<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:
/x/ Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
OCTEL COMMUNICATIONS CORPORATION
Name of Registrant as Specified in its Charter)
OCTEL COMMUNICATIONS CORPORATION
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/x/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2).
/ / $500 per party to the controversy pursuant to Exchange Act Rule 14a-6(i)
(3).
/ / 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:(1)
- - - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - - --------------------------------------------------------------------------------
/ / 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:
- - - --------
(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
<PAGE> 2
OCTEL COMMUNICATIONS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on November 14, 1996
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Octel
Communications Corporation (the "Company") will be held on November 14, 1996 at
9:00 a.m., local time, at the Company's principal offices at 1001 Murphy Ranch
Road, Milpitas, California 95035 for the following purposes:
1. To elect seven directors to serve until the next Annual Meeting of
Stockholders and until their successors are duly elected.
2. To approve an amendment to the Company's 1995 Incentive Stock Plan (the
"Option Plan") increasing the number of shares of Common Stock reserved for
issuance by 2,000,000 shares.
3. To approve an amendment to the Company's 1987 Employee Stock Purchase
Plan (the "Purchase Plan") increasing the number of shares of Common Stock
reserved for issuance by 1,500,000 shares.
4. To approve an amendment to the Company's Certificate of incorporation
increasing the authorized number of shares of Common Stock of the Company to
200,000,000.
5. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the fiscal year ending June 30, 1997.
6. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only stockholders of record at the close of business on September 19, 1996
are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, your are urged to sign
and return the enclosed proxy as promptly as possible in the postage prepaid
envelope enclosed for that purpose. Any stockholder attending the meeting may
vote in person even if the stockholder has previously returned a proxy.
By Order of the Board of Directors
Derek S. Daley, Secretary
Milpitas, California
October __, 1996
<PAGE> 3
OCTEL COMMUNICATIONS CORPORATION
PROXY STATEMENT FOR 1996
ANNUAL MEETING OF STOCKHOLDERS
---------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Octel Communications Corporation (the "Company") for use at the Annual Meeting
of Stockholders to be held on November 14, 1996 at 9:00 a.m., local time, or at
any adjournment thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will
be held at the Company's principal offices at 1001 Murphy Ranch Road, Milpitas,
California 95035.
The proxy solicitation materials were mailed on or about October ___,
1996 to all stockholders entitled to vote at the meeting.
RECORD DATE AND SHARE OWNERSHIP
Stockholders of record at the close of business on September 19, 1996
(the "Record Date") are entitled to notice of the meeting and to vote at the
meeting. At the Record Date, _________ shares of the Company's Common Stock were
issued and outstanding and held of record by approximately _____ registered
stockholders. Each stockholder is entitled to one vote for each share held. No
shares of the Company's Preferred Stock were outstanding. See "Security
Ownership of Certain Beneficial Owners and Management" below for information
regarding beneficial owners of more than five percent of the Company's Common
Stock.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each stockholder voting for the election of directors (Proposal No. 1)
may cumulate his votes, giving one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of shares which the
stockholder is entitled to vote, or distributing the stockholder's votes on the
same principle among as many candidates as the stockholder chooses, provided
that votes may not be cast for more than seven candidates. However, no
stockholder shall be entitled to cumulate votes unless the candidates' names
have been placed in nomination prior to the voting and the stockholder, or any
other stockholder, has given notice at the meeting prior to the voting of the
intention to cumulate the stockholder's votes. Any such notice should be
directed to the Inspector of Elections at the meeting. On all other matters
(Proposals No. 2-5), each share has one vote.
<PAGE> 4
This solicitation of proxies is made by the Company, and all related
costs will be borne by the Company. The Company has retained Corporate Investor
Communications Inc. to aid in the solicitation of proxies from brokers, banks
and other institutional nominees. The fees and expenses of such firm are not
expected to exceed $11,000. In addition, the Company may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation material to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegraph or
personal solicitations by directors, officers or employees of the Company. No
additional compensation will be paid for any such services.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual
Meeting is a majority of the votes eligible to be cast by holders of shares of
Common Stock issued and outstanding on the Record Date. Shares that are voted
"FOR," "AGAINST" or "WITHHELD FROM" a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as shares
entitled to vote at the Annual Meeting (the "Votes Cast") with respect to such
matter.
While there is no definitive statutory or case law authority in
Delaware as to the proper treatment of abstentions, the Company believes that
abstentions should be counted for purposes of determining both (i) the presence
or absence of a quorum for the transaction of business and (ii) the total number
of Votes Cast with respect to a proposal (other than the election of directors).
In the absence of a controlling precedent to the contrary, the Company intends
to treat abstentions in this manner. Accordingly, abstentions will have the same
effect as a vote against the proposal.
In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware
Supreme Court held that, while broker non-votes should be counted for purposes
of determining the presence or absence of a quorum for the transaction of
business, broker non-votes should not be counted for purposes of determining the
number of Votes Cast with respect to the particular proposal on which the broker
has expressly not voted. Accordingly, the Company intends to treat broker
non-votes in this manner. Thus, a broker non-vote will not have any effect on
the outcome of the voting on a proposal.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be
presented by such stockholders at the Company's 1997 Annual Meeting of
Stockholders must be received by the Company no later than June 14, 1997 in
order that they may be considered for inclusion in the proxy statement and form
of proxy relating to that meeting.
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PROPOSAL NO. 1--ELECTION OF DIRECTORS
NOMINEES
A board of seven directors is to be elected at the Annual Meeting of
Stockholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's nominees named below. In the event
that any nominee of the Company is unable or declines to serve as a director at
the time of the Annual Meeting of the Stockholders, the proxies will be voted
for any nominee who shall be designated by the present Board of Directors to
fill the vacancy. It is not expected that any nominee will be unable or will
decline to serve as a director. In the event that additional persons are
nominated for election as directors, the proxy holders intend to vote all
proxies received by them in such a manner (in accordance with cumulative voting)
as will assure the election of as many of the nominees listed below as possible,
and in such event the specific nominees to be voted for will be determined by
the proxy holders. The term of office of each person elected as a director will
continue until the next Annual Meeting of Stockholders or until a successor has
been elected and qualified.
The nominees, and certain information about them as of the Record Date,
are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE POSITION(S) SINCE
--------------- --- ----------- -----
<S> <C> <C> <C>
Robert Cohn .............. 47 Chairman of the Board and 1982
Chief Executive Officer
W. Michael West .......... 46 President, Chief Operating 1995
Officer and Director
Anson M. Beard, Jr. ...... 60 Director 1994
Leo J. Chamberlain ....... 66 Director 1989
Deborah A. Coleman ....... 43 Director 1994
Nathaniel de Rothschild .. 50 Director 1994
Dag Tellefsen ............ 54 Director 1982
</TABLE>
Mr. Cohn, a founder of the Company, served as its President and Chief
Executive Officer from the Company's inception in 1982 until October 1990 and
then resumed those positions in November 1993. During fiscal 1996, he
relinquished his position as President and now serves as Chairman of the Board
and Chief Executive Officer. Mr. Cohn has also served as a director from the
Company's inception and, in June 1990, the Board of Directors appointed Mr. Cohn
Chairman of the Board. Mr. Cohn holds a B.S. in Mathematics and Computer Science
from the University of Florida and an M.B.A. from Stanford University. Mr. Cohn
is also a director of Spectralink Corporation, a manufacturer of wireless phones
for business applications
Mr. West was named President and Chief Operating Officer of the Company
during fiscal 1996. From January 1995 to December 1995, Mr. West served as Vice
Chairman of the Company. Mr. West joined the Company in September 1986 as
Executive Vice President and was responsible for sales and customer service.
From 1979 to September 1986, Mr. West was employed by ROLM, serving for three
years during this period as President of an operating subsidiary of ROLM and
then as General Manager of its National Sales Division. Mr. West attended
Southern Illinois University.
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<PAGE> 6
Mr. Beard has served as a director of the Company since June 1994. He
joined Morgan Stanley & Co. Incorporated in May 1977 and, from 1980 until his
retirement in February 1994, served as Managing Director of its Worldwide Equity
Division. In 1986, he was appointed as a director of Morgan Stanley Group, the
holding company for Morgan Stanley & Co. Incorporated. He retains the position
of Advisory Director of Morgan Stanley & Co. Incorporated. Mr. Beard is also a
member of the Wheaton College Board of Trustees and, from 1990 to 1992, was a
director of the National Association of Securities Dealers, Inc. (the "NASD"),
serving as Vice Chairman of the NASD in 1992.
Mr. Chamberlain has served as a director of the Company since March
1989. Until ROLM's acquisition by IBM in 1984, Mr. Chamberlain served on the
Board of Directors of ROLM, where he had been employed as Executive Vice
President until his retirement in 1982. Mr. Chamberlain is also a director of
KLA Instruments Corporation, a manufacturer of semiconductor inspection
equipment.
Ms. Coleman has served as a director of the Company since March 1994.
Since June 1994, Ms. Coleman has been Chairman and Chief Executive Officer of
Merix Corporation, a manufacturer of technologically advanced components for
sophisticated electronic equipment. From November 1992 to June 1994, Ms. Coleman
served as Vice President of Materials Operations for Tektronix, Inc., a
worldwide high technology equipment design and manufacturing firm. From June
1985 to October 1992, she held officer-level positions with Apple Computer,
Inc., including Vice President--World Wide Operations and Vice President--Chief
Financial Officer.
Mr. de Rothschild has served as a director of the Company since June
1994. He is President of Nathaniel de Rothschild Holdings Ltd., a private
investment company that he founded in 1988. Mr. de Rothschild is also Chairman
of the Board of Global Asset Management (USA) Inc., the U.S. subsidiary of
Global Asset Management Ltd., a worldwide money management firm, and a director
of St. James Place Capital, Plc.
Mr. Tellefsen has served as a director of the Company since September
1982. He is a general partner of Glenwood Management and Glenwood II Management
Corporation, investment management firms and the general partners of Glenwood
Ventures I and Glenwood Ventures II, respectively, which are venture capital
funds. He has been with Glenwood Management since 1982. Mr. Tellefsen is also a
director of KLA Instruments Corporation, a manufacturer of semiconductor
inspection equipment, Arix Computer Corporation, a manufacturer of symmetrical
multiprocessing UNIX systems, and Iwerks Entertainment, Inc., a producer of
out-of-home entertainment systems and software.
There are no family relationships between directors or executive
officers of the Company.
VOTE REQUIRED
The seven nominees receiving the highest number of affirmative votes of
the shares entitled to be voted for them shall be elected as directors. Votes
withheld from any director are counted for purposes of determining the presence
or absence of a quorum for the transaction of business, but have no legal effect
under Delaware law.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership as of the Record Date of the Company's Common Stock as to
(i) each director, (ii) each of the executive officers
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<PAGE> 7
listed in the Summary Compensation Table below, (iii) all executive officers and
directors as a group and (iv) each person known by the Company to be the
beneficial owner of five percent or more of the outstanding shares of Common
Stock.
DIRECTORS, EXECUTIVE OFFICERS AND NO. OF SHARES
FIVE PERCENT STOCKHOLDERS(1) BENEFICIALLY PERCENTAGE
---------------------------- ------------ ----------
OWNED
-----
Aim Management ...................................
11 Greenway Plaza, Suite 1919
Houston, TX 77046
Lynch & Mayer, Inc. ..............................
520 Madison Avenue
New York, NY 10022
Pilgrim Baxter & Associates ......................
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Putnam Investments ...............................
1 Post Office Square
Boston, MA 02109
Anson M. Beard, Jr.(2) ...........................
Donald L. Campodonico(3) .........................
Leo J. Chamberlain(4) ............................
Robert Cohn(5) ...................................
Deborah A. Coleman(6) ............................
Charles Levine(7) ................................
Margaret Norton(8) ...............................
Nathaniel de Rothschild(9) .......................
Dag Tellefsen(10) ................................
W. Michael West(11) ..............................
All directors and executive officers as
a group (17 persons)(12) ........................
- - - ----------
*Represents less than 1% of the outstanding shares of Common Stock.
(1) The persons named in the table, to the Company's knowledge, have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable and the information contained in the footnotes hereunder.
(2) Includes ______ shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date. Also includes 7,500 shares
held by the Tsunami Foundation, as to which shares Mr. Beard disclaims
beneficial ownership.
(3) Includes _______ shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date.
(4) Includes ______ shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date.
(5) Includes shares held of record by a trust for the benefit of Mr. Cohn, his
wife and their children. Also includes ______ shares issuable upon exercise
of options which are exercisable within 60 days of the Record Date.
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<PAGE> 8
(6) Includes ______ shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date.
(7) Mr. Levine's employment with the Company terminated effective as of
September 13, 1996. Includes ______ shares issuable upon exercise of
options that are exercisable within 60 days of the Record Date.
(8) Includes ______ shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date.
(9) Includes _____ shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date. Also includes 2,600 shares
held by the Nili and Nathaniel de Rothschild Foundation, as to which shares
Mr. de Rothschild disclaims beneficial ownership.
(10) Includes _____ shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date.
(11) Includes ______ shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date.
(12) Includes ______ shares issuable upon exercise of options that are
exercisable within 60 days of the Record Date.
As of the Record Date, the per share market value of the Company's
Common Stock was $____, based on the closing price on that date on The Nasdaq
National Market.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of ______ meetings
during the fiscal year ended June 30, 1996. The Audit Committee held seven
meetings, the Compensation Committee held four meetings and the Board Affairs
(formerly Nominating) Committee held one meeting during the fiscal year ended
June 30, 1996. Each director attended at least __% of Board and, where
applicable, committee meetings held during the fiscal 1996.
Mr. Beard and Ms. Coleman currently serve on the Audit Committee of the
Board of Directors. The purpose of the Audit Committee is to review with the
Company's management and independent auditors the financial statements and
internal financial reporting system and controls of the Company, recommend
resolutions for any dispute between the Company's management and its auditors
and review other matters relating to the relationship of the Company with its
auditors.
[Messrs. Chamberlain, de Rothschild and Tellefsen and Ms. Coleman
served on the Compensation Committee until the end of fiscal 1996. As of the
beginning of fiscal 1997, Messrs. Beard, de Rothschild and Tellefsen and Ms.
