<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Digital Microwave Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
July 3, 1997
TO THE STOCKHOLDERS OF
DIGITAL MICROWAVE CORPORATION:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of Digital Microwave Corporation (the "Company") on August 5,
1997, at 3:00 p.m., local time, which will be held at the Network Meeting
Center, 5201 Great America Parkway, Santa Clara, California.
Details of business to be conducted at the Annual Meeting are given in the
attached Notice of Annual Meeting and Proxy Statement.
After careful consideration, the Company's Board of Directors has
unanimously approved the proposals and recommends that you vote FOR each such
proposal.
We hope that you will attend the Annual Meeting. In any event, after
reading the Proxy Statement, please mark, date, sign and return the enclosed
proxy card in the accompanying reply envelope. If you decide to attend the
Annual Meeting, please notify the Secretary of the Company if you wish to vote
in person and your proxy will not be voted.
A copy of the Company's 1997 Annual Report to Stockholders has been mailed
concurrently herewith to all stockholders entitled to notice of and to vote at
the Annual Meeting.
Sincerely yours,
/s/ Charles D. Kissner
Charles D. Kissner
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
DIGITAL MICROWAVE CORPORATION
170 Rose Orchard Way
San Jose, California 95134
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
- --------------------------------------------------------------------------------
The Annual Meeting of Stockholders of Digital Microwave Corporation (the
"Company") will be held at the Network Meeting Center, 5201 Great America
Parkway, Santa Clara, California, on Tuesday, August 5, 1997, at 3:00 p.m. local
time, to:
1. Elect six directors to serve until the next Annual Meeting and until
their successors have been elected and qualified;
2. Ratify and approve certain amendments to the Digital Microwave
Corporation 1994 Stock Incentive Plan to increase the number of shares of Common
Stock granted to non-employee Directors of the Company for their service as
members of the Board of Directors, and to clarify the timing of certain grants
to non-employee Directors of the Company;
3. Ratify the selection of Arthur Andersen LLP as independent public
accountants for the Company for the fiscal year ending March 31, 1998; and
4. Transact any other business which may properly come before the meeting
and any adjournments or postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement that accompanies this Notice.
Stockholders of record at the close of business on June 16, 1997, will
be entitled to notice of and to vote at the Annual Meeting and at any
continuation or adjournment thereof.
All stockholders are cordially invited and encouraged to attend the Annual
Meeting. In any event, to ensure your representation at the Annual Meeting,
please carefully read the accompanying Proxy Statement which describes the
matters to be voted on at the Annual Meeting and sign, date and return the
enclosed proxy card in the reply envelope provided. Should you receive more
than one proxy because your shares are registered in different names and
addresses, each proxy should be returned to assure that all your shares will be
voted. If you attend the Annual Meeting and vote by ballot, your proxy will be
revoked automatically and only your vote at the Annual Meeting will be counted.
The prompt return of your proxy card will assist us in preparing for the Annual
Meeting.
We look forward to seeing you at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Charles D. Kissner
Charles D. Kissner
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
San Jose, California
July 3, 1997
<PAGE>
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
DIGITAL MICROWAVE CORPORATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Digital Microwave Corporation, a Delaware corporation
("DMC" or the "Company"), of proxies for the Annual Meeting of Stockholders of
the Company (the "Annual Meeting") to be held at 3:00 p.m., local time, on
August 5, 1997, and any adjournment or postponement thereof. This Proxy
Statement was first mailed to stockholders on or about July 3, 1997.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in a subsequent section
of this Proxy Statement.
VOTING
Only holders of record of the Common Stock of the Company ("Common
Stock") at the close of business on June 16, 1997, will be entitled to vote
at the Annual Meeting and any continuations or adjournments thereof. Each
share entitles the holder to one vote on each matter to come before the
Annual Meeting. On June 16, 1997, there were 18,612,830 shares of Common
Stock outstanding and entitled to vote at the Annual Meeting, held by 195
stockholders of record.
