of
descent and distribution or pursuant to a qualified domestic relations order (as
defined in the Code). If the optionee becomes disabled or dies while serving as
a director, the option will vest in full and the optionee or his or her
representative may exercise the option in full during the year following his or
her disability or death. If the optionee ceases to be a director by reason of
retirement of the optionee as a director at the retirement age determined by the
Company or by reason of the Company's failure to nominate the optionee for
reelection as a director (excluding such director's refusal to serve as a
director), each option granted under the 1994 Director Plan then held by such
director will be exercisable for the number of shares then vested and
exercisable plus the shares which would otherwise become vested and exercisable
at the date of the next succeeding Anniversary Date. No option may be exercised
more than ten years after the date of grant.
The 1994 Director Plan provides that in the event of a Change in Control,
all options outstanding as of the date that such Change in Control occurs shall
become exercisable in full, including non-vested options. The term "Change in
Control" encompasses similar types of events that trigger a Change in Control
for purposes of the 1998 Plan (see above).
See "APPROVAL OF 1998 STOCK OPTION PLAN -- Federal Income Tax Consequences
- -- Non-Statutory Stock Options" for a summary of the United States federal
income tax consequences that generally will arise with respect to options
granted under the 1994 Director Plan and with respect to the sale of Common
Stock acquired under the 1994 Director Plan.
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<PAGE> 21
BOARD RECOMMENDATION
The Board of Directors believes that the approval of the amendments to the
1994 Director Plan is in the best interests of the Company and its stockholders
and recommends a vote FOR their approval.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors, on the recommendation of its Audit Committee, has
selected the firm of Ernst & Young LLP, independent auditors, as auditors of the
Company for the fiscal year ending October 31, 1998. Although stockholder
approval of the Board of Directors' selection of Ernst & Young LLP is not
required by law, the Board of Directors believes that it is advisable to give
stockholders an opportunity to ratify this selection. If this proposal is not
approved at the Meeting, the Board of Directors will reconsider its selection of
Ernst & Young LLP.
Representatives of Ernst & Young LLP are expected to be present at the
Meeting. They will have the opportunity to make a statement if they desire to do
so and will also be available to respond to appropriate questions from
stockholders.
OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the Meeting. However, if any other matters are properly presented to the
Meeting, it is the intention of the persons named in the accompanying proxy to
vote, or otherwise act, in accordance with their judgment on such matters.
All costs of solicitation of proxies will be borne by the Company. The
Company has engaged Corporate Investor Communications, Inc. ("CIC") to assist
with the solicitation of proxies. The Company expects to pay CIC less than
$10,000 for such services. In addition to solicitations by mail, CIC and the
Company's directors, officers and regular employees, without additional
remuneration, may solicit proxies by telephone, telegraph and personal
interviews. Brokers, custodians and fiduciaries will be requested to forward
proxy soliciting material to the owners of stock held in their names. The
Company will reimburse banks and brokers for their reasonable out-of-pocket
expenses incurred in connection with the distribution of proxy materials.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Norwood, Massachusetts not later than October 9, 1998 for inclusion in the
proxy statement for that meeting.
By Order of the Board of Directors,
PAUL P. BROUNTAS, Clerk
February 6, 1998
THE MANAGEMENT HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING. WHETHER OR
NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. A PROMPT RESPONSE WILL GREATLY
FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
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APPENDIX A
ANALOG DEVICES, INC.
1998 STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1998 Stock Option Plan (the "Plan") of Analog
Devices, Inc. a Massachusetts corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and thereby better aligning the interests of such
persons with those of the Company's stockholders. Except where the context
otherwise requires, the term "Company" shall include any present or future
subsidiary corporations of Analog Devices, Inc. as defined in Section 424(f) of
the Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder (the "Code").
2. ELIGIBILITY
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options (each, an "Option") under the Plan.
Each person who has been granted an Option under the Plan is hereinafter
referred to as "Optionee".
3. ADMINISTRATION; DELEGATION
(a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be
administered by the Board of Directors of the Company (the "Board"). The Board
shall have authority to grant Options and to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the Plan as it shall
deem advisable. The Board may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. All decisions by the Board shall be
made in the Board's sole discretion and shall be final and binding on all
persons having or claiming any interest in the Plan or in any Option. No
director or person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination relating to or under the Plan made in
good faith.