Coleman serve on the Compensation Committee.] The purpose of the Compensation
Committee is to review and approve the compensation of the Company's executive
officers and certain highly compensated executives for each fiscal year. The
compensation of the President and Chief Executive Officer of the Company remains
subject to approval by the full Board of Directors.
[Messrs. Beard, de Rothschild and Tellefsen served on the Nominating
Committee until the end of fiscal 1996. As of the beginning of fiscal 1997, the
Nominating Committee was renamed the Board Affairs Committee, and Messrs. Beard,
Chamberlain, de Rothschild and Tellefsen and Ms. Coleman
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<PAGE> 9
serve on such Committee.] The purpose of the Board Affairs Committee is to
develop criteria for nominating new members of the Board and to identify
potential candidates for such nomination. The Board Affairs Committee will
consider stockholder recommendations for new directors. However, the final
determination of whether a candidate will be nominated to become a member of the
Company's Board of Directors is reserved for the Board Affairs Committee. Any
suggestions may be submitted in writing, attention "Board Affairs Committee of
the Board of Directors," at the Company's principal offices.
COMPENSATION OF DIRECTORS
During fiscal 1996, each of the directors was compensated for
participating in Board and committee meetings as follows: $5,000 annual fee,
provided that the director attended at least five of the six non-telephonic
meetings of the Board during the fiscal year; $1,500 for each meeting of the
Board which the director attended in person; $250 for each meeting of the Board
which the director attended via telephone; $500 for each meeting of a committee
of the board (except the Stock Option Committee) which the director attended in
person; and $500 per year for each member of the Stock Option Committee.
Effective for fiscal 1997, the annual fee is $10,000. In addition, the Company
reimburses all directors for travel and other necessary business expenses
incurred in fulfilling their duties as directors. Directors also receive stock
options granted pursuant to the 1988 Directors' Stock Option Plan. See "1988
Directors' Stock Option Plan" below.
CERTAIN TRANSACTIONS
In December 1994, the Company loaned $1,019,027 to Robert Cohn, an
executive officer and director of the Company, in connection with the exercise
of and payment of taxes regarding an incentive stock option to purchase 150,000
shares of Common Stock at $5.563 per share, with interest payable at a rate of
6.66%, compounded semi-annually, and a term of three years. The loan is secured
by 50,952 shares of the Company's Common Stock having a market value of
$_________ at the Record Date. From October 1995 to December 1995, the Company
loaned an aggregate of $1,523,443 to Mr. Cohn in connection with the exercise of
and payment of taxes regarding stock options to purchase an aggregate of 152,660
shares of Common Stock at $5.563 per share, with interest payable at rates
between 5.65% and 5.90%, compounded annually, and terms of three years. The
loans are secured by an aggregate of 152,660 shares of the Company's Common
Stock having a market value of $_________ at the Record Date. In February 1995,
the Company loaned $267,000 to Derek S. Daley, an executive officer of the
Company, in connection with the exercise of an incentive stock option to
purchase 48,000 shares of Common Stock at $5.563 per share, with intgerest
payable at a rate of 7.43% compounded annually, and a term of three years. The
loan is secured by 24,840 shares of the Company's Common Stock having a market
value of $_______ at the Record Date. In January 1996, the Company loaned an
aggregate of $379,526 to Mr. Daley in connection with the exercise of and
payment of taxes regarding stock options to purchase an aggregate of 48,010
shares of Common Stock at $5.563 per share, with interest payable at a rate of
5.50% compounded annually, and terms of three years. The loans are secured by an
aggregate of 48,010 shares of the Company's Common Stock having a market value
of $________ at the Record Date. In February 1996, the Company loaned $99,989 to
Charles Levine, an executive officer of the Company, in connection with the
exercise of an incentive stock option to purchase 9,968 shares of Common Stock
at $10.031 per share, with interest payable at 5.32%, compounded annually, and a
term of three years. The loan is secured by 9,968 shares of the Company's Common
stock having a market value of $______ at the Record Date. In February 1996, the
Company loaned $450,173 to W. Michael West, an executive officer and director of
the Company, in connection with the exercise of an incentive
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<PAGE> 10
stock option to purchase 80,930 shares of Common Stock at $5.563 per share, with
interest payable at 5.32%, compounded annually, and a term of three years. The
loan is secured by 80,930 shares of the Company's Common stock having a market
value of $______ at the Record Date. As of the Record Date, the total amount
outstanding on Mr. Cohn's notes was $_________, the total amount outstanding on
Mr. Levine's note was $_______, the total amount outstanding on Mr. West's note
was $__________ and total amount outstanding on Mr. Daley's notes was
$_________.
Sales to Merix Corp were approximately $100,000 during the Company's
fiscal year ended June 30, 1996. Deborah A. Coleman, a director of the Company,
is an executive officer and director of Merix Corp. Based on its sales terms and
prices for similar products to similar companies, the Company believes that
sales to Merix Corp. were made on an arms' length basis.
The stock option agreements between the Company and certain of its
officers and key employees provide for full acceleration of exercisability if
their employment is terminated or their compensation is reduced in connection
with a change of control of the Company. See "Compensation Committee
Report--Chairman and CEO Compensation" and "Proposal No. 2--Approval of
Amendment to the 1995 Incentive Stock Plan--Terms Of Options."
The Company has entered into indemnification agreements with each of
its directors and officers. Such agreements require the Company to indemnify
such individuals to the full extent permitted by Delaware law if certain claims
are brought against them in their capacities with the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors and
persons who own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership on Form 3 and changes in
ownership on Form 4 or Form 5 with the Securities and Exchange Commission (the
"SEC"). Such officers, directors and ten percent stockholders are also required
by SEC rules to furnish the Company with copies of all Section 16(a) reports
they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that Forms 5 have been
filed for such persons as required, the Company believes that, during the year
ended June 30, 1996, all reporting persons complied with Section 16(a) filing
requirements applicable to them, except that Anson M. Beard, Jr. filed one Form
4 late with respect to one transaction.
COMPENSATION COMMITTEE REPORT
The following is the Report of the Compensation Committee of the
Company describing the compensation policies and rationale applicable to the
Company's executive officers with respect to the compensation paid to such
executive officers for the year ended June 30, 1996. The information contained
in the report shall not be deemed to be "soliciting material" or to be "filed"
with the SEC nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the Exchange Act
except to the extent that the Company specifically incorporates it by reference
into such filing.
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COMPENSATION COMMITTEE REPORT
The Compensation Committee (the "Committee") of the Board of Directors
of Octel Communications Corporation determines the Company's executive
compensation policies. The Committee is comprised of four non-employee
directors. The Chairman and Chief Executive Officer and the President and Chief
Operating Officer participate as non-voting members. After evaluating
management's performance, the Committee recommends compensation programs and pay
levels to the full Board for approval.
COMPENSATION PHILOSOPHY
The goals of the executive compensation program are to attract, retain
and reward executive officers who contribute to the success of the Company.
Compensation opportunities are aligned with the Company's business objectives.
The compensation programs are designed to motivate executive officers to meet
annual corporate performance goals and enhance long-term stockholder value.
In designing and administering the individual elements of the executive
compensation program, the Committee strives to balance short- and long-term
incentive objectives and use prudent judgment in establishing performance
criteria, evaluating performance and determining actual incentive awards.
Using the assistance of an independent compensation consulting firm,
the Committee regularly evaluates the competitiveness and appropriateness of the
Company's executive compensation program by comparing its pay practices with
other companies in the industry. For this comparison, compensation levels are
compared to those of a select group of similar high technology companies with
approximately the same market capitalization, revenues and growth pattern as the
Company. The comparison group is subject to occasional changes as the Company or
the selected companies change their focus, merge or are acquired, or as new
companies emerge. Sales growth, operating income, P/E ratio, compound annual
growth rate and market capitalization are evaluated to ensure the comparative
companies have successful track records.
COMPENSATION VEHICLES
The Company's executive compensation program includes base salary,
annual incentive and long-term incentive compensation components.
BASE SALARY
The Company reviews base salaries annually for market competitiveness.
In determining competitive levels, the job responsibilities of each executive
are matched with like jobs in the comparison group. Individual base salary
increases may vary and reflect individual performance. This allows the Company
to attract and retain the key employees necessary to meet its business
objectives and enhance stockholder value.
As a cost-containment measure, fiscal year 1996 base salary increases
for the executive officers were deferred for six months and were reviewed and
approved in January 1996.
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<PAGE> 12
ANNUAL INCENTIVE PLAN
The annual incentive portion of the 1996 executive compensation program
provided cash rewards based on achievement of corporate financial goals and
corporate strategic business objectives. In 1996, the incentive target per
individual was defined as a percentage of his or her base compensation. The
annual incentive was based on the achievement by the Company and/or the
executive's Strategic Business Unit ("SBU") of financial goals (revenue and
operating income) and certain business objectives approved by the Board. The
Company reviews the incentive targets annually for market competitiveness based
on job level and responsibilities. The Company's philosophy is to leverage total
compensation to provide competitive pay for the achievement of aggressive
performance measures. The amount of compensation actually paid under this plan
is variable or "at risk," because it is tied directly to achievement of specific
corporate performance goals.
In fiscal year 1996, all Named Executive Officers received a cash award
under the annual incentive plan. A portion of the bonus (30% of total bonus
payable for the full year) was paid at the end of the first half of the year and
was based on the achievement of first half financial targets. The company
achieved 95% of its revenue goals and 105% of its operating income goals for the
first half. This translated into a bonus payment of 100% (based on the average
of the two measures) for the portion of the bonus based on Company financial
goals. The remaining portion of the bonus (if any) based on first half SBU
financial performance was paid based on actual results for the SBU.
The remaining 70% of the total bonus payable at the end of the second
half of fiscal 1996 was based on second half financial targets (50% of total
bonus payable) and annual strategic business objectives (20% of total bonus
payable). The company achieved 103% of its revenue goals and 120% of its
operating income goals for the second half. This translated into a bonus payment
of 124% (because of the upside slope for overachievement) for the portion of the
bonus based on second half Company financials. The portion of the bonus (if any)
based on second half SBU financial performance was paid based on actual results
for the SBU . The remaining bonus based on annual strategic business objectives
was paid at 75% to 122.5%, depending on the objectives for the Named Executive
Officer.
The Bonus Plan for fiscal year 1997 will have similar financial
measures of revenue and operating income and, for certain executives, will be
partially based on the performance of their respective business units. A portion
of the bonus (65% of the target bonus percentage) will be paid on a semi-annual
basis and will be based on these financial measures. The remaining 35% of the
target bonus percentage will be paid annually and will be based on achievement
of objectives regarding market share, productivity, customer satisfaction and
performance on key corporate projects.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee bases compensation of all officers (except the Chairman
and Chief Executive Officer) on the policies and procedures described above. The
Chairman's base salary paid in fiscal year 1996 was $300,000. Effective as of
the beginning of fiscal 1997, the Chairman's base salary is $375,000 per year.
Mr. Cohn was included in the annual incentive plan as of January 1, 1996 with a
bonus target of 100% of salary. The total cash compensation payable is below
competitive norms for a company of comparable size, based on information
provided by an independent compensation firm. The greatest portion of the
Chairman and Chief Executive Officer's compensation is directly associated with
the long-term capital growth of the Company. Although Mr. Cohn was not granted
any options in fiscal 1996, he was, concurrent with his
10
<PAGE> 13
appointment to the position of Chairman and Chief Executive Officer of the
Company in fiscal 1994, granted the following options to purchase Common Stock
of the Company:
700,000 shares at $12.50 per share;
400,000 shares at $17.50 per share;
and 400,000 shares at $25.00 per share.
These options become exercisable as to 20% of the total shares under
option one year after the date of grant and up to an additional 20% after the
end of each subsequent twelve-month period. These options contain acceleration
provisions consistent with other stock purchases and options Mr. Cohn has made
and received. The Company believes that the rewards Mr. Cohn may receive are
tied to the stock price performance of the Company, from which other
stockholders will derive substantial benefit as well.
STOCK OPTIONS
To balance the annual incentive plan, stock options focus the
executives' attention on the long-term performance of the Company and maximizing
stockholder value. Stock options are granted with an exercise price equal to
fair market value at the time of grant. Grant ranges have been established for
each officer level that are based on competitive norms of the comparison group.
Individual grants may vary within the range to reflect individual performance
and potential. The option program also utilizes vesting periods to encourage
retention of key employees.
Specific information regarding compensation of the Chief Executive
Officer and other executive officers is contained in the accompanying table.
TAX POLICY
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits
deductions for certain executive compensation in excess of $1 million. The
Company endeavors to structure its compensation plans to achieve maximum
deductibility under Section 162(m) with minimal sacrifices in flexibility and
corporate objectives. With respect to non-equity compensation arrangements, the
Committee has reviewed the terms of those arrangements most likely to be subject
to Section 162(m).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
[Messrs. Chamberlain, de Rothschild and Tellefsen and Ms. Coleman
served on the Compensation Committee until the end of fiscal 1996. As of the
beginning of fiscal 1997, Messrs. Beard, de Rothschild and Tellefsen and Ms.
Coleman serve on the Compensation Committee.] Robert Cohn, the Chairman of the
Board and Chief Executive Officer of the Company and W. Michael West, the
President and Chief Operating Officer of the Company, currently attend meetings
of the Compensation Committee but do not vote. There are no interlocks between
the Company's Board of Directors or Compensation Committee and boards of
directors or compensation committees of other companies.
Anson M. Beard, Jr.