If any stockholder is unable to attend the Annual Meeting, such
stockholder may vote by proxy. The enclosed proxy is solicited by the DMC
Board of Directors (the "Board of Directors" or the "Board"), and, when
returned properly completed, will be voted as you direct on your proxy card.
In the discretion of the proxy holder, shares represented by such proxies
will be voted upon any other business as may properly come before the Annual
Meeting. Abstentions and broker non-votes are each included in the number of
shares present for quorum purposes. Abstentions, which may be specified on
all proposals other than the election of Directors, are counted as votes
against the proposal in determining whether a proposal has been approved, and
broker non-votes are not counted as votes for or against the proposal. If no
specific instructions are given with respect to matters to be acted upon at
the Annual Meeting, shares of Common Stock represented by a properly executed
proxy will be voted FOR (i) the election of management's nominees for
Directors listed in Proposal 1, (ii) the approval of the amendment and
restatement of the Digital Microwave Corporation 1994 Stock Incentive Plan
(the "1994 Incentive Plan") and (iii) the ratification of the selection of
the independent public accountants for the Company.
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 delivery to the Secretary of the Company
of a written notice of revocation or a duly executed proxy bearing a later date
or by attending the Annual Meeting and voting in person.
COST OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. In addition
to solicitation by mail, proxies may also be solicited by Directors, officers
and employees of the Company who will not receive additional compensation for
such solicitation. Brokerage firms and other custodians, nominees and
fiduciaries will be reimbursed by the Company for their reasonable expenses
incurred in sending proxy material to beneficial owners of the Common Stock.
The Annual Report of the Company for the fiscal year ended March 31, 1997
has been mailed concurrently with the mailing of the Notice of Annual Meeting
and Proxy Statement to all stockholders entitled to notice of and to vote at the
Annual Meeting.
1
<PAGE>
PROPOSAL 1:
ELECTION OF DIRECTORS
At the Annual Meeting, six Directors are to be elected to serve until the
next Annual Meeting and until their successors are elected and qualified, or
until the death, resignation, or removal of such Director. It is intended that
the proxies will be voted for the election of the six nominees named below as
Directors unless authority to vote for any such nominee is withheld. The six
nominees receiving the highest number of votes will be elected. In the
unanticipated event that a nominee is unable or declines to serve as a Director
at the time of the Annual Meeting, the proxies will be voted for any nominee
named by the current Board of Directors to fill the vacancy. As of the date of
this Proxy Statement, the Board of Directors is not aware of any nominee who is
unable or will decline to serve as a Director.
In the event that additional persons are nominated, other than by the
Board of Directors, for election as Directors, the proxy holders intend to vote
all proxies received by them for the nominees listed below and any additional
Board of Directors' nominee as described above. The following are the nominees
of the Board of Directors for election as Directors at the date hereof:
Name Title Age
---- ----- ---
Charles D. Kissner Chairman of the Board, President 50
and Chief Executive Officer
Richard C. Alberding Director 66
John W. Combs Director 50
Clifford H. Higgerson Director 57
James D. Meindl Director 64
Billy B. Oliver Director 72
Mr. Charles D. Kissner joined the Company as President, Chief Executive
Officer and was elected Director of the Company in July 1995 and Chairman of the
Board in August 1996. Prior to joining the Company, he served as Vice President
and General Manager of the Microelectronics Division of M/A-COM, Inc., a
manufacturer of radio and microwave communication products, from July 1993 to
July 1995. From February 1990 to July 1993, Mr. Kissner served as President,
Chief Executive Officer and a Director of Aristacom International, Inc., a
communications software company. Mr. Kissner currently is a director of
American Medical Flight Support, Inc., a non-profit medical transportation
company.