(b) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). All references in
the Plan to the "Board" shall mean the Board, the Committee or the executive
officer
<PAGE> 23
referred to in Section 3(c) to the extent that the Board's powers or authority
under the Plan have been delegated to the Committee or executive officer.
(c) DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to grant Options and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Options and the maximum number of shares for any one
Optionee to be made by such executive officers.
4. STOCK AVAILABLE FOR OPTIONS
(a) NUMBER OF SHARES. Subject to adjustment pursuant to Section
4(c), Options may be granted under the Plan for up to 15,000,000 shares of
common stock, $0.16-2/3 par value of the Company ("Common Stock"). If any Option
expires or is terminated, surrendered or canceled without having been fully
exercised or is forfeited in whole or in part or results in any Common Stock not
being issued, the unused Common Stock covered by such Option shall again be
available for the grant of Options under the Plan, subject, however, in the case
of Incentive Stock Options (as hereinafter defined), to any limitation required
under the Code. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
(b) PER-OPTIONEE LIMIT. Subject to adjustment pursuant to Section
4(c), the maximum number of shares of Common Stock with respect to which an
Option may be granted to any Optionee under the Plan shall be 750,000 per
calendar year. The per-Optionee limit described in this Section 4(b) shall be
construed and applied consistently with Section 162(m) of the Code.
(c) CHANGES IN CAPITALIZATION. In the event of any stock split,
reverse stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the per-Optionee limitation set forth in Section 4(b) and
(iii) the number and class of securities and exercise price per share subject to
each outstanding Option shall be appropriately adjusted by the Company to the
extent the Board shall determine, in good faith, that such an adjustment is
necessary and appropriate. If this Section 4(c) applies and Section 6(b) also
applies to any event, Section 6(b) shall be applicable to such event, and this
Section 4(c) shall not be applicable.
(d) SUBSTITUTE OPTIONS. Options may be granted under the Plan from
time to time in substitution for stock options held by individuals employed by
corporations who become employees as a result of a merger or consolidation of
the
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<PAGE> 24
employing corporation with the Company or any subsidiary, or the acquisition by
the Company or a subsidiary of the assets of the employing corporation, or the
acquisition by the Company or a subsidiary of stock of the employing corporation
with the result that such employing corporation becomes a subsidiary.
5. OPTION TERMS
(a) GENERAL. The Board may grant Options to purchase Common Stock
and determine the number of shares of Common Stock to be covered by each Option,
the exercise price of each Option and the conditions and limitations applicable
to the exercise of each Option, including conditions relating to applicable
federal or state securities laws, as it considers necessary or advisable. An
Option which is not intended to be an Incentive Stock Option (as hereinafter
defined) shall be designated a "Nonstatutory Stock Option".
(b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to be
an "incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to an Optionee, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) EXERCISE PRICE. The Board shall establish the exercise price at
the time each Option is granted and specify it in the applicable Option
Agreement; PROVIDED, HOWEVER, that the exercise price shall be not less than
100% of the fair market value of the Common Stock, as determined by the Board,
at the time of the Option grant ("Fair Market Value").
(d) OPTION AGREEMENT; DURATION OF OPTIONS. Each Option may be
evidenced by an Option Agreement in such form and containing such provisions as
the Board from time to time shall approve. Any Option not documented by written
agreement shall be memorialized by a written confirming memorandum to the
Optionee stating the material terms of the Option. (For purposes of the Plan,
Option Agreement, as defined herein, shall also include any such confirming
memorandum.) Each Option Agreement shall specify the period or periods during
which the Option may be exercised and shall specify the effect of termination of
employment on the exercisability of the Option. The Option Agreement may also
include, without limitation, provisions relating to (i) subject to the
provisions of Section 6, the acceleration and vesting of Options, (ii) a
provision that permits Options to vest and remain exercisable after the Optionee
ceases to be employed by, or retained as a consultant or advisor to, the Company
or any subsidiary or affiliate of the Company, and (iii) any other matters not
inconsistent with the terms and provisions of this Plan
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<PAGE> 25
that the Board shall, in its sole discretion, determine. The terms and
conditions of the respective Option Agreements need not be identical.