Deborah A. Coleman
Nathaniel de Rothschild
Dag Tellefsen
11
<PAGE> 14
STOCK PERFORMANCE GRAPH
In accordance with Exchange Act regulations, the following performance
graph compares the cumulative total stockholder return on the Company's Common
Stock to the cumulative total return on the Nasdaq Index and on the Hambrecht &
Quist Technology Index over the same period. The graph assumes the value of the
investment in the Company's Common Stock and each index was $100 at June 30,
1991 and that all dividends were reinvested. The information contained in the
performance graph shall not be deemed to be "soliciting material" or to be
"filed" with the Securities and Exchange Commission, nor shall such information
be incorporated by reference into any future filing under the Securities Act or
Exchange Act, except to the extent that the Company specifically incorporates it
by reference into such filing.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Octel $100.00 $ 93.88 $ 90.82 $ 67.35 $119.39 $161.22
NASDAQ $100.00 $120.13 $151.08 $152.52 $203.59 $261.37
H&Q Tech $100.00 $113.63 $138.83 $140.86 $235.88 $279.83
</TABLE>
12
<PAGE> 15
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth, for the three fiscal years ended June
30, 1996, certain compensation information with respect to the Company's Chief
Executive Officer during fiscal 1996 and each of the four other most highly
compensated executive officers other than the Chief Executive Officer who were
serving as executive officers as of June 30, 1996 (collectively, the "Named
Executive Officers"), based upon salary and bonus earned by such executive
officers and individuals in fiscal 1996.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------
ANNUAL COMPENSATION SECURITIES
----------------------------------- UNDERLYING
OTHER ANNUAL OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION BONUS COMPENSATION SARS COMPENSATION
YEAR SALARY($) ($)(1) ($) (#)(2) ($)
---- --------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert Cohn............................ 1996 $310,577 216,351 $ 3,375 -- 9,597(4)
Chairman of the Board and 1995 257,933 -- 6,167(3) -- 7,005(4)
Chief Executive Officer 1994 237,692 -- 5,776(3) 750,000 9,318(4)
Charles Levine (5)..................... 1996 196,556 163,208 -- -- 10,700(4)
Senior Vice President 1995 102,554 44,154 -- 200,000 900(4)(6)
1994 N/A N/A N/A N/A N/A (7)
W. Michael West........................ 1996 258,230 147,562 -- 200,000 10,397(4)
President and Chief 1995 231,888 92,400 -- -- 5,595(4)
Operating Officer 1994 238,658 92,450 -- 67,500 8,861(4)
Margaret Norton........................ 1996 197,500 182,926 -- 60,000 1,509(4)
Senior Vice President 1995 166,700 59,872 -- 35,000 720(4)
1994 109,680 -- -- 32,000 --
Donald L. Campodonico.................. 1996 193,269 79,122 -- -- 10,121(4)
Vice President 1995 188,222 67,500 -- -- 9,511(4)
1994 193,467 65,441 -- 60,000 8,493(4)
</TABLE>
- - - -------------
(1) Includes bonuses earned in the applicable fiscal year but paid or to be
paid in the following fiscal year.
(2) No SARs were granted.
(3) Comprised of Mr. Cohn's portion of the profit-sharing payments made to most
employees of the Company.
(4) Comprised of premiums for insurance policies where the officers are the
beneficiaries.
(5) Mr. Levine's employment with the Company terminated effective as of
September 13, 1996.
(6) Includes $________ related to relocation expenses paid by the Company.
(7) Not applicable, as Mr. Levine was not hired by the Company until December
1994.
13
<PAGE> 16
ANNUAL INCENTIVE PLAN
The Company's Board of Directors has adopted an Annual Incentive Plan
(the "Bonus Plan") providing for cash bonuses to officers and senior managers.
Under the Bonus Plan, fiscal year 1996 bonuses to all officers, including
executive officers, of the Company in an aggregate amount of approximately
$2,850,000 were awarded as percentages of the individuals' salaries, based on
the Company's achievement of revenue, operating income and strategic business
objectives approved by the Board of Directors.
The Bonus Plan for fiscal year 1997 will have similar financial
measures of revenue and operating income and, for certain executives, will be
partially based on the performance of their respective business units. A portion
of the bonus (65% of the target bonus percentage) will be paid on a semi-annual
basis and will be based on these financial measures. The remaining 35% of the
target bonus percentage will be paid annually and will be based on achievement
of objectives regarding market share, customer satisfaction, productivity and
performance on key corporate projects.
EMPLOYEE STOCK PLANS
The following is a brief summary of the Company's employee stock plans
in effect during the fiscal year ended June 30, 1996 under which officers,
employees, consultants and directors of the Company received benefits. The
closing sale price of the Company's Common Stock on the Record Date, as reported
by The Nasdaq National Market, was $____ per share.
1995 INCENTIVE STOCK PLAN
The Company's 1995 Incentive Stock Plan (the "Option Plan"), under
which 19,200,000 shares are currently reserved for issuance, was originally
adopted by the Board of Directors in 1985 and approved by the Company's
stockholders in 1985. The Option Plan was subsequently amended on a number of
occasions, which amendments were approved by the Board of Directors and
stockholders as required by law and the Option Plan. In 1995, the Option Plan
was renewed for a term of ten years and renamed. The Option Plan permits the
direct sale of shares and the grant of both "incentive stock options" (within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Tax Code")) and nonstatutory stock options to employees and officers of, and
consultants to, the Company.
As of the Record Date, under the Option Plan, ______ shares had been
sold directly, options to purchase ______ shares were outstanding at a weighted
average exercise price of $____ per share, options for _______ shares had been
exercised (since 1985) and _______ shares were available for future option grant
or direct sale.
The Option Plan is administered by the Board of Directors or a
committee appointed by the Board. The Board or committee determines the terms of
options granted, including the exercise price, number of shares subject to the
option and the exercisability thereof. The exercise price of all options to
purchase shares of Common Stock under the Option Plan must be at least equal to
the fair market value of such shares on the date of grant, and the maximum term
of each incentive stock option is ten years, although the Board of Directors
typically grants options with a term of five years and six months. Options
granted to officers and certain key employees under the Option Plan provide for
full acceleration of exercisability in the event that, following a change in
control of the Company, the
14
<PAGE> 17
optionee's employment is terminated or the optionee's compensation and benefits
are reduced. See Proposal No. 2 for a more detailed description of the Option
Plan and a proposal to make certain amendments to the Option Plan, including
increasing the number of shares reserved for issuance under the Option Plan by
2,000,000.
PARTICIPATION IN THE OPTION PLAN
The following table sets forth, for each of the Named Executive
Officers, all current executive officers as a group, with respect to the Option
Plan: (i) the market value of the shares of Common Stock underlying the options
granted to such persons or group of persons during the fiscal year ended June
30, 1996, minus the exercise price of such shares; and (ii) the number of shares
of the Company's Common Stock subject to options granted under the Option Plan
during fiscal year 1996.
1995 INCENTIVE STOCK PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES DOLLAR
SUBJECT TO OPTIONS VALUE
NAME OF INDIVIDUAL OR ENTITY OR GROUP GRANTED (#) ($)(1)
- - - ------------------------------------- ------------------ ------
<S> <C> <C>
Robert Cohn .......................................................... 0 ______
Charles Levine (2) ................................................... 0
W. Michael West ...................................................... 200,000 ______
Margaret Norton ...................................................... 60,000 ______
Donald L. Campodonico ................................................ 0 ______
All current executive officers as a group ............................ 685,000 ______
All current non-employee directors as a group ........................ 0 ______
All other employees (including current officers 2,082,564
who are not executive officers) as a group ........................... ______
</TABLE>
- - - -----------
(1) Market value of shares based on a closing price of $_______ on the Nasdaq
National Market on the Record Date, minus the exercise price. Shares
subject to an option with an option exercise price greater than $______ are
considered to have zero dollar value.
(2) Mr. Levine's employment with the Company terminated effective as of
September 13, 1996.
15
<PAGE> 18
OPTION/SAR GRANTS IN FISCAL 1996
The following table sets forth certain information regarding options for the
purchase of the Company's Common Stock that were awarded to the Named Executive
Officers during fiscal 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
- - - ---------------------------------------------------------------------------------------------- ASSUMED ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK
SECURITIES TOTAL OPTIONS/ PRICE APPRECIATION FOR
UNDERLYING SARs GRANTED EXERCISE OR OPTION TERM (3)
OPTIONS/SARs TO EMPLOYEES BASE PRICE EXPIRATION ---------------------------
NAME GRANT(#)(1) IN FISCAL YEAR(2) ($/sh) DATE 5% ($) 10%($)
- - - -------------------- ----------- ---------------- ----------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Robert Cohn ..................
Charles Levine ...............
W. Michael West ..............
Margaret Norton ..............
Donald L. Campodonico ........
</TABLE>
- - - ------------------
(1) Options granted under the Option Plan generally become exercisable at a
rate of 1/4 of the shares subject to the option at the end of the first
year and 1/4 of the shares subject to the option at the end of each year
thereafter, so long as the individual is employed by the Company.
(2) The Company granted options to purchase _______ shares of Common Stock
during fiscal year 1996.
(3) Potential realizable value is based on the assumption that the price of the
Common Stock appreciates at the annual rate shown, compounded annually,
from the date of grant until the end of the ten-year option term. The
values are calculated in accordance with rules promulgated by the
Securities and Exchange Commission (the "Commission") and do not reflect
the Company's estimate of future stock price appreciation.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1996
AND OPTION/SAR VALUES AS OF JUNE 30, 1996
The following table sets forth certain information regarding options
for the purchase of the Company's Common Stock that were exercised or held by
the Named Executive Officers during fiscal 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS/SARS AT OPTIONS/SARS
EXERCISE REALIZED JUNE 30, 1996 AT JUNE 30, 1996($)(2)
NAME ($) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert Cohn................. 152,660 $1,490,652 600,000 900,000 $ 2,390,000 $ 3,585,000
Charles Levine.............. 50,000 681,110 0 150,000 0 1,457,850
W. Michael West............. 80,930 1,112,788 158,000 317,000 1,210,188 1,552,762
Margaret Norton............. 27,200 368,064 41,550 114,050 391,983 787,754
Donald L. Campodonico....... 25,900 347,258 66,100 84,400 552,789 710,171
</TABLE>
- - - -----------
(1) Difference between the fair market value of the Common Stock purchased and
the exercise price on the date of exercise.
(2) Differencebetween the fair market value of the underlying Common Stock and
the exercise price, for in-the-money options, on June 30, 1996.
(3) Mr. Levine's employment with the Company terminated effective as of
September 13, 1996.
16
<PAGE> 19
1987 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1987 Employee Stock Purchase Plan (the "Purchase Plan")
was adopted by the Board of Directors in October 1987 and approved by the
stockholders in November 1987. The Purchase Plan was subsequently amended on a
number of occasions, which amendments were approved by the Board of Directors
and stockholders as required by law and the Purchase Plan. A total of 4,250,000
shares of Common Stock is currently reserved for issuance under the Purchase
Plan. The Purchase Plan, which is intended to qualify under Section 423 of the
Tax Code, is implemented by one offering during each six-month period. Offering
periods commence on or about May 1 and November 1 of each year. The Purchase
Plan is administered by the Board of Directors of the Company or by a committee
appointed by the Board. Employees are eligible to participate if they are
employed by the Company for at least 20 hours per week and more than five months
per year. The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 10% of an employee's
compensation, at 85% of the lower of the fair market value of the Common Stock
at the beginning or at the end of each offering period.
As of the Record Date, 3,716,408 shares had been sold (since 1988)
under the Purchase Plan at a weighted average purchase price per share of $8.245
and 533,592 shares remained available for future issuance. See Proposal No. 3
regarding a proposal to make certain amendments to the Purchase Plan, including
the addition of 1,500,000 shares to the Purchase Plan.
PURCHASE PLAN
The following table sets forth, as to the Named Executive Officers, all
current executive officers as a group and all other employees who participated
in the Purchase Plan: (i) the number of shares of the Company's Common Stock
purchased under the Purchase Plan during the last fiscal year; and (ii) the
dollar value of the benefit (see footnote (1) to the table):
<TABLE>
<CAPTION>
(I)
NUMBER OF (II)
SHARES DOLLAR VALUE
NAME OF INDIVIDUAL OR IDENTITY OF GROUP PURCHASED ($)(1)
- - - --------------------------------------- --------- -------------
<S> <C> <C>
Robert Cohn .............................................. 2,016 $19,938.24
Charles Levine (2) ....................................... -- --
W. Michael West .......................................... 2,478 $24,507.42
Margaret Norton .......................................... -- --
Donald L. Campodonico .................................... 814 $
8,050.46
All current executive officers as a group (12 persons) ... 8,958 $88,594.62
All other employees as a group ........................... 469,328 $4,587,999.51
</TABLE>
- - - ----------
(1) Market value on date of purchase, minus the purchase price.
(2) Mr. Levine's employment with the Company terminated effective as of
September 13, 1996.
17
<PAGE> 20
1988 DIRECTORS' STOCK OPTION PLAN
The Company's 1988 Directors' Stock Option Plan (the "Directors' Plan") was
adopted by the Board of Directors in November 1988, was amended in 1989 and was
approved by the Company's stockholders in 1989. The Directors' Plan was
subsequently amended on a number of occasions, which amendments were approved by
the Board of Directors and stockholders as required by law and the Directors'
Plan. A total of 700,000 shares of Common Stock is reserved for issuance under
the Directors' Plan. The Directors' Plan is administered by the Board of
Directors. Only non-employee directors are eligible to participate in the
Directors' Plan. Eligible directors are automatically granted an option to
purchase 50,000 shares of the Company's Common Stock on the date they are first
elected a director, such option becoming exercisable cumulatively with respect
to 10,000 shares on each of the first five anniversaries of the date of grant,
unless accelerated because of a director's death or disability. On the date of
the Annual Meeting of Stockholders each year, all non-employee directors who
have served since the previous Annual Meeting of Stockholders and are reelected
receive an immediately exercisable option for 6,000 shares. The exercise price
of an option granted under the Directors' Plan is the fair market value (based
on The Nasdaq National Market closing price) of the stock on the date the option
is granted.
PROPOSAL NO. 2--APPROVAL OF AMENDMENT
TO THE 1995 INCENTIVE STOCK PLAN
GENERAL
The 1995 Incentive Stock Plan (the "Option Plan") was amended by the
Board of Directors in _____ 1996, subject to approval by the Company's
stockholders, to make a number of changes in order to take advantage of recent
changes in applicable law, ease administration and use of the Option Plan and
increase the number of shares of Common Stock reserved for issuance under the
Option Plan by 2,000,000 shares.