Mr. Richard C. Alberding has served as a Director of the Company since
July 1993 and served as Co-Chairman of the Board and Co-Chief Executive
Officer from September 1994 to July 1995. Mr. Alberding retired from
Hewlett-Packard Company in 1991, where he had served since 1984 as an
Executive Vice President with responsibility for worldwide company sales,
support and administration activities for measurement and computation
products, as well as all corporate-level marketing activities. He also
served on the corporate Executive Committee. Mr. Alberding is a director of
Kennametal Corporation, a machine tool company, Walker Interactive Systems, a
software company, Storm Technology, a computer peripherals company, Quickturn
Design Systems, a CAD tools company, SyBase, Inc., a computer database and
tools company, Digital Link Corp., a network tools company, Paging Network,
Inc., a paging services company, and several private companies.
2
<PAGE>
Mr. John W. Combs has served as a Director of the Company since May 1997.
Since June 1993, Mr. Combs has served as President of the Southern
California/Southern Nevada market for Nextel Communications, Inc., a digital
communications system provider. From March 1990 to June 1993, he served as
Executive Vice President of Sales, Marketing and Customer Care of Los Angeles
Cellular Telephone Company, a provider of wireless telecommunications services.
In addition, Mr. Combs also serves as a director of Hello Direct, Inc., a direct
marketer of telecommunications products.
Mr. Clifford H. Higgerson has served as a Director of the Company since
March 1984. He also served as Chairman of the Board from July 1995 to August
1996 and as Co-Chairman of the Board and Co-Chief Executive Officer from
September 1994 to July 1995. Mr. Higgerson has been a partner with Vanguard
Associates, a private venture capital investment partnership, since July 1991
and, since 1986, managing partner of Communications Ventures, a private venture
capital investment partnership. Mr. Higgerson also serves as a director of
Advanced Fibre Communications, Inc., a manufacturer of telecommunications
systems, and CIENA Corp., a manufacturer of light wave amplifiers and wave
division multiplexing equipment.
Dr. James D. Meindl has served as a Director of the Company since November
1995. Since 1993, Dr. Meindl has held the Joseph M. Pettit Chaired
Professorship in Microelectronics at the Georgia Institute of Technology. Prior
to his professorship at the Georgia Institute of Technology, Dr. Meindl served
as Senior Vice President for Academic Affairs and Provost at Rensselaer
Polytechnic Institute from 1986 to 1993. Dr. Meindl serves as a director of
SanDisk Corp., which designs, develops and markets flash memory data storage
products, and Zoran Corp., a semiconductor and related devices company.
Mr. Billy B. Oliver has served as a Director of the Company since February
1987. Since 1985, Mr. Oliver has been a private communications consultant.
Mr. Oliver has held various engineering and management positions with AT&T,
including Vice President, Planning and Design from 1972 until 1985. Mr. Oliver
is also a director of Communications Network Enhancements, a telecommunications
service company, and CIENA Corp., a manufacturer of light wave amplifiers and
wave division multiplexing equipment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL
OF THE ABOVE NOMINEES FOR ELECTION AS DIRECTORS.
3
<PAGE>
BOARD MEETINGS AND COMMITTEES
During the year ended March 31, 1997, the Board of Directors held five
meetings and acted once by written consent. During the same period, each
Director attended at least 75% of the aggregate of (i) the total number of
meetings of the Board held during the period for which he was a Director and
(ii) the total number of meetings by all Committees of the Board on which such
Director served held during the period for which he was a Director. There are
no family relationships among any of the executive officers or Directors of the
Company.
The Company currently has an Audit Committee and a Compensation Committee
of the Board of Directors. The Audit Committee is primarily responsible for
approving the services performed by the Company's independent public accountants
and reviewing the Company's accounting practices and system of internal
accounting controls. The Audit Committee, which consists of Mr. Alberding and
Mr. Higgerson, held four meetings during the year ended March 31, 1997. The
Compensation Committee is responsible for recommending and reviewing the
compensation of the Company's executive officers and for administering the
Company's incentive plans. This committee, which consists of Dr. Meindl and
Mr. Oliver, held five meetings and acted eleven times by written consent
during the year ended March 31, 1997.
The Company does not currently have a Nominating Committee. Although there
are no formal procedures for stockholders to recommend nominees for election to
the Board, the Board will consider recommendations from stockholders, which
should be addressed to Ms. Carol A. Goudey, the Company's Assistant Secretary,
at the Company's address set forth above.