(e) EXERCISE OF OPTION. Options may be exercised by delivery to the
Company of a written notice of exercise, e-mail or other form of notice approved
by the Board together with payment as specified in Section 5(f) for the number
of shares for which the Option is exercised.
(f) PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise
of an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the
Company;
(2) except as the Board may, in its sole discretion,
otherwise provide in an Option Agreement, (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price or (ii) delivery by the
Optionee to the Company of a copy of irrevocable and unconditional instructions
to a creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price;
(3) delivery of shares of Common Stock owned by the Optionee
valued at their Fair Market Value as determined by the Board, which Common Stock
was owned by the Optionee for at least six months prior to such delivery;
(4) to the extent permitted by the Board, in its sole
discretion, (i) by delivery of a promissory note of the Optionee to the Company
on terms determined by the Board or (ii) by payment of such other lawful
consideration as the Board may determine; or
(5) any combination of the above permitted forms of payment.
6. LIQUIDATION; ACQUISITION EVENT; CHANGE IN CONTROL
(a) LIQUIDATION OR DISSOLUTION. In the event of a proposed
liquidation or dissolution of the Company, the Board shall upon written notice
to the Optionees provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date.
(b) ACQUISITION AND CHANGE IN CONTROL EVENTS
(1) DEFINITIONS
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(a) An "Acquisition Event" shall mean:
(i) any merger or consolidation of the
Company with or into another entity as a
result of which the Common Stock is
converted into or exchanged for the
right to receive cash, securities or
other property; or
(ii) any exchange of shares of the Company
for cash, securities or other property
pursuant to a statutory share exchange
transaction.
(b) A "Change in Control Event" shall mean:
(i) the acquisition by an individual, entity
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of
beneficial ownership of any capital
stock of the Company if, after such
acquisition, such Person beneficially
owns (within the meaning of Rule 13d-3
promulgated under the Exchange Act) 30%
or more of either (x) the then
outstanding shares of common stock of
the Company (the "Outstanding Company
Common Stock") or (y) the combined
voting power of the then outstanding
securities of the Company entitled to
vote generally in the election of
directors (the "Outstanding Company
Voting Securities"); PROVIDED, HOWEVER,
that for purposes of this subsection
(i), the following acquisitions shall
not constitute a Change in Control
Event: (A) any acquisition directly from
the Company (excluding an acquisition
pursuant to the exercise, conversion or
exchange of any security exercisable
for, convertible into or exchangeable
for common stock or voting securities of
the Company, unless the Person
exercising, converting or exchanging
such security acquired such security
directly from the Company or an
underwriter or agent of the Company),
(B) any acquisition by any employee
benefit plan (or related trust)
sponsored or maintained by the Company
or any corporation controlled by the
Company, or (C) any acquisition by any
corporation pursuant to a Business
Combination (as defined below) which
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<PAGE> 27
complies with clauses (x) and (y) of
subsection (iii) of this definition; or
(ii) such time as the Continuing Directors
(as defined below) do not constitute a
majority of the Board (or, if
applicable, the Board of Directors of a
successor corporation to the Company),
where the term "Continuing Director"
means at any date a member of the Board
(x) who was a member of the Board on the
date of the initial adoption of this
Plan by the Board or (y) who was
nominated or elected subsequent to such
date by at least a majority of the
directors who were Continuing Directors
at the time of such nomination or
election or whose election to the Board
was recommended or endorsed by at least
a majority of the directors who were
Continuing Directors at the time of such
nomination or election; PROVIDED,
HOWEVER, that there shall be excluded
from this clause (y) any individual
whose initial assumption of office
occurred as a result of an actual or
threatened election contest with respect
to the election or removal of directors
or other actual or threatened
solicitation of proxies or consents, by
or on behalf of a person other than the
Board; or
(iii) the consummation of a merger,
consolidation, reorganization or
statutory share exchange involving the
Company or a sale or other disposition
of all or substantially all of the
assets of the Company (a "Business
Combination"), unless, immediately
following such Business Combination,
each of the following two conditions is
satisfied: (x) all or substantially all
of the individuals and entities who were
the beneficial owners of the Outstanding
Company Common Stock and Outstanding
Company Voting Securities immediately
prior to such Business Combination