PURPOSE AND HISTORY OF THE OPTION PLAN
The Option Plan is the principal means through which the Company
provides equity incentives to its employees.
The Option Plan was originally adopted in 1985 and provides for a
limited number of shares to be issued to employees or consultants pursuant to
stock options and purchase rights. As options are exercised and new options are
granted to new or existing employees over the years, the number of shares
available for grant of options declines. Addition of shares to the pool reserved
under the Option Plan and the grant of additional options is necessary in order
to renew and create incentives for continuing and new employees as both older
stock options are exercised and new employees join the Company. Accordingly, in
order to continue using the Option Plan to provide long-term equity incentives
to employees, the Company periodically requests stockholder approval of the
addition of shares to the Option Plan. The Company has not added shares to the
Option Plan since 1993. The Company also monitors changes in securities, tax and
employment law, as well as recommendations by stockholders and business
management theorists, and occasionally recommends changes in the Option Plan in
response to these changes or recommendations.
18
<PAGE> 21
CURRENT STATUS OF THE OPTION PLAN; IMPORTANCE OF CONTINUED GRANTS
As of the Record Date, _______ shares of the Company's Common Stock had
been sold either directly or pursuant to the exercise of options during the
Option Plan's eleven-year history, options to purchase ________ shares were
outstanding with a weighted average exercise price per share of approximately
$____ and expiration dates ranging from ____________, 199__ to ________, ____ ,
and only _______ shares remained available for future sale or grant under the
Option Plan.
Because competition for talented individuals in Silicon Valley is so
fierce (unemployment is only __%), and because an important part of compensation
in Silicon Valley is based on stock options, the Company believes it is very
important to continue to offer competitive stock-based compensation. Further,
the current environment in the financial markets has funded a significant number
of "startup" companies that are offering generous stock option grants to attempt
to hire away the Company's current employees. This competitive environment makes
it important for the Company to continue its stock option programs. Each year a
relatively modest number of shares is returned to the Option Plan by departing
employees whose options have not yet become exercisable, but these shares are
insufficient to fund the overall needs of the Company. Accordingly, from
time-to-time additional shares must be added to the pool reserved for issuance
under the Option Plan.
AVOIDING EXCESSIVE DILUTION
The Company's Board of Directors is mindful that while stockholders
desire to have the Company offer a competitive compensation package necessary to
attract and retain talented employees, stockholders do not want the dilutive
effect of stock option exercises to have a negative impact on the value of their
shares. Accordingly, as part of its fiduciary duty to stockholders, the Board of
Directors monitors the number of shares subject to outstanding stock options,
reviews recommendations for stock option grants to employees and uses the
limited number of shares available under the Option Plan in the way it believes
to be most advantageous to the Company. The Board of Directors has adopted more
restrictive policies with respect to stock option grants during the last two
fiscal years and the potential dilutive effect of stock options has declined, on
a fully diluted basis, from 25% in June 1995 to 18% in June 1996. The Board of
Directors is targeting a potential dilution level of 20% or less and its
long-term goal is to reduce potential dilution to approximately 15%. New grants
under the Option Plan may increase the number of shares subject to outstanding
options in the short-term, but anticipated option exercises during the coming
year, assuming high stock prices and scheduled expiration of options, will have
an offsetting effect and move overall potential dilution from stock options
toward a lower level.
SHARE REPURCHASE PROGRAM
In addition to monitoring the use of stock options closely, the Company
has adopted a share repurchase program in an effort to offset in part the
dilutive effect of issuances under the Company's stock-based employee incentive
plans. The share repurchase program is a systematic program funded from
available working capital. In July 1994, the Company's Board of Directors
approved the repurchase of up to seven million shares (adjusted for the 1996
stock split and as confirmed by the Board of Directors) of its Common Stock over
a period of approximately two years. Subsequently, in June 1996 the Board of
Directors extended the authorization for an additional two years.
As of June 30, 1996, the Company had repurchased approximately 3.2
million shares (post-split) of its Common Stock under this program at an average
per share price of approximately $11 (post-split),
19
<PAGE> 22
including the impact of put warrant proceeds. All repurchased shares have been
used to fulfill the Company's obligations under the Option Plan and the Employee
Stock Purchase Plan. The Company expects to continue to repurchase its Common
Stock under this program as market conditions warrant.
OPTION EXCHANGE PROGRAMS
On two occasions, in 1990 and 1994, the Board of Directors has
instituted an option exchange program. In some market conditions, such as those
experienced in 1990 and 1994, the exercise price that employees would have to
pay in order to exercise their stock options exceeds the price at which the
stock is available in the public market. This situation can occur because of
broad market declines, declines in the Company's stock price due to factors
beyond the Company's control or because of Company performance. Such
"underwater" stock options have little incentive value to employees and may in
fact be a cause of low morale and motivation. When, in the good faith judgment
of the Board of Directors, this situation appears to be more damaging to the
Company and its stockholders than would be the dilutive effect of an option
exchange program, the Board of Directors replaces such "underwater" stock
options promptly with options having an exercise price equal to the then fair
market value of the stock, thus restoring the opportunity for employees to
receive value in the near term by building the Company and causing the market
value of the stock to increase. On the two occasions when the Board of Directors
has instituted an option exchange program, the Board carefully considered market
conditions, employee turnover, employee morale and Company performance. The
deliberations of the Board of Directors prior to authorizing such a program gave
consideration to the effect on existing stockholders and determined that such a
program would be in the best interest of all stockholders. A number of other
prestigious Silicon Valley businesses have used option exchange programs in the
past few years.
Even when an option exchange program has been approved, there have been
restrictions and substantive quid pro quo's for optionees. For example, in the
1994 program, optionees were required to give up 10% of their total options,
restart their vesting on a new four-year track and wait to exercise their
options until either (i) the market price of the stock was as high as their
original exercise price or (ii) they had held the option for over five years. In
the 1990 program, which was instituted in the face of extraordinary declines in
the value of technology stocks (including the Company's stock), all employees
were offered the chance to participate in the program but were required to
refrain from exercising their options for a nine-month "blackout" period and to
delay their exercisability schedules for a full year. Senior management's
options were excluded from the 1994 option exchange program in recognition of
the potential unfairness in cases where managers may have been partly
responsible for poor Company performance. The Board of Directors has never
authorized an exchange program for its own options.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The affirmative vote of the majority of the Votes Cast will be required
under Delaware law to approve the amendment to the Option Plan. The Company
believes that the recommended changes and addition of shares to the Option Plan
will ensure that the Board of Directors can continue to create the equity
incentives necessary to assist the Company in attracting, retaining and
motivating the best available personnel for the successful conduct of the
Company's business.
20
<PAGE> 23
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF
THE OPTION PLAN, AS AMENDED.
The essential features of the Option Plan are outlined below.
ADMINISTRATION; LIMITS ON GRANTS
With respect to grants of options to employees who are also officers or
directors of the Company, the Option Plan, as amended, shall be administered by
(i) the Board of Directors of the Company if the Board may administer the Option
Plan in compliance with Rule 16b-3 under the Exchange Act ("Rule 16b-3") with
respect to a plan intended to qualify under Rule 16b-3 as a discretionary plan
or (ii) a committee designated by the Board of Directors to administer the
Option Plan, which committee shall be constituted in such a manner as to permit
the Option Plan to comply with Rule 16b-3 with respect to a plan intended to
qualify thereunder as a discretionary plan. With respect to grants of options to
employees or consultants who are neither officers nor directors of the Company,
the Option Plan shall be administered by (i) the Board of Directors or (ii) a
committee designated by the Board, which committee shall be constituted in such
a manner as to satisfy the legal requirements relating to the administration of
incentive stock option plans, if any, of Delaware corporate law, federal and
state and securities laws and the Tax Code. If permitted by Rule 16b-3, the
Option Plan may be administered by different bodies with respect to directors,
non-director officers and employees who are neither officers nor directors and
consultants who are not directors. For the purposes of this plan description,
"Board" shall mean either the Board of Directors or a committee appointed by the
Board of Directors to administer the Option Plan.
ELIGIBILITY
The Option Plan provides for the grant of options and sale of shares to
employees of and consultants to the Company. Only employees may be granted
incentive stock options. The Board selects the optionees and determines the
number of shares to be made subject to option. As of the date of this Proxy
Statement, directors who are not also employees of the Company are not eligible
to participate in the Option Plan. However, prior to March 10, 1988, such
directors were eligible to participate in the Option Plan and they may still
exercise options granted to them prior to that date.
At the Record Date, the Company employed approximately 3,000 people,
approximately 2,900 of whom were eligible to participate in the Option Plan.
TERMS OF OPTIONS
Each option granted under the Option Plan is evidenced by a written
stock option agreement between the Company and the optionee. Options are
generally subject to the terms and conditions set forth below, but specific
terms may vary.
(a) Exercise of the Option. The Board determines when options may be
exercised. In no event may any incentive stock option granted under the Option
Plan be exercised more than ten years after the date of grant. Incentive stock
options currently being granted generally expire after five years and six
months. An option is exercised by giving written notice of exercise to the
Company specifying the number of full shares of Common Stock to be purchased and
by tendering payment of the purchase price. Payment for shares
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purchased upon exercise of an option shall be in such form of consideration as
is authorized by the Option Plan and determined by the Board, and such form of
consideration may vary for each option.
(b) Exercise Price. The exercise price of options granted under the
Option Plan is determined by the Board and may not be less than 100% of the fair
market value of the Common Stock on the date the option is granted. In the case
of incentive stock options granted to an optionee who owns more than 10% of the
voting power or value of all classes of stock of the Company, the exercise price
must not be less than 110% of the fair market value on the date of grant. The
fair market value of the Common Stock is the closing sale price on The Nasdaq
National Market on the date of grant.
(c) Termination of Employment. If the optionee's employment or
association with the Company terminates for any reason (other than death or
disability), the optionee may, but only within 30 days (or such other period as
may be determined by the Board, but not exceeding three months for incentive
stock options) following the date of such termination, exercise any option
granted under the Option Plan, but only to the extent such option was
exercisable on the date of termination. To the extent that the option is not
exercised within such 30-day (or other) period, the option terminates.
(d) Disability. In the event that an employee or consultant is unable
to continue his employment or consulting relationship with the Company as a
result of his total and permanent disability (as defined in Section 22(e)(3) of
the Tax Code), exercisability generally is accelerated from the usual four-year
period to a three-year period, and the optionee may, but only within three
months (or such other period of time not exceeding one year as is determined by
the Board at the time of grant of the option) from the date of termination,
exercise the option to the extent it was otherwise exercisable at the date of
such termination. To the extent that the option is not exercised within such
period, the option terminates.
(e) Death. If an optionee should die while employed by, or within one
month after termination of employment with, the Company, exercisability of
options under the Option Plan generally is accelerated from the usual four-year
period to a three-year period, and the option may be exercised at any time
within six months after death by the optionee's estate, but only to the extent
such options were exercisable on the date of death or termination, as the case
may be.
(f) Liquidation or Acquisition. In the event of a proposed dissolution
or liquidation of the Company, options under the Option Plan terminate unless
otherwise provided by the Board. In such event, the Board, in its sole
discretion, may determine to make options immediately exercisable as to all
shares.
Current option agreements provide that in the event of a proposed sale
of all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, options shall be assumed or equivalent
options shall be substituted by such successor corporation or its affiliate. If
such successor corporation refuses to assume an option or to substitute an
equivalent option, the Board shall provide for the optionee to have the right to
exercise the option as to all of the Common Stock subject to the option. Most
options granted before December 1987 allowed the Board the right to accelerate
the exercisability of options whether or not a successor corporation was willing
to assume such options.
Option agreements for officers and certain key employees provide for
full acceleration of exercisability in the event that, following a change in
control of the Company, the optionee's employment is terminated or the
optionee's compensation and benefits are reduced. The Board may, in its
discretion, provide in individual option agreements for an optionee to have the
right to return an option to the Company for a cash payment equal to the net
value of the option upon the occurrence of a merger, sale of all or
substantially all assets of
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the Company, tender offer or other transaction or series of related transactions
resulting in a change of ownership of more than 50% of the voting securities of
the Company.
(g) Non-transferability of Options. An option is generally not
transferable by the optionee, other than by will or the laws of descent and
distribution. However, the Board may grant or amend options in individual cases
to allow an option to be transferable to a trust for the benefit of an employee
or the employee's family members. Options are generally exercisable during the
optionee's lifetime only by the optionee unless transferred to a trust as
described above.
(h) Withholding of Shares to Pay Tax Liability. The Option Plan allows
the Company to withhold shares as to which an option has been exercised in order
to comply with regulations requiring the Company to withhold taxes upon certain
exercises of options. See "Tax Information -- Nonstatutory Options."
(i) Other Provisions. The option agreement may contain such other
terms, provisions and conditions not inconsistent with the Option Plan as may be
determined by the Board or its committee.
EXERCISABILITY OF OPTIONS
Options granted under the Option Plan generally become exercisable in
installments. Most options granted before June 2, 1994 become exercisable as to
20% of the total shares under option one year after the date of beginning
employment (for new employees) or the date of option grant (for existing
employees), and as to an additional 20% after each subsequent twelve-month
period so long as the optionee remains an employee of the Company. Most options
granted on and after June 2, 1994 become exercisable as to 25% of the total
shares under option one year after the date of beginning employment (for new
employees) or the date of option grant (for existing employees), and as to an
additional 25% after each subsequent twelve-month period so long as the optionee
remains an employee of the Company. Exercisability is accelerated in the case of
death or disability or, in certain cases, by termination of employment or
reduction in compensation following a change in control, as described above.
Exercisability is delayed by leaves of absence or temporary reductions in work
hours. Options being granted at this time generally expire five years and six
months from the date of grant.
CAPITAL CHANGES
In the event any change is made in the Company's capitalization which
results in an exchange of Common Stock for a greater or lesser number of shares
without receipt of consideration, appropriate adjustment will be made in the
exercise price and in the number of shares subject to options outstanding under
the Option Plan, as well as in the number of shares reserved for issuance under
the Option Plan.