COMPENSATION OF DIRECTORS
During the year ended March 31, 1997, the Company paid each
non-employee Director $1,000 in fees for each in-person meeting and $500 per
telephone meeting, a retainer of $3,000 per quarter, and committee meeting
fees of $500 for each in-person committee meeting and $250 for each telephone
committee meeting unless, in either case, such committee meeting was held in
conjunction with a Board meeting. Directors were also reimbursed for their
out-of-pocket expenses incurred in attending meetings of the Board and
committees thereof. The Company also pays consulting fees to members of the
Board of $1,000 per day, in one half day increments, for Board approved
projects (including transportation time) plus reimbursement of all expenses.
In May 1997, the Board of Directors approved that, effective as of April 1,
1997, each non-employee Director of the Company shall be paid committee fees of
$750 for each in-person committee meeting and $375 for each telephone
committee meeting, unless, in either case, such committee meeting was held in
conjunction with a Board meeting.
Pursuant to the Company's 1994 Incentive Plan, during the year ended
March 31, 1997, each new non-employee Board member, upon his or her initial
appointment or election to the Board, received an automatic option grant for
15,000 shares with an exercise price equal to the fair market value of the
option shares on the grant date. Each individual reelected as a non-employee
Board member at the 1996 annual stockholders meeting, and who had been a
Board member for the three prior years, received an option grant at that time
for 5,000 shares. Each initial or periodic option grant is immediately
exercisable for all the option shares, but the shares purchased under the
option are subject to repurchase by the Company, at the option exercise
price, upon the optionee's cessation of Board service. The option shares
vest, and the Company's repurchase right lapses with respect to option
shares, in three equal annual installments over the optionee's period of
Board service, measured from the grant date. However, upon certain changes in
control of the Company, the Company's repurchase rights immediately lapse in
full. Each option grant has a maximum term of ten years, subject to earlier
termination upon the optionee's cessation of Board service.
In May 1997, the Board of Directors approved the amendment and restatement
of the 1994 Incentive Plan, subject to stockholder approval, to increase (i) the
total number of shares that each non-employee Board member receives upon
becoming a member of the Board from 15,000 shares to 21,000 shares; and (ii) the
total number of shares that each non-employee Board member who has served for at
least three years receives annually thereafter
4
<PAGE>
from 5,000 shares to 7,000 shares. See Proposal 2 for a discussion of the
proposed amendments to the 1994 Incentive Plan and a description of the 1994
Incentive Plan, as proposed to be amended and restated.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
two members of the Board: James D. Meindl and Billy B. Oliver. No member of
this committee is a present or former officer or employee of the Company or any
of its subsidiaries.
No executive officer of the Company served on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
beneficial ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten percent (10%) stockholders are required
by Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended March 31, 1997, all of the
Company's officers, Directors and greater than ten percent beneficial owners
complied with applicable Section 16(a) filing requirements during the 1997
fiscal year.
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of June 2, 1997, by (i) each
person known by the Company to own beneficially more than five percent (5%) of
the outstanding Common Stock of the Company; (ii) each of the Company's
Directors; (iii) the Chief Executive Officer and each of the four other most
highly compensated executive officers of the Company, determined for the year
ended March 31, 1997 (collectively, the "Named Executive Officers"); and
(iv) all Directors and executive officers as a group.
APPROXIMATE
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED(2)
- -------------------------------------------- ------------ ------------
Kopp Investment Advisors, Inc.