beneficially own, directly or
indirectly, more than 50% of the then
outstanding shares of common stock and
the combined voting power of the then
outstanding securities entitled to vote
generally in the election of directors,
respectively, of the resulting or
acquiring corporation in such Business
Combination (which
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<PAGE> 28
shall include, without limitation, a
corporation which as a result of such
transaction owns the Company or
substantially all of the Company's
assets either directly or through one or
more subsidiaries) (such resulting or
acquiring corporation is referred to
herein as the "Acquiring Corporation")
in substantially the same proportions as
their respective ownership of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities
immediately prior to such Business
Combination and (y) no Person (excluding
the Acquiring Corporation or any
employee benefit plan (or related trust)
maintained or sponsored by the Company
or by the Acquiring Corporation)
beneficially owns, directly or
indirectly, 30% or more of the then
outstanding shares of common stock of
the Acquiring Corporation, or of the
combined voting power of the
then-outstanding securities of such
corporation entitled to vote generally
in the election of directors (except to
the extent that such ownership existed
prior to the Business Combination).
(c) "Good Reason" shall mean any significant
diminution in the Optionee's title, authority,
or responsibilities from and after such
Acquisition Event or Change in Control Event, as
the case may be, or any reduction in the annual
cash compensation payable to the Optionee from
and after such Acquisition Event or Change in
Control Event, as the case may be, or the
relocation of the place of business at which the
Optionee is principally located to a location
that is greater than [35] miles from the current
site.
(d) "Cause" shall mean any (i) willful failure by
the Optionee, which failure is not cured within
30 days of written notice to the Optionee from
the Company, to perform his or her material
responsibilities to the Company or (ii) willful
misconduct by the Optionee which affects the
business reputation of the Company.
(2) EFFECT ON OPTIONS
(a) ACQUISITION EVENT. Upon the occurrence of an
Acquisition Event (regardless of whether such
event also constitutes a
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<PAGE> 29
Change in Control Event), or the execution by
the Company of any agreement with respect to an
Acquisition Event (regardless of whether such
event will result in a Change in Control Event),
the Board shall provide that all of the
outstanding Options shall be assumed, or
equivalent options shall be substituted, by the
acquiring or succeeding corporation (or an
affiliate thereof); PROVIDED THAT (i) any
options substituted for Incentive Stock Options
shall satisfy, in the determination of the
Board, the requirements of Section 422 of the
Code and (ii) if such Acquisition Event also
constitutes a Change in Control Event, except to
the extent specifically provided to the contrary
in the instrument evidencing any Option or any
other agreement between an Optionee and the
Company, the vesting schedule of such assumed or
substituted options shall provide (A) that
one-half of the number of shares subject to the
Option which were not already vested shall be
immediately exercisable in a manner consistent
with that set forth in the first two sentences
of subsection (b) below and (B) that such
assumed or substituted options shall immediately
become exercisable in full if, on or prior to
the first anniversary of the date of the
consummation of the Acquisition Event, the
Optionee's employment with the Company or the
acquiring or succeeding corporation is
terminated for Good Reason by the Optionee or is
terminated without Cause by the Company or the
acquiring or succeeding corporation.
Notwithstanding the foregoing, if the
acquiring or succeeding corporation (or an
affiliate thereof) does not agree to assume, or
substitute for, such Options, then the Board
shall (x) upon written notice to the Optionees,
provide that all then unexercised Options will
become exercisable in full as of a specified
time (the "Acceleration Time") prior to the
Acquisition Event and will terminate immediately
prior to the consummation of such Acquisition
Event, except to the extent exercised by the
Optionees before the consummation of such
Acquisition Event, and/or (y) in the event of an
Acquisition Event under the terms of which
holders of Common Stock will receive upon
consummation thereof a cash payment for each
share of Common Stock surrendered pursuant to
such Acquisition Event (the "Acquisition
Price"), provide that all outstanding Options
shall terminate upon consummation
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<PAGE> 30
of such Acquisition Event and each Optionee
shall receive, in exchange therefor, a cash
payment equal to the amount (if any) by which
(A) the Acquisition Price multiplied by the
number of shares of Common Stock subject to such
outstanding Options (whether or not then
exercisable), exceeds (B) the aggregate exercise
price of such Options.