AMENDMENT AND TERMINATION OF THE PLAN
The Board may at any time amend, alter, suspend or discontinue the
Option Plan, but no amendment, alteration, suspension or discontinuation shall
be made which would impair the rights of any optionee under any grant
theretofore made without such optionee's consent. In addition, to the extent
necessary and desirable to comply with Rule 16b-3 or with Section 422 of the Tax
Code (or any other applicable law or regulation, including the requirements of
the NASD or an established stock exchange), the Company shall obtain stockholder
approval of any amendment to the Option Plan in such a manner and to such a
degree as required.
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TAX INFORMATION--THE OPTION PLAN
Options granted under the Option Plan may be either "incentive stock
options," as defined in Section 422 of the Tax Code, or nonstatutory options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
unless the exercise subjects the optionee to the alternative minimum tax. Upon
the sale or exchange of the shares more than two years after grant of the option
and one year after exercising the option, any gain or loss will be treated as
long-term capital gain or loss. If these holding periods are not satisfied, the
optionee will recognize ordinary income at the time of sale or exchange equal to
the difference between the exercise price and the lower of (i) the fair market
value of the shares at the date of the option exercise or (ii) the sale price of
the stock. A different timing rule for measuring ordinary income upon such a
premature disposition may apply if the optionee is also an officer, director or
10% stockholder of the Company. The Company will be entitled to a deduction in
the same amount as the ordinary income recognized by the optionee. Any gain or
loss recognized on such a premature disposition of the shares in excess of the
amount treated as ordinary income will be characterized as long-term or
short-term capital gain or loss, depending on the holding period.
All other options which do not qualify as incentive stock options are
referred to as "nonstatutory options." An optionee will not recognize any
taxable income at the time of grant of a nonstatutory option. However, upon its
exercise, the optionee will recognize taxable income generally measured as the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by an
optionee who is also an employee of the Company will be subject to tax
withholding by the Company. Upon resale of such shares by the optionee, any
difference between the sales price and the optionee's purchase price, to the
extent not recognized as taxable income as described above, will be treated as
long-term or short-term capital gain or loss, depending on the holding period.
The Company will be entitled to a tax deduction in the same amount as
the ordinary income recognized by the Optionee with respect to shares acquired
upon exercise of a nonstatutory option.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME
TAXATION UPON THE OPTIONEE AND THE COMPANY WITH RESPECT TO THE GRANT AND
EXERCISE OF OPTIONS UNDER THE OPTION PLAN AND DOES NOT PURPORT TO BE COMPLETE.
REFERENCE SHOULD BE MADE TO THE APPLICABLE PROVISIONS OF THE TAX CODE. IN
ADDITION, THIS SUMMARY DOES NOT DISCUSS THE INCOME TAX LAWS OF ANY MUNICIPALITY,
STATE OR FOREIGN COUNTRY IN WHICH THE OPTIONEE MAY RESIDE.
PROPOSAL NO. 3--APPROVAL OF AMENDMENT TO
THE 1987 EMPLOYEE STOCK PURCHASE PLAN
The 1987 Employee Stock Purchase Plan (the "Purchase Plan") was amended
by the Board of Directors in _______ 1996 to reserve an additional 1,500,000
shares of Common Stock for issuance thereunder.
The Company believes that its Purchase Plan is an important factor in
attracting and retaining skilled personnel. Each year the Company reviews the
number of shares available for issuance under the Purchase Plan and, based on
the Company's estimates of the number of shares expected to be purchased
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under the Purchase Plan during the coming year, management presents to the Board
of Directors a recommendation for the addition of shares to the pool reserved
for issuance under the Purchase Plan. The Board then reviews this recommendation
and presents a proposal such as this one to the stockholders for approval.
The initial offering period under the Purchase Plan began on February
26, 1988, and from that date to the Record Date 3,716,408 shares of the
Company's Common Stock were sold under the Purchase Plan. The number of shares
sold in each offering period will vary with the number of participants, the
amount of their payroll deductions and the fair market value of the Company's
Common Stock.
VOTE REQUIRED
The affirmative vote of the majority of the Votes Cast will be required
under Delaware law to approve the amendment to the Purchase Plan.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF
THE PURCHASE PLAN AS AMENDED, INCLUDING THE ADDITION OF SHARES TO THE POOL
RESERVED FOR ISSUANCE THEREUNDER.
The essential features of the Purchase Plan are outlined below.
GENERAL
The Purchase Plan, and the right of participants to make purchase
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Tax Code. See "Tax Information--The Purchase Plan."
PURPOSE
The purpose of the Purchase Plan is to provide employees of the Company
with an opportunity to purchase Common Stock of the Company at a discount
through accumulated payroll deductions.
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors or a
committee of members of the Board appointed by the Board, who receive no
separate additional compensation for such service. All questions of
interpretation or application of the Purchase Plan are determined by the Board
or its appointed committee, whose decisions are final and binding upon all
participants. Members of the Board who are eligible employees are permitted to
participate in the Purchase Plan but may not vote on any matter affecting the
administration of the Purchase Plan or the grant of any option pursuant to the
Purchase Plan.
ELIGIBILITY
Any person who is customarily employed at least 20 hours per week and
five months per calendar year by the Company during the applicable offering
period is eligible to participate in the Purchase Plan, unless the employee
would own five percent or more of the total combined voting power or value of
all classes of stock of the Company or of its subsidiaries (including stock
issuable upon exercise of options
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held by such person) at the end of the offering period, or the employee would
receive more than $25,000 worth of stock (computed as of the date of grant)
pursuant to the Purchase Plan in any calendar year.
At the Record Date, the Company employed approximately 3,000 people,
approximately 2,900 of whom were eligible to participate in the Purchase Plan.
Approximately 1,960 employees were participating in the Purchase Plan as of the
Record Date.
OFFERING DATES
The Purchase Plan is generally implemented by one offering during each
six-month period. Offering periods commence on or about May 1 and November 1 of
each year.
ENROLLMENT IN THE PLAN
Eligible employees become participants in the Purchase Plan by
delivering to the Company's payroll office a subscription agreement authorizing
payroll deductions. Employees hired after the first day of an offering period
(or who otherwise become eligible after such date) may begin participation in
the Purchase Plan on the first business day of the calendar month following the
month in which they are hired (or become eligible). Under the Purchase Plan,
once an employee elects to participate in the Purchase Plan, enrollment in each
successive offering period occurs automatically unless the employee withdraws
from participation in the Purchase Plan.
PURCHASE PRICE
The purchase price per share under the Purchase Plan is the lower of
(i) 85% of the fair market value of a share of Common Stock on the date of
commencement of the offering (or for employees beginning participation later,
the date such participation began) or (ii) 85% of the fair market value of a
share of Common Stock on the last day of the offering period. The fair market
value of the Common Stock on a given date is the closing sale price on The
Nasdaq National Market.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by after-tax payroll
deductions over the offering period. The deductions may not exceed 10% of a
participant's compensation. The total number of shares purchased by any
participant shall in no event exceed, in any calendar year, the number of shares
of Common Stock which $25,000 could purchase at the fair market value of a share
of the Company's Common Stock, calculated as of the offering date. A participant
may discontinue participation in the Purchase Plan, and may decrease but not
increase the rate of payroll deductions, during the offering period.
PURCHASE OF STOCK; EXERCISE OF OPTION
By executing a subscription agreement to participate in the Purchase
Plan, the employee is entitled to have shares placed under option to him. The
maximum number of shares placed under option to a participant in an offering is
that number determined by dividing the total amount of the participant's
contribution for the offering period by the lower of (i) 85% of the fair market
value of the Common Stock at the beginning of the offering period (or date his
participation began) or (ii) 85% of the fair market value of the Common Stock at
the end of the offering period, but in no event shall more than the number
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of shares of Common Stock which $25,000 could purchase at the fair market value
of a share of the Company's Common Stock, calculated as of the offering date, be
placed under option to a single participant in any one calendar year. Unless the
employee's participation is discontinued, the option for the purchase of shares
will be exercised automatically at the end of the offering period at the
applicable price. No fractional shares will be issued upon exercise of the
option. Any amounts insufficient to purchase a full share remaining in a
participant's account after exercise of the option will be credited to the
participant and used in a future offering period. No interest will accrue on the
payroll deductions of a participant in the Purchase Plan.
WITHDRAWAL
A participant's interest in a given offering may be terminated by
signing and delivering to the Company a notice of withdrawal from the Purchase
Plan. Upon withdrawal from the Purchase Plan, accrued but unused payroll
deductions are returned to the employee. Such withdrawal may be elected at any
time prior to the end of the applicable six-month offering period. A
participant's withdrawal from an offering will not have any effect upon such
participant's eligibility to participate in subsequent offering periods under
the Purchase Plan.
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including
retirement or death, cancels participation in the Purchase Plan immediately. In
such event the payroll deductions credited to the participant's account will be
returned without interest to such participant, or, in the case of death, to the
person or persons entitled thereto as specified by the employee in the
subscription agreement.
CAPITAL CHANGES
In the event of changes in the capitalization of the Company, such as
stock splits or stock dividends, which result in an increase or decrease in the
number of shares of Common Stock without receipt of consideration by the
Company, appropriate adjustments will be made by the Company in the number of
shares subject to purchase and in the price per share.
EFFECT OF LIQUIDATION, DISSOLUTION, SALE OF ASSETS OR MERGER
In the event of a liquidation or dissolution of the Company, an
employee's participation in the Purchase Plan will be terminated immediately
before consummation of such event unless otherwise provided by the Board. In the
event of a sale of all or substantially all of the assets of the Company or a
merger of the Company with or into another corporation, the employee's rights
may be satisfied by assumption of the Company's obligations by such acquiring or
successor corporation. If such corporation refuses to assume those obligations,
the Board shall allow the immediate exercise of the employee's rights for 30
days, after which the employee's rights under the Purchase Plan shall terminate.
NON-ASSIGNABILITY
No rights or accumulated payroll deductions of an employee under the
Purchase Plan may be pledged, assigned or transferred for any reason, and any
such attempt may be treated by the Company as an election to withdraw from the
Purchase Plan.
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REPORTS
Individual accounting will be maintained for each participant in the
Purchase Plan. Each participant receives as promptly as practicable after the
end of the six-month offering period a report showing the details of the
participant's account.
AMENDMENT AND TERMINATION OF THE PLAN
The Board may at any time amend, alter, suspend or discontinue the
Purchase Plan, but, except under certain conditions, no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of any
participant arising out of any offering period which has already commenced
without such participant's written consent. In addition, to the extent necessary
and desirable to comply with Rule 16b-3 under the Exchange Act or with Section
423 of the Tax Code (or any other applicable law or regulation, including the
requirements of the NASD or an established stock exchange), the Company shall
obtain stockholder approval of any Purchase Plan amendment in such a manner and
to such a degree as required.
TAX INFORMATION--THE PURCHASE PLAN
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Tax Code. Under these provisions, no income will be taxable to a
participant until the shares purchased under the Plan are sold or otherwise
disposed of. Upon sale or other disposition of the shares, the participant will
generally be subject to tax and the amount of the tax will depend upon the
holding period. If the shares are sold or otherwise disposed of more than two
years from the first day of the offering period, the participant will recognize
ordinary income measured as the lesser of (a) the excess of the fair market
value of the shares at the time of such sale or disposition over the purchase
price, or (b) an amount equal to 15% of the fair market value of the shares as
of the first day of the offering period. Any additional gain will be treated as
long-term capital gain. If the shares are sold or otherwise disposed of before
the expiration of this holding period, the participant will recognize ordinary
income generally measured as the excess of the fair market value of the shares
on the date the shares are purchased over the purchase price. Any additional
gain or loss on such sale or disposition will be long-term or short-term capital
gain or loss, depending on the holding period. The Company is not entitled to a
deduction for amounts taxed as ordinary income or capital gain to a participant
except to the extent of ordinary income recognized by participants upon a sale
or disposition of shares prior to the expiration of the holding period(s)
described above.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME
TAXATION UPON THE PARTICIPANT AND THE COMPANY WITH RESPECT TO THE SHARES
PURCHASED UNDER THE PURCHASE PLAN AND DOES NOT PURPORT TO BE COMPLETE. REFERENCE
SHOULD BE MADE TO THE APPLICABLE PROVISIONS OF THE TAX CODE. IN ADDITION, THIS
SUMMARY DOES NOT DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT'S DEATH OR THE
INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE
PARTICIPANT MAY RESIDE.
PROPOSAL NO. 4--APPROVAL OF AMENDMENT TO
CERTIFICATE OF INCORPORATION
GENERAL
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Proposal No. 4 is to amend the Company's Certificate of Incorporation
for the purpose of increasing the total number of shares of Common Stock the
Company is authorized to issue. In April 1996 the Company declared a dividend in
the form of a two-for-one stock split. This stock split doubled the number of
shares outstanding and therefore reduced significantly the number of shares that
remained authorized but unissued. The Company believes it is important to retain
a significant reserve of authorized but unissued Common Stock that could be used
to declare stock dividends or stock splits, raise additional capital through the
sale of securities, acquire another company or its business or assets, create
negotiating leverage and flexibility in the event of an unfriendly takeover bid
or establish a strategic relationship with a corporate partner, among other
uses. Accordingly, this Proposal No. 4 requests your approval for an increase in
the reserve of authorized shares.
The Company's current Restated Certificate of Incorporation (the
"Certificate") authorizes the Company to issue 5,000,000 shares of Preferred
Stock, par value $.001 per share, and 100,000,000 shares of Common Stock, par
value $.001 per share. In _______1996, the Board of Directors authorized an
amendment to the Certificate to increase the authorized number of shares of
Common Stock to 200,000,000 shares.
CURRENT NUMBER OF SHARES OUTSTANDING AND SUBJECT TO OPTIONS
At the Record Date, __________ shares of Common Stock were issued and
outstanding, approximately __________ additional shares were issuable upon
exercise of outstanding options or purchase rights and approximately _________
shares were reserved for future grants under the Company's stock plans. No
shares of Preferred Stock were outstanding or subject to options.
WORDING OF AMENDMENT
Under the proposed amendment, Sections 1 and 2 of Article FOURTH of the
Certificate would be amended to read as follows:
"Section 1. The total number of shares which the Corporation
shall have authority to issue is 205,000,000 shares of capital stock.