6600 France Avenue South, Suite 672
Edina, Minnesota 55435 2,380,793(3) 12.83%
Essex Investment Management Company
125 High Street
Boston, Massachusetts 02110 940,500(4) 5.07%
Charles D. Kissner 252,402(5) 1.34%
Richard C. Alberding 20,000(6) *
John W. Combs -- --
Clifford H. Higgerson 289,590(7) 1.56%
James D. Meindl 5,000(8) *
Billy B. Oliver 15,500(9) *
Frank Carretta, Jr. 42,500(10) *
Jack Hillson 37,000(11) *
Paul A. Kennard 53,900(12) *
Carl A. Thomsen 91,948(13) *
All Directors and executive officers as
a group (14 persons) 906,155(14) 4.72%
___________________
* Less than 1%
(1) To the Company's knowledge, except as set forth in the footnotes to this
table, and subject to applicable community property laws, each person named
in this table has sole voting and investment power with respect to the
shares set forth opposite such person's name.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options currently exercisable or exercisable on or before
July 31, 1997, are deemed outstanding for computing the percentage of the
person holding such options but are not deemed outstanding for computing
the percentage of any other person. On June 2, 1997, there were 18,557,148
shares of the Company's Common Stock outstanding.
6
<PAGE>
(3) Kopp Investment, Inc. filed a Schedule 13G, dated January 28, 1997, with
the Securities and Exchange Commission on behalf of itself, Kopp
Investment Advisors, Inc. Profit Sharing Plan, Kopp Family Foundation,
LeRoy C. Kopp Individual Retirement Account and LeRoy C. Kopp
(collectively, "Kopp"). Kopp reported shared dispositive power over
2,285,793 shares, sole dispositive power over 95,000 shares, sole voting
power over 265,000 shares and shared voting power over 65,000 shares.
(4) Pursuant to a Schedule 13G, dated January 10, 1997, filed with the
Securities and Exchange Commission, Essex Investment Management Company
has reported sole dispositive power over 940,500 shares and sole voting
power over 637,330 shares.
(5) Includes 252,202 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1997. Also includes 200 shares held of record by a trust for the benefit
of Mr. Kissner's children.
(6) Includes 20,000 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1997.
(7) Includes 25,000 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1997.
(8) Includes 5,000 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1997.
(9) Includes 10,000 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1997.
(10) Includes 42,500 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1997.
(11) Includes 37,000 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1997.
(12) Includes 52,500 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1997.
(13) Includes 81,948 shares of Common Stock subject to options which are
currently exercisable or will become exercisable on or before July 31,
1997.
(14) See Footnotes (5) through (13). Includes 601,465 shares of Common Stock
subject to options which are currently exercisable or will become
exercisable on or before July 31, 1997.
7
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table provides certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and each of the
four other most highly compensated executive officers of the Company for the
fiscal year ended March 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------ ------------
Securities
Fiscal Other Annual Underlying All Other
Name and Principal Position Year Salary($) Bonus(1)($) Compensation($) Options Compensation(2)($)
- ----------------------------- ------ ----------- ----------- --------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Charles D. Kissner 1997 $326,009 $224,400 -- 50,000 $1,823
Chairman of the Board, 1996 212,500(3) 75,000(4) $197,961(5) 255,504 120
President and Chief 1995 -- -- -- -- --
Executive Officer
Frank Carretta, Jr. 1997 216,407 129,320(6) -- 15,000 1,980
Senior Vice President, 1996 103,662(7) -- -- 85,000 60
Worldwide Sales, Service 1995 -- -- -- -- --
and Marketing
Jack Hillson 1997 140,734 62,795(8) 58,376(9) 35,000 810
Senior Vice President and 1996 34,575(10) -- 16,779(11) 50,000 --
General Manager, 1995 -- -- -- -- --
Operations
Paul A. Kennard 1997 136,346 83,055(11) -- 75,000 834
Vice President, Engineering 1996 --(13) -- -- -- --
1995 -- -- -- -- --
Carl A. Thomsen 1997 188,104 80,125 -- -- 1,902
Vice President, Chief 1996 175,625 -- -- 54,867 120
Financial Officer and 1995 25,702(14) -- -- 50,000 20
Secretary
</TABLE>
___________________
(1) The Company's executive officers are eligible for annual cash bonuses.
Such bonuses are generally based upon achievement of individual, as well
as corporate performance objectives determined by the Compensation
Committee.
(2) Represents compensation paid in the form of premiums for group life
insurance.