(b) CHANGE IN CONTROL EVENT THAT IS NOT AN
ACQUISITION EVENT. Upon the occurrence of a
Change in Control Event that does not also
constitute an Acquisition Event, except to the
extent specifically provided to the contrary in
the instrument evidencing any Option or any
other agreement between an Optionee and the
Company, the vesting schedule of such Option
shall be accelerated in part so that one-half of
the number of shares that would otherwise have
first become vested on any date or dates after
the date of the Change in Control Event shall
immediately become exercisable. The remaining
one-half of such number of shares that would
otherwise have first become vested on each
subsequent vesting date shall continue to become
vested on each subsequent vesting date in
accordance with the original vesting schedule
set forth in such Option; PROVIDED, HOWEVER,
that each such Option shall immediately become
exercisable in full if, on or prior to the first
anniversary of the date of the consummation of
the Change in Control Event, the Optionee's
employment with the Company or the acquiring or
succeeding corporation is terminated for Good
Reason by the Optionee or is terminated without
Cause by the Company or the acquiring or
succeeding corporation.
7. REPRICING OF OPTIONS.
The Board shall have the authority, at any time and from time to time,
with the consent of the affected option holders, to amend any or all outstanding
options granted under the Plan to provide an option exercise price per share
which may be lower or higher than the original option exercise price, and/or to
cancel any such options and grant in substitution therefor new options covering
the same or different numbers of shares of Common Stock having an option
exercise price per share which may be lower or higher than the exercise price of
the canceled options.
8. GENERAL PROVISIONS APPLICABLE TO OPTIONS
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<PAGE> 31
(a) TRANSFERABILITY OF OPTIONS. Except as the Board may otherwise
determine or provide in an Option, Options shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Optionee, shall be
exercisable only by the Optionee. References to an Optionee, to the extent
relevant in the context, shall include references to authorized transferees.
(b) BOARD DISCRETION. Except as otherwise provided by the Plan, each
Option may be granted alone or in addition or in relation to any other Option.
The terms of each Option need not be identical, and the Board need not treat
Optionees uniformly.
(c) TERMINATION OF STATUS. The Board shall determine the effect on
an Option of the disability, death, retirement, authorized leave of absence or
other change in the employment or other status of an Optionee and the extent to
which, and the period during which, the Optionee, the Optionee's legal
representative, conservator, guardian or designated beneficiary may exercise
rights under the Option.
(d) WITHHOLDING. Each Optionee shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Options granted to such Optionee no later than
the date of the event creating the tax liability. Except as the Board may
otherwise provide in an Option, Optionees may satisfy such tax obligations in
whole or in part by delivery of shares of Common Stock, including shares
retained from the Option creating the tax obligation, valued at their Fair
Market Value. The Company may, to the extent permitted by law, deduct any such
tax obligations from any payment of any kind otherwise due to an Optionee.
(e) AMENDMENT OF OPTION. The Board may amend, modify or terminate
any outstanding Option, including but not limited to, substituting therefor
another Option of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, PROVIDED that the Optionee's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Optionee.
(f) CONDITIONS ON DELIVERY OF STOCK. The Company will not be
obligated to deliver any shares of Common Stock pursuant to the Plan or to
remove any restrictions from shares previously delivered under the Plan until
(i) all conditions of the Option have been met or removed to the satisfaction of
the Company, (ii) in the opinion of the Company's counsel, all other legal
matters in connection with the issuance and delivery of such shares have been
satisfied, including any applicable securities laws and any applicable stock
exchange or stock market rules and
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<PAGE> 32
regulations, and (iii) the Optionee has executed and delivered to the Company
such representations or agreements as the Company may consider appropriate to
satisfy the requirements of any applicable laws, rules or regulations.