"Section 2. Of such authorized shares, two hundred million
(200,000,000) shares shall be designated `Common Stock,' and have a par
value of $.001."
EFFECT OF AMENDMENT
If approved, the proposed amendment to the Certificate would authorize
additional shares of Common Stock that will be available in the event that the
Board of Directors determines to authorize stock dividends or stock splits, to
raise additional capital through the sale of securities, to acquire another
company or its business or assets, to create negotiating leverage and
flexibility in the event of an unfriendly takeover bid or to establish a
strategic relationship with a corporate partner, among other uses. If the
proposed amendment is adopted, 100,000,000 additional shares of Common Stock of
the Company will be available for issuance at the discretion of the Board of
Directors, except that certain large issuances of shares may require stockholder
approval in accordance with the requirements of The Nasdaq National Market and
certain stock-based employee benefit plans may require stockholder approval in
order to obtain desirable treatment under tax or securities laws and accounting
regulations.
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The Board of Directors believes it desirable that the Company have the
flexibility to issue the additional shares as described above. As is typical in
publicly held technology companies, the holders of Common Stock have no
preemptive rights to purchase any stock of the Company. Stockholders should be
aware that the issuance of additional shares could have a dilutive effect on
earnings per share and on the equity ownership of the present holders of Common
Stock. No actions are currently being taken with respect to any large issuance
of additional shares.
The flexibility of the Board of Directors to issue additional shares of
stock could enhance the Board's ability to negotiate on behalf of the
stockholders in an unfriendly takeover situation. Although it is not the purpose
of the proposed amendment, the authorized but unissued shares of Common Stock
(as well as the existing authorized but unissued shares of Preferred Stock) also
could be used by the Board of Directors to discourage, delay or make more
difficult a change in the control of the Company. The Board of Directors is not
aware of any pending or proposed effort to acquire control of the Company.
VOTE REQUIRED
The approval of the amendment to the Certificate requires the
affirmative vote of a majority of the outstanding shares of Common Stock of the
Company. An abstention or nonvote is not an affirmative vote and, therefore,
will have the same effect as a vote against the proposal.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF
THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION.
PROPOSAL NO. 5--RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has nominated KPMG Peat Marwick LLP to audit the
consolidated financial statements of the Company for the fiscal year ending June
30, 1997. Such nomination is being presented to the stockholders for
ratification at the meeting. A representative of KPMG Peat Marwick LLP is
expected to be present at the meeting, will have the opportunity to make a
statement and is expected to be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting is required
to ratify the Board's selection. If the stockholders reject the nomination, the
Board will reconsider its selection.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK LLP AS THE COMPANY'S
AUDITORS.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting.
If any other matters properly come before the meeting, it is the intention of
the persons named in the enclosed proxy card to vote the shares they represent
as the Company may recommend.
By Order of the Board of Directors
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Derek S. Daley, Secretary
Milpitas, California
__________, 1996
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
OCTEL COMMUNICATIONS CORPORATION
1996 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder(s) of Octel Communications Corporation, a
Delaware corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement, each dated October __, 1996, and
hereby appoints Robert Cohn and Derek S. Daley, and each of them, Proxies and
Attorneys-in-Fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 1996 Annual
Meeting of Stockholders of Octel Communications Corporation, to be held on
November 14, 1966, at 9:00 a.m., local time, at the Company's principal offices
at 1001 Murphy Ranch Road, Milpitas, California 95035, and at any adjournments
thereof, and to vote all shares of Common Stock which the undersigned is
entitled to vote on the matters set forth below:
THIS BALLOT WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4 AND 5, AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
(Continued and to be signed on reverse side)
<PAGE> 35
/X/ Please mark your
votes in the box
The Board of Directors recommends a vote FOR Proposals 1,2,3,4 and 5.
1. ELECTION OF DIRECTORS:
NOMINEES: Robert Cohn, Anson M. Beard, Jr., Leo J. Chamberlain, Deborah A.
Coleman, Nathaniel de Rothschild, Dag Tellefsen, W. Michael West.
FOR WITHHOLD
/ / / /
- - - -------------------------------------------------------------------------
If you wish to withhold authority to vote for any individual nominee, write
that nominee's name on the line above:
This proxy should be marked, dated, signed by the stockholder(s) exactly as
the stockholder's name appears herein and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If
shares are held by joint tenants or as community property, both should sign.
2. Proposal to amend the 1995 Incentive Stock FOR AGAINST ABSTAIN
Plan to increase the number of shares
reserved for issuance thereunder. / / / / / /
3. Proposal to amend the 1987 Employee Stock
Purchase Plan to increase the number
of shares reserved for issuance thereunder. / / / / / /
4. Proposal to amend the Certificate of
Incorporation to increase the authorized
number of shares of Common Stock of the
Company to 200,000,000 / / / / / /
5. Proposal to ratify the appointment of KPMG
Peat Marwick LLP as independent auditors
of the Company for the 1997 fiscal year. / / / / / /
In their discretion the Proxies are authorized to vote upon such other business
as may properly come before the meeting.
Signature: --------------------------------------------- Date ---------------
Signature: --------------------------------------------- Date ---------------
<PAGE> 1
EXHIBIT 99.1
OCTEL COMMUNICATIONS CORPORATION
1987 EMPLOYEE STOCK PURCHASE PLAN
As amended June 1996
The following constitute the provisions of the Employee Stock Purchase
Plan of Octel Communications Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock, no par value, of the
Company.
(d) "Company" shall mean Octel Communications Corporation, a
Delaware corporation.
(e) "Compensation" shall mean all regular gross earnings, including
payments for overtime, shift premium, incentive compensation, incentive
payments, bonuses, commissions or other compensation.
(f) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(g) "Designated Subsidiaries" shall mean the Subsidiaries which have
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(h) "Employee" shall mean any person, including an officer, who is
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(i) "Exercise Date" shall mean the last day of each offering period
of the Plan.
(j) "Offering Date" shall mean the first business day of each
offering period of the Plan, except that in the case of an individual who
becomes an eligible Employee after the first business day of an offering period
but prior to the first business day of the last calendar month of such offering
period,
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the term "Offering Date" shall mean the first business day of the calendar month
following the month in which that individual becomes an eligible Employee.
Options granted after the first business day of an offering
period will be subject to the same terms as the options granted on the first
business day of such offering period except that they will have a different
grant date (thus, potentially, a different exercise price) and, because they
expire at the same time as the options granted on the first business day of such
offering period, a shorter term.
(k) "Plan" shall mean this Employee Stock Purchase Plan.
(l) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
3. Eligibility.
(a) Any person who is an Employee as of an Offering Date of a given
offering period shall be eligible to participate in such offering period under
the Plan, provided that such person was not eligible to participate in such
offering period as of any prior Offering Date, and further subject to the
requirements of paragraph 5(a) and the limitations imposed by Section 423(b) of
the Code. Notwithstanding the foregoing sentence, any Employee who becomes an
eligible Employee in the months of July or August, 1988 may begin participation
in the Plan on September 1, 1988.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 425(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any Subsidiary of the Company, or (ii) which permits his rights to
purchase stock under all employee stock purchase plans (described in Section 423
of the Code) of the Company and its Subsidiaries to accrue at a rate which
exceeds Twenty-Five Thousand Dollars ($25,000) of fair market value of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods.
The Plan shall be implemented by one offering during each six-month
period of the Plan, commencing on or about the first day following the end of
the prior offering period, and continuing thereafter until terminated in
accordance with paragraph 19 or 23 hereof. The Board of Directors of the Company
shall have the power to change the duration of offering periods with respect to
future offerings without stockholder approval if such change is announced at
least fifteen (15) days prior to the scheduled beginning of the first offering
period to be affected.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deduction on the form
provided by the Company and filing it with the Company's payroll office at such
time as is specified by the Company and is prior to the applicable Offering Date
(unless a later time for filing the subscription agreement is set by the Board
for all eligible
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Employees with respect to a given offering period). Once properly made, an
eligible Employee's election to participate shall be automatically renewed for
each subsequent offering period, subject to any termination or withdrawal as
provided in paragraph 10.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Offering Date and shall end on the Exercise Date of the
offering period to which such authorization is applicable, unless sooner
terminated by the participant as provided in paragraph 10.
6. Payroll Deductions.
(a) At the time a participant files his subscription agreement, he
shall elect to have payroll deductions made on each payday during the offering
period in an amount not exceeding ten percent (10%) of the Compensation which he
receives on each payday during the offering period, and the aggregate of such
payroll deductions during the offering period shall not exceed ten percent (10%)
of his aggregate Compensation during said offering period.
(b) All payroll deductions made by a participant shall be credited
to his account under the Plan. A participant may not make any additional
payments into such account.
(c) A participant may discontinue his participation in the Plan as
provided in paragraph 10, or may decrease (but not increase) the rate of his
payroll deductions during the offering period by completing or filing with the
Company a new authorization for payroll deduction. The change in rate shall be
effective fifteen (15) days following the Company's receipt of the new
authorization.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and paragraph 3(b) herein, a participant's
payroll deductions may be decreased to 0% at such time during any Offering
Period that the aggregate of all payroll deductions accumulated with respect to
such Offering Period and any other Offering Period ending within the same
calendar year equal $21,250. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Offering Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in paragraph 11.
7. Grant of Option.
(a) On each Offering Date of each offering period, each eligible
Employee beginning participation in such offering period on such Offering Date
shall be granted an option to purchase (at the per share option price) up to a
number of shares of the Company's Common Stock determined by dividing such
Employee's payroll deductions to be accumulated during such offering period by
the lower of (i) eighty-five percent (85%) of the fair market value of a share
of the Company's Common Stock on the Offering Date, or (ii) eighty-five percent
(85%) of the fair market value of a share of the Company's Common Stock on the
Exercise Date; provided that in no event shall an Employee be permitted to
purchase during any offering period more than a number of shares determined by
dividing $25,000 by the fair market value of a share of the Company's Common
Stock on the first day of such offering period, and provided further that such
purchase shall be subject to the limitations set forth in Section 3(b) and 12
hereof. Fair market value of a share of the Company's Common Stock shall be
determined as provided in Section 7(b) herein.
(b) The option price per share of the shares offered in a given
offering period shall be the lower of: (i) 85% of the fair market value of a
share of the Common Stock of the Company on the
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Offering Date; or (ii) 85% of the fair market value of a share of the Common
Stock of the Company on the Exercise Date. The fair market value of the
Company's Common Stock on a given date shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the closing sale price
or, if not so reported, the mean of the bid and asked prices of the Common Stock
for such date, as reported in either case in The Wall Street Journal (or, if not
so reported, as otherwise reported by the National Association of Securities
Dealers Automated Quotation (NASDAQ) System) or, in the event the Common Stock
is listed on a stock exchange, the fair market value per Share shall be the
closing price on such exchange on such date, as reported in The Wall Street
Journal.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in paragraph 10, his option for the purchase of shares will be
exercised automatically on the Exercise Date of the offering period, and the
maximum number of full shares subject to option will be purchased for him at the
applicable option price with the accumulated payroll deductions in his account.
The shares purchased upon exercise of an option hereunder shall be deemed to be
transferred to the participant on the Exercise Date. During his lifetime, a
participant's option to purchase shares hereunder is exercisable only by him.
9. Delivery. As promptly as practicable after the Exercise Date of each
offering period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the shares purchased upon exercise of
his option. Any cash remaining to the credit of a participant's account under
the Plan after a purchase by him of shares at the termination of each offering
period, or which is insufficient to purchase a full share of Common Stock of the
Company, shall be retained in the participant's account for the subsequent
offering period, subject to earlier withdrawal by the participant as provided in
paragraph 10.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his account under the Plan at any time prior to the
Exercise Date of the offering period by giving written notice to the Company.
All of the participant's payroll deductions credited to his account will be paid
to him promptly after receipt of his notice of withdrawal and his option for the
current period will be automatically terminated, and no further payroll
deductions for the purchase of shares will be made during the offering period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Exercise Date of the offering period for any reason,
including retirement or death, the payroll deductions credited to his account
will be returned to him or, in the case of his death, to the person or persons
entitled thereto under paragraph 14, and his option will be automatically
terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
offering period in which the employee is a participant, he will be deemed to
have elected to withdraw from the Plan and the payroll deductions credited to
his account will be returned to him and his option terminated.
(d) A participant's withdrawal from an offering period will not have
any effect upon his eligibility to participate in a succeeding offering period
or in any similar plan which may hereafter be adopted by the Company.
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11. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 5,750,000 shares,
subject to adjustment upon changes in capitalization of the Company as provided
in paragraph 18. If the total number of shares which would otherwise be subject
to options granted pursuant to Section 7(a) hereof during an offering period
exceeds the number of shares then available under the Plan (after deduction of
all shares for which options have been exercised or are then outstanding), the
Company shall make a pro rata allocation of the shares remaining available for
option grant in as uniform a manner as shall be practicable and as it shall
determine to be equitable. In such event, the Company shall give written notice
of such reduction of the number of shares subject to the option to each Employee
affected thereby and shall similarly reduce the rate of payroll deductions, if
necessary.
(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or jointly (with right of
survivorship) in the name of the participant and another person, such as his
spouse, whom the participant designates.
13. Administration. The Plan shall be administered by the Board of the
Company or a committee of members of the Board appointed by the Board. The
administration, interpretation or application of the Plan by the Board or its
committee shall be final, conclusive and binding upon all participants. Members
of the Board who are eligible Employees are permitted to participate in the
Plan, provided that:
(a) Members of the Board who are eligible to participate in the
Plan may not vote on any matter affecting the administration of the Plan or the
grant of any option pursuant to the Plan.