(3) Represents Mr. Kissner's salary from his appointment as Chief Executive
Officer and President of the Company in July 1995.
(4) Represents Mr. Kissner's signing bonus.
(5) Includes a relocation expense reimbursement of $187,761.
(6) Represents (i) a $30,000 signing bonus earned in fiscal year 1996, but
paid in fiscal year 1997, and (ii) a $99,320 bonus earned in fiscal year
1997.
(7) Represents Mr. Carretta's salary from joining the Company in September
1995.
(8) Represents (i) a $10,000 signing bonus earned in fiscal year 1996, but
paid in fiscal year 1997, and (ii) a $52,795 bonus earned in fiscal year
1997.
(9) Includes $32,269 in housing expenses, $24,709 in transportation expenses,
and $1,398 in miscellaneous expenses.
(10) Represents Mr. Hillson's salary from joining the Company in January 1996.
(11) Includes a relocation expense reimbursement of $16,301.
(12) Represents (i) a $30,000 signing bonus and (ii) a $53,055 bonus earned in
fiscal year 1997.
(13) Mr. Kennard did not join the Company until April 1996.
(14) Represents Mr. Thomsen's salary from his appointment as Vice President,
Chief Financial Officer of the Company in February 1995.
8
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options made to each of the Named Executive Officers during the fiscal year
ended March 31, 1997. No stock appreciation rights were granted during such
fiscal year to the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1997 FISCAL YEAR
Individual Grants
-----------------------------------------------------------------
Potential Realizable Value at
Number of Assumed Annual Rates of
Securities % of Total Stock Price Appreciation for
Underlying Options Granted Exercise Option Term ($)(1)
Options to Employees in Price Expiration -----------------------------
Name Granted (#) 1997 Fiscal Year ($/Share) Date 5% 10%
- ------------------------- ----------- ---------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles D. Kissner 50,000 4.67% $18.50 08/08/06 $581,728 $1,474,212
Frank Carretta, Jr. 15,000 1.40 23.13 11/20/06 218,195 552,949
Jack Hillson 10,000 0.93 18.50 08/08/06 116,346 294,842
25,000 2.33 23.13 11/20/06 363,658 921,582
Paul A. Kennard 75,000 7.00 8.00 04/19/06 377,337 956,245
Carl A. Thomsen -- -- -- -- -- --
___________________
</TABLE>
(1) The 5% and 10% annual rates of compounded stock price appreciation are
mandated by rules of the Securities and Exchange Commission. There is no
assurance provided to any Named Executive Officer or any other holder of
the Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock does in
fact appreciate over the option term, no value will be realized from the
option grants made to the Named Executive Officers.
9
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the Named
Executive Officers concerning their exercise of stock options during the fiscal
year ended March 31, 1997, and the unexercised options held by them as of
March 31, 1997. No stock appreciation rights were exercised during such fiscal
year or were outstanding as of March 31, 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1997 FISCAL YEAR
OPTION VALUES AT MARCH 31, 1997
Value of Unexercised in-the-
Money Options at March 31,
Number of Securities 1997 (market price of shares
Underlying Unexercised at March 31, 1997 ($19.25
Options at March 31, 1997(#) less exercise price)($)(1)
---------------------------- -----------------------------
Value Realized
(market price at
Shares Acquired exercise date less
Name on Exercise(#) exercise price)($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------ --------------- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles D. Kissner -- -- 201,101 104,403 $1,131,193 $343,517
Frank Carretta, Jr. -- -- 42,500 57,500 334,688 452,813
Jack Hillson -- -- 35,000 50,000 323,750 146,250
Paul A. Kennard -- -- 37,500 37,500 421,875 421,875
Carl A. Thomsen -- -- 80,974 23,893 367,183 131,211
___________________
</TABLE>
(1) "In-the-money" options are options with an exercise price less than the
market price of the Company's Common Stock on March 31, 1997.
10
<PAGE>
EMPLOYMENT AND TERMINATION ARRANGEMENTS
Mr. Kissner, Mr