(g) ACCELERATION; CONTINUED VESTING. The Board may at any time
provide that any Options shall become immediately exercisable in full or in
part, and may at any time provide for the continued vesting and exercisability
of any Options for such period of time after the Optionee's employment
terminates as the Board shall determine.
9. MISCELLANEOUS
(a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any
claim or right to be granted an Option, and the grant of an Option shall not be
construed as giving an Optionee the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with an Optionee free
from any liability or claim under the Plan, except as expressly provided in the
applicable Option.
(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Option, no Optionee or designated beneficiary of the Optionee shall
have any rights as a stockholder with respect to any shares of Common Stock to
be distributed with respect to an Option until becoming the record holder of
such shares. Notwithstanding the foregoing, in the event the Company effects a
split of the Common Stock by means of a stock dividend and the exercise price of
and the number of shares subject to such Option are adjusted as of the date of
the distribution of the dividend (rather than as of the record date for such
dividend), then an Optionee who exercises an Option between the close of
business on the record date for such stock dividend and the close of business on
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective
on the date on which it is adopted by the Board. No Option shall be granted
under the Plan after ten (10) years from the earlier of (i) the date on which
the Plan was adopted by the Board or (ii) the date the Plan was approved by the
Company's stockholders, but Options previously granted may extend beyond that
date.
(d) AMENDMENT AND TERMINATION OF PLAN. The Board may terminate the
Plan at any time, except with respect to Option grants then outstanding. The
Board may amend or suspend the Plan without stockholder approval, unless such
approval
11
<PAGE> 33
is necessary to comply with applicable laws, including provisions of the
Exchange Act or the Code.
(e) GOVERNING LAW. The provisions of the Plan and all Options
granted hereunder shall be governed by and interpreted in accordance with the
laws of the Commonwealth of Massachusetts, without regard to any applicable
conflicts of law.
Adopted by the Board of Directors on January 15, 1998
12
<PAGE> 34
DETACH HERE
PROXY
ANALOG DEVICES, INC.
ANNUAL MEETING OF STOCKHOLDERS - MARCH 10, 1998
The undersigned, revoking all prior proxies, hereby appoints Ray Stata,
Jerald G. Fishman and Paul P. Brountas, and each of them, with full power of
substitution, as proxies to represent and vote as designated hereon, all
shares of stock of Analog Devices, Inc. which the undersigned would be entitled
to vote if personally present at the Annual Meeting of Stockholders of the
Company to be held at the Hilton at Dedham Place, 25 Allied Drive, Dedham,
Massachusetts 02026, on Tuesday, March 10, 1998, at 10:00 a.m. (Local Time) and
at any adjournment thereof.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENT THEREOF.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF THE DIRECTORS
(Continued and to be signed on reverse side)
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED POST-PAID RETURN
ENVELOPE.
-----------
SEE REVERSE
SIDE
-----------
<PAGE> 35
DETACH HERE
Please mark
[X] votes as in
this example.
<TABLE>
<S> <C>
UNLESS OTHERWISE INSTRUCTED, THIS PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS SET FORTH BELOW.
FOR AGAINST ABSTAIN
1. Election of Class II Directors (for all nominees 2. To approve the Company's 1998 [ ] [ ] [ ]
except as marked below). Stock Option Plan.
Nominees: Jerald G. Fishman and F. Grant Saviers 3. To approve amendments to the [ ] [ ] [ ]
Company's 1994 Director Option
FOR WITHHELD Mark here Plan.
[ ] [ ] IF YOU PLAN
TO ATTEND [ ] 4. To ratify the selection by the Board [ ] [ ] [ ]
THE MEETING of Directors of Ernst & Young LLP
as the Company's independent
[ ] Mark here auditors for the fiscal year ending
---------------------------------------- FOR ADDRESS October 31, 1998.
For both nominees except as noted above CHANGE AND [ ]
NOTE BELOW 5. To conduct such other business as may properly come before
the meeting or any adjournment or adjournments of the
meeting.
Please sign exactly as name appears hereon. If the stock is
registered in the names of two or more persons, each should
sign. Executor, administrators, trustees, guardians, attorneys
and corporate officers should add their titles.
Signature: Date: Signature: Date:
--------------------------------- --------------- --------------------------------- ---------------
</TABLE>