(b) If a Committee is established to administer the Plan, no member
of the Board who is eligible to participate in the Plan may be a member of the
Committee.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to the end of
the offering period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Exercise Date of the offering period.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its
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discretion, may deliver such shares and/or cash to the spouse or to any one or
more dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in paragraph 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with paragraph 10.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees promptly following the Exercise Date, which statements will set forth
the amounts of payroll deductions, the per share purchase price, the number of
shares purchased and the remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but have not yet been placed under option (collectively, the
"Reserves"), as well as the price per share of Common Stock covered by each
option under the Plan which has not yet been exercised, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company,
the offering period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that any offering
period shall terminate as of a date fixed by the Board and give each Plan
participant the right to exercise his option as to all or any part of the shares
subject to option thereunder, including shares as to which the option would not
otherwise be exercisable. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each option under the Plan shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation. In the event that such
successor corporation refuses to assume the option or to substitute an
equivalent option, the Board shall, in lieu of such assumption or substitution,
provide for the Plan participant to have the right to exercise the option as to
all of the shares subject to option thereunder, including shares as to which the
option would not otherwise be exercisable. If
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the Board makes an option fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify
the Plan participant that the option shall be fully exercisable for a period of
thirty (30) days from the date of such notice, and the option will terminate
upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, and in the event of the Company being consolidated with or merged into
any other corporation.
19. Amendment and Termination. The Board may at any time amend, alter,
suspend or discontinue the Plan, but, except as provided in paragraph 18, no
amendment, alteration, suspension or discontinuation shall be made which would
impair the rights of any participant arising out of any offering period which
has already commenced without his or her written consent. In addition, to the
extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act
or with Section 423 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain stockholder approval of any Plan amendment in such a manner
and to such a degree as required.
20. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Stockholder Approval.
(a) Continuance of the Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months before or after the date
the Plan is adopted. If such stockholder approval is obtained at a duly held
stockholders' meeting, it must be obtained by the affirmative vote of the
holders of a majority of the outstanding shares of the Company, or if such
stockholder approval is obtained by written consent, it must be obtained by the
unanimous written consent of all stockholders of the Company; provided, however,
that approval at a meeting or by written consent may be obtained by a lesser
degree of stockholder approval if the Board determines, in its discretion after
consultation with the Company's legal counsel, that such a lesser degree of
stockholder approval will comply with all applicable laws and will not adversely
affect the qualification of the Plan under Section 423 of the Code.*
(b) If and in the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the stockholders of the Company obtained after such registration
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
(c) If any required approval by the stockholders of the Plan itself
or of any amendment thereto is solicited at any time otherwise than in the
manner described in paragraph 21(b) hereof, then the Company shall, at or prior
to the first annual meeting of stockholders held subsequent to the later of (1)
the
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* The Plan was approved at a duly held Shareholder's meeting in November of
1987.
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first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information which would be required (if proxies to
be voted with respect to approval or disapproval of the Plan or amendment were
then being solicited) by the rules and regulations in effect under Section 14(a)
of the Exchange Act at the time such information is furnished; and
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to stockholders.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in paragraph 21. It shall continue in
effect for a term of twenty (20) years unless sooner terminated under paragraph
19.
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OCTEL COMMUNICATIONS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
ENROLLMENT FORM
Date of enrollment: _________________
1. I, ________________________, hereby elect to participate in the Octel
Communications Corporation 1987 Employee Stock Purchase Plan (the "Stock
Purchase Plan") and subscribe to purchase shares of the Company's Common
Stock, without par value, in accordance with this enrollment form and the
Stock Purchase Plan.
2. I hereby authorize the Company to deduct from each paycheck ____% of my
GROSS PAY for each payday during this Offering Period, and each subsequent
offering period during which I am eligible to participate, in accordance
with the provisions of the Stock Purchase Plan. I also understand that this
calculated amount will be deducted from my NET PAY, or after all payroll
taxes.
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock, without par value, at the applicable
purchase price determined in accordance with the Stock Purchase Plan. I
further understand that, except as otherwise set forth in the Stock
Purchase Plan, unless I withdraw from the Stock Purchase Plan by giving
written notice to the Company, shares will be purchased for me
automatically on the Exercise Date of each offering period subsequent to my
filing of this enrollment form.
4. I understand that, before the Exercise Date for this Offering Period, the
Company will provide me with a copy of the Company's most recent prospectus
describing the 1987 Employee Stock Purchase Plan, and thereafter will
provide me with annual updates and copies of any revised versions of the
prospectus. Therefore, before my options received under the Plan are
exercised to purchase Shares, I will have the opportunity (after receiving
the prospectus and before the Exercise Date) to withdraw from the Plan and
have returned to me all the money that was deducted from my pay for the
purpose of purchasing shares. I acknowledge that I have received a copy of
the complete "Octel Communications Corporation 1987 Employee Stock Purchase
Plan." I understand that my partici pation in the Stock Purchase Plan is in
all respects subject to the terms of the Plan.
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5. Shares purchased for me under the Stock Purchase Plan should be issued in
the name(s) of:
Your name _________________________________________________
As you wish it to appear on the stock certificate
and
Other* _________________________________________________
As you wish it to appear on the stock certificate
* Please Note: If you wish for another person's name to appear on the stock
certificate in addition to you own, you must check off one of the selections
below to specify the type of ownership. This selection will be indicated on your
stock certificate.
_____ TENANTS IN COMMON - Abbreviated as "TEN COM," may be specified to
identify two or more owners.
_____ JOINT TENANCY WITH RIGHT OF SURVIVORSHIP AND NOT AS TENANTS IN COMMON -
Abbreviated as "JT TEN," may be specified to identify two or more joint
owners.
_____ TENANTS BY THE ENTIRETIES - Abbreviated as "TEN ENT," (not appropriate
for California residents) may be specified for ownership by husband and
wife.
_____ COMMUNITY PROPERTY - If specified, will not be abbreviated.
6. I understand that if I dispose of any shares received by me pursuant
to the Plan, either (1) within 2 years after the Offering Date (the
first day of the offering period during which I purchased such shares)
or (2) within 1 year after the date on which such shares were
transferred to me, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at
the time such shares were transferred to me over the price which I paid
for the shares.
I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER
THE DATE OF ANY SUCH DISPOSITION.
However, if I dispose of such shares at any time after the expiration
of the 2-year and 1-year holding periods, I understand that I will be
treated for federal income tax purposes as having received income only
at the time of such disposition, and that such income will be treated
as ordinary income only to the extent of an amount equal to the lesser
of (1) the excess of the fair market value of the shares at the time of
such disposition over the purchase price which I paid for the shares
under the option, or (2) the excess of the fair market value of the
shares over the option price, measured as if the option had been
exercised on the Offering Date. The remainder of the gain or loss, if
any, recognized on such disposition will be treated as capital gain or
loss. The federal income tax treatment of ordinary income and capital
gain and loss is described in the Company's prospectus relating to the
Stock Purchase Plan.
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7. I hereby agree to be bound by the terms of the Stock Purchase Plan. I
understand that my enrollment is dependent upon my eligibility to
participate in the Stock Purchase Plan.
8. I FURTHER ACKNOWLEDGE AND UNDERSTAND THAT THE COMPANY'S OBLIGATION TO
SELL SHARES TO ME IS CONDITIONAL UPON COMPLIANCE WITH ALL APPLICABLE
FEDERAL AND STATE SECURITIES LAWS, AND SPECIFICALLY CONDITIONAL UPON
THE EXISTENCE OF AN EFFECTIVE REGISTRATION STATEMENT REGARDING THE
SHARES WHICH I WILL PURCHASE ON THE DATE OF THAT PURCHASE.
9. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Stock Purchase Plan:
NAME: (Please print)_________________________________________________________
(First) (Middle) (Last)
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Relationship
----------------------------------
(Address)
NAME: (Please print)_________________________________________________________
(First) (Middle) (Last)
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Relationship
-----------------------------------
(Address)
NAME: (Please print)_________________________________________________________
(First) (Middle) (Last)
- - - -------------------------- ----------------------------------
Relationship
----------------------------------
(Address)
NAME: (Please print)_________________________________________________________
(First) (Middle) (Last)
- - - -------------------------- ----------------------------------
Relationship
----------------------------------
(Address)
Note: You may use the back side of this form to list any additional
beneficiary(ies) than those above or attach a list of your own.
Dated:________________ _____________________________ ______________________
Signature of Employee Print Name
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EXHIBIT 99.2
OCTEL COMMUNICATIONS CORPORATION
1995 INCENTIVE STOCK PLAN
As amended June 1996
1. Purposes of the Plan. The purposes of this Incentive Stock Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options,"
as defined in Section 422 of the Internal Revenue Code of 1986, or "nonstatutory
stock options," at the discretion of the Board and as reflected in the terms of
the written option agreement. The Board may also grant Stock Purchase Rights
under this Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Committee, if one has been appointed, or
the Board of Directors of the Company, if no Committee is appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Octel Communications Corporation, a
Delaware corporation.
(e) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(f) "Consultant" shall mean any person who is engaged by the Company
or any subsidiary to render consulting services and is compensated for such
consulting services, and any director of the Company whether compensated for
such services or not; provided that if and in the event the Company registers
any class of any equity security pursuant to Section 12 of the Exchange Act, the
term Consultant shall thereafter not include directors who are not compensated
for their services or are paid only a director's fee by the Company.
(g) "Continuous Status as an Employee or Consultant" shall mean the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Board; provided that such leave is for a period
of not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(h) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
<PAGE> 13
(j) "Incentive Stock Option" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(k) "Option" shall mean a stock option granted pursuant to the Plan.
(l) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(m) "Optionee" shall mean an Employee or Consultant who receives an
Option.
(n) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 425(e) of the Code.
(o) "Plan" shall mean this 1995 Incentive Stock Plan.
(p) "Purchaser" shall mean an Employee or Consultant who exercises a
Stock Purchase Right.
(q) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(r) "Stock Purchase Right" shall mean a right, other than an Option,
to purchase Common Stock pursuant to the Plan.
(s) "Subsidiary" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 425(f) of the Code.
(t) "Tax Date" shall mean the date that the amount of tax to be
withheld by the Company is to be determined.
3. Stock Subject to the Plan. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of shares which may be optioned and/or
sold under the Plan is 21,200,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. Repurchased shares shall not become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Administration With Respect to Directors and Officers. With
respect to grants of Options or Stock Purchase Rights to Employees who are also
officers or directors of the Company, the Plan shall be administered by (A) the
Board if the Board may administer the Plan in compliance with Rule 16b-3
promulgated under the Exchange Act or any successor thereto ("Rule 16b-3") with
respect to a plan intended to qualify thereunder as a discretionary plan, or (B)
a Committee designated by the Board to administer the Plan, which Committee
shall be constituted in such a manner as to permit the Plan to comply with Rule
16b-3 with respect to a plan intended to qualify thereunder as a discretionary
plan. Once appointed, such Committee shall continue to serve in its designated
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<PAGE> 14
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule 16b-3,
the Plan may be administered by different bodies with respect to directors,
non-director officers and Employees who are neither directors nor officers.
(iii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Options or Stock Purchase Rights to
Employees or Consultants who are neither directors nor officers of the Company,
the Plan shall be administered by (A) the Board or (B) a Committee designated by
the Board, which Committee shall be constituted in such a manner as to satisfy
the legal requirements relating to the administration of incentive stock option
plans, if any, of Delaware corporate and securities laws and of the Code (the
"Applicable Laws"). Once appointed, such Committee shall continue to serve in
its designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members of
the Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(b) Powers of the Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options, in accordance with Section 422 of the Code, "non-statutory stock
options," or Stock Purchase Rights; (ii) to determine, upon review of relevant
information and in accordance with Section 7(b) of the Plan, the fair market
value of the Common Stock; (iii) to determine the exercise price per share of
Options or Stock Purchase Rights to be granted, which exercise price shall be
determined in accordance with Section 7(a) of the Plan; (iv) to determine the
Employees or Consultants to whom, and the time or times at which, Options or
Stock Purchase Rights shall be granted and the number of shares to be
represented by each Option or Stock Purchase Right; (v) to interpret the Plan;
(vi) to prescribe, amend and rescind rules and regulations relating to the Plan;
(vii) to determine the terms and provisions of each Option or Stock Purchase
Right granted (which need not be identical) and, with the consent of the holder
thereof, modify or amend each Option or Stock Purchase Right; (viii) to
accelerate or defer (with the consent of the Optionee) the exercise date of any
Option, consistent with the provisions of Section 5 of the Plan; (ix) to
authorize any person to execute on behalf of the Company any instrument required
to effectuate the grant of an Option or Stock Purchase Right previously granted
by the Board; and (x) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees,
Purchasers and any other holders of any Options or Stock Purchase Rights granted
under the Plan.
5. Eligibility.
(a) Options and Stock Purchase Rights may be granted only to
Employees or Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option or Stock
Purchase Right may, if he is otherwise eligible, be granted an additional Option
or Options or Stock Purchase Right or Rights.
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<PAGE> 15
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate fair market
value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionees during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the fair market
value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee, Purchaser or holder
of a Stock Purchase Right any right with respect to continuation of employment
or consulting relationship with the Company, nor shall it interfere in any way
with his right or the Company's right to terminate his employment or consulting
relationship at any time.
(e) The following limitations shall apply to grants of Options and
Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options and Stock Purchase Rights to purchase more than 300,000 Shares.
(ii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 11.
(iii) If an Option or Stock Purchase Right is canceled in the
same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 11), the canceled Option or
Stock Purchase Right will be counted against the limit set forth in Section
V(e)(i). For this purpose, if the exercise price of an Option or Stock Purchase
Right is reduced, the transaction will be treated as a cancellation of the
Option or Stock Purchase Right and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon approval by the
stockholders of the Company in November 1995 as described in Section 17 of the
Plan. It shall continue in effect for a term of ten (10) years thereafter unless
sooner terminated under Section 13 of the Plan.
7. Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option or Stock Purchase Right shall be such price as
is determined by the Board, but shall be subject to the following:
(i) In the case of any Incentive Stock Option granted to any
Employee, the per Share exercise price shall be no less than 100% of the fair
market value per Share on the date of grant.
(ii) In the case of any Option, other than an Incentive Stock
Option, or any Stock Purchase Right, the per Share exercise price shall be no
less than 85% of the fair market value per Share on the date of grant.
(iii) In the case of any Option granted to any person who, at
the time of the grant of such Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the
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<PAGE> 16
Company or any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the fair market value per Share on the date of grant.
(iv) In the case of any Option or Stock Purchase Right granted
on or after the effective date of registration of any class of equity security
of the Company pursuant to Section 12 of the Exchange Act and prior to six
months after the termination of such registration, the per Share exercise price
shall be no less than 100% of the fair market value per Share on the date of
grant.
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid and
asked prices of the Common Stock for the date of grant of the Option or Stock
Purchase Right, as reported in The Wall Street Journal (or, if not so reported,
as otherwise reported by The Nasdaq National Market) or, in the event the Common
Stock is listed on a stock exchange, the fair market value per Share shall be
the closing price on such exchange on the date of grant of the Option or Stock
Purchase Right, as reported in The Wall Street Journal.
(c) Subject to compliance with applicable provisions of Section
16(b) of the Exchange Act, (or other applicable law), the consideration to be
paid for the Shares to be issued upon exercise of an Option or Stock Purchase
Right, including the method of payment, shall be determined by the Board (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant) and may consist entirely of (i) cash, (ii) check, (iii) promissory note,
(iv) other Shares which (X) in the case of Shares acquired upon exercise of an
Option either have been owned by the Optionee for more than six months on the
date of surrender or were not acquired, directly or indirectly, from the
Company, and (Y) have a fair market value on the date of exercise equal to the
aggregate exercise price of the Shares as to which said Option or Stock Purchase
Right shall be exercised, (v) authorization for the Company to retain from the
total number of Shares as to which the Option or Stock Purchase Right is
exercised that number of Shares having a fair market value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised, (vi) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise price,
(vii) by delivering an irrevocable subscription agreement for the Shares which
irrevocably obligates the option holder to take and pay for the Shares not more
than twelve months after the date of delivery of the subscription agreement,
(viii) any combination of the foregoing methods of payment, (ix) or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under applicable laws. In making its determination as to the type of
consideration to accept, the Board shall consider whether acceptance of such
consideration may be reasonably expected to benefit the Company (Section 153 of
the Delaware General Corporation Law).
8. Options.
(a) Term of Option. The term of each Incentive Stock Option shall be
ten (10) years from the date of grant thereof or such shorter term as may be
provided in the Stock Option Agreement. The term of each Option that is not an
Incentive Stock Option shall be ten (10) years and one (1) day from the date of
grant thereof or such shorter term as may be provided in the Stock Option
Agreement. However, in the case of an Option granted to an Optionee who, at the
time the Option is granted, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, (i) if the Option is an Incentive Stock Option, the term of the
Option shall be five (5) years from the date of grant thereof or shorter time as
may be provided in the Stock Option Agreement, or (ii) if the Option is not an
Incentive Stock Option, the term of the Option shall be five (5) years and one
(1) day from the date of grant thereof or such shorter time as may be provided
in the Stock Option Agreement.
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<PAGE> 17
(b) Exercise of Option.
(i) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan; provided, however, that an Incentive Stock Option granted prior to January
1, 1987 shall not be exercisable while there is outstanding any incentive stock
option which was granted, before the granting of such Incentive Stock Option, to
the same Optionee to purchase stock of the Company, any Parent or Subsidiary, or
any predecessor corporation of such corporations. For purposes of this
provision, an incentive stock option shall be treated as outstanding until such
option is exercised in full or expires by reason of lapse of time.
An Option may be exercisable over a period of time or may be
immediately exercisable as determined by the Board and may grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the Optionee's employment with the Company for any reason (including death or
disability). The purchase price for shares repurchased pursuant to the
repurchase option shall be the original price paid by the Optionee and may be
paid by cancellation of any indebtedness of the Optionee to the Company. The
repurchase option shall lapse at such a rate as the Board may determine.
Notwithstanding any other provisions of this Plan, no Option may be
exercised after the expiration of the term of the Option as set forth in the
Stock Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 7(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwith standing the exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter shall be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(ii) Termination of Status as an Employee or Consultant. If an
Employee or Consultant ceases to serve as an Employee or as a Consultant (as the
case may be), he may exercise his Option at such times and to such extent as
determined by the Board at the time of grant of the Option; provided that, in
the case of an Incentive Stock Option, the Option may be exercised only within
thirty (30) days (or such other period of time not exceeding three (3) months as
determined by the Board at the time of grant of the option) after the date he
ceases to be an Employee of the Company, and only to the extent that he was
entitled to exercise it at the date of such termination. To the extent that the
Employee was not entitled to exercise such Incentive Stock Option at the date of
such termination, or if he does not exercise such Option (which he was entitled
to exercise) within the time specified herein, the Option shall terminate.
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<PAGE> 18
(iii) Disability. Notwithstanding the provisions of Section
8(b)(ii) above, in the event an Employee or Consultant is unable to continue his
employment or consulting relationship (as the case may be) with the Company as a
result of his total and permanent disability (as defined in Section 22(e)(3) of
the Code), he may, but only within three (3) months (or such other period of
time not exceeding one (1) year as is determined by the Board at the time of
grant of the Option) from the date of termination, exercise his Option to the
extent he was entitled to exercise it at the date of such termination. To the
extent that he was not entitled to exercise the Option at the date of
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(iv) Death of Optionee. In the event of the death of an
Optionee, such Optionee's Option may be exercised at such times and to such
extent as determined by the Board at the time of grant of the Option; provided
that, in the case of an Incentive Stock Option, in the event of the death of an
Optionee:
(A) during the term of the Option who is at the time of his
death an Employee or Consultant of the Company and who shall have been
in Continuous Status as an Employee or Consultant since the date of
grant of the Option, the Option may be exercised, at any time within
six (6) months following the date of death, by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had
accrued at the date of death; or
(B) within thirty (30) days (or such other period of time
not exceeding three (3) months as is determined by the Board at the
time of grant of the Option) after the termination of Continuous Status
as an Employee, the Option may be exercised, at any time within six (6)
months following the date of death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had
accrued at the date of termination.
(v) Rule 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
9. Stock Purchase Rights.
(a) Rights to Purchase. After the Board of Directors determines that
it will offer an Employee or Consultant the right to purchase Shares under the
Plan, it shall advise the offeree in writing of the terms, conditions and
restrictions relating to the offer, including the number of Shares that such
person shall be entitled to purchase, and the time within which such person must
accept such offer, which shall in no event exceed thirty (30) days from the date
upon which the Board of Directors or its Committee made the determination to
grant the Stock Purchase Right. The offer shall be accepted by execution of a
Restricted Stock Purchase Agreement in the form determined by the Board of
Directors.
(b) Issuance of Shares. Forthwith after payment therefor, the Shares
purchased shall be duly issued; provided, however, that the Board may require
that the Purchaser make adequate provision for any Federal and State withholding
obligations of the Company as a condition to such purchase.
(c) Repurchase Option. Unless the Board of Directors or its
Committee determines otherwise, the Restricted Stock Purchase Agreement shall
grant the Company a repurchase option exercisable upon the voluntary
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<PAGE> 19
or involuntary termination of the Purchaser's employment with the Company for
any reason (including death or disability). The purchase price for shares
repurchased pursuant to the Restricted Stock Purchase Agreement shall be the
original price paid by the Purchaser and may be paid by cancellation of any
indebtedness of the Purchaser to the Company. The repurchase option shall lapse
at such a rate as the Board of Directors may determine.
(d) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Board of Directors.
(e) Rights as a Stockholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing the shares as to which
a Stock Purchase Right has been exercised, no right to vote or to receive
dividends or any other rights as a stockholder shall exist with respect to
shares of Common Stock subject to a Stock Purchase Right, notwithstanding the
exercise of a Stock Purchase Right. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 11 of the Plan.
(f) Shares Available Under the Plan. Exercise of a Stock Purchase
Right in any manner shall result in a decrease in the number of Shares that
thereafter shall be available, both for purposes of the Plan and for sale under
the Stock Purchase Right, by the number of Shares as to which the Stock Purchase
Right is exercised. Shares repurchased by the Company pursuant to Section 9(c)
hereof shall not be available for reissuance under the Plan.
10. Limited Transferability of Options and Stock Purchase Rights.
Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution, or pursuant to a gift to a member of the
optionee's immediate family or a trust for the benefit of a member of the
optionee's immediate family provided such donee is subject to the terms and
conditions of the option including continued employment of the optionee, options
and Stock Purchase Rights and may be exercised, during the lifetime of the
optionee or holder of a Stock Purchase Right, only by such optionee or holder of
a Stock Purchase Right or a permitted donee.
11. Adjustments Upon Changes in Capitalization or Merger. Subject to
any required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option and Stock Purchase Right, and
the number of shares of Common Stock which have been authorized for issuance
under the Plan but as to which no Options or Stock Purchase Rights have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option or Stock Purchase Right, as well as the price per share of Common
Stock covered by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option or Stock Purchase Right.
In the event of the proposed dissolution or liquidation of the Company,
any outstanding Options or Stock Purchase Rights shall terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Board. The Board may, in the exercise of its sole discretion in such
instances, declare that
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<PAGE> 20
any Option or Stock Purchase Right shall terminate as of a date fixed by the
Board, and may give each Optionee or holder of a Stock Purchase Right the right
to exercise his Option or Stock Purchase Right as to all or any part of the
Common Stock subject to such Option or Stock Purchase Right, including Shares as
to which the Option or Stock Purchase Right would not otherwise be exercisable.
In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, Options and Stock Purchase Rights shall be assumed or equivalent
options or rights shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation. In the event that such successor
corporation refuses to assume the Option or Stock Purchase Right or to
substitute an equivalent option or stock purchase right, the Board shall, in
lieu of such assumption or substitution, provide for the Optionee to have the
right to exercise the Option or Stock Purchase Right as to all of the Common
Stock subject to such Option or Stock Purchase Right, including Shares as to
which the Option or Stock Purchase Right would not otherwise be exercisable. If
the Board makes an Option or Stock Purchase Right fully exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the Board
shall notify the Optionee or holder of a Stock Purchase Right that the Option or
Stock Purchase Right shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, and the Option or Stock Purchase Right will
terminate upon the expiration of such period. The Board may provide in
individual Option Agreements for the repurchase of Options in return for a cash
payment by the Company upon the occurrence of a merger, sale of all or
substantially all assets of the Company, tender offer or other transaction or
series of related transactions resulting in a change of ownership of more than
50% of the voting securities of the Company.
12. Time of Granting Options or Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Board makes the determination granting such Option or Stock
Purchase Right. Notice of the determination shall be given to each Employee to
whom an Option or Stock Purchase Right is so granted within a reasonable time
after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain stockholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted and such Options and Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Board and the Optionee, Purchaser or
holder of a Stock Purchase Right, which agreement must be in writing and signed
by the Company and the Optionee, Purchaser or holder of the Stock Purchase
Right.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
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<PAGE> 21
As a condition to the exercise of an Option or Stock Purchase
Right, the Company may require the person exercising such Option or Stock
Purchase Right to represent and warrant at the time of any such exercise that
the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. Option and Stock Purchase Agreements. Options shall be evidenced by
written Stock Option Agreements in such form as the Board shall approve. Upon
the exercise of Stock Purchase Rights, a Purchaser shall execute a Restricted
Stock Purchase Agreement in such form as the Board of Directors shall approve.
17. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders. If such stockholder approval is obtained at a duly
held stockholders' meeting, it may be obtained by the affirmative vote of the
holders of a majority of the issued and outstanding shares of the Company. If
and in the event that the Company registers any class of any equity security
pursuant to Section 12 of the Exchange Act, the approval of such stockholders of
the Company shall be:
(a) (i) solicited substantially in accordance with Section 14(a) of
the Exchange Act and the rules and regulations promulgated thereunder, or (ii)
solicited after the Company has furnished in writing to the holders entitled to
vote substantially the same information concerning the Plan as that which would
be required by the rules and regulations in effect under Section 14(a) of the
Exchange Act at the time such information is furnished; and
(b) obtained at or prior to the first annual meeting of
stockholders held subsequent to the first registration of any class of equity
securities of the Company under Section 12 of the Exchange Act.
If such stockholder approval is obtained by written consent, it
must be obtained by the unanimous written consent of all stockholders of the
Company.
18. Information to Optionees and Holders of Stock Purchase Rights. The
Company shall provide to each Optionee and each holder of a Stock Purchase
Right, during the period for which such Optionee or holder of a Stock Purchase
Right has one or more Options or Stock Purchase Rights outstanding, copies of
all annual reports and other information which are provided to all stockholders
of the Company. The Company shall not be required to provide such information if
the issuance of Options and Stock Purchase Rights under the Plan is limited to
key employees whose duties in connection with the Company assure their access to
equivalent information.
19. Stock Withholding to Satisfy Withholding Tax Obligations.
(a) Withholding. At the discretion of the Board, Purchasers and
Optionees may satisfy withholding obligations as provided in this Section 19.
When a Purchaser or an Optionee incurs tax liability in connection with a Stock
Purchase Right or an Option, which tax liability is subject to tax withholding
under applicable tax laws, and the Purchaser or Optionee is obligated to pay the
Company an amount required to be withheld under
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applicable tax laws, the Purchaser or Optionee may satisfy the withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
in connection with the Stock Purchase Right or the Shares to be issued upon
exercise of the Option, if any, that number of Shares having a fair market value
equal to the amount required to be withheld. The fair market value of the Shares
to be withheld shall be determined on the Tax Date.
(b) Form of Election. All elections by a Purchaser or an Optionee
to have Shares withheld for this purpose shall be made in writing in a form
acceptable to the Secretary of the Company and shall be subject to the following
restrictions:
(i) the election must be made on or prior to the applicable Tax
Date;
(ii) once made, the election shall be irrevocable as to the
particular Shares of the Option or Right as to which the election is made;
(iii) all elections shall be subject to the consent or
disapproval of the Board;
(iv) if the Purchaser or Optionee is subject to Section 16 of
the Exchange Act, the election must comply with the applicable provisions of the
rules promulgated under Section 16(b) of the Exchange Act and shall be subject
to such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to the Plan transactions.
(c) Section 83. In the event the election to have Shares withheld
is made by a Purchaser or Optionee and the Tax Date is deferred under Section 83
of the Code because no election is filed under Section 83(b) of the Code, the
Purchaser or Optionee shall receive the full number of Shares with respect to
which the Stock Purchase Right or Option is exercised but such Purchaser or
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
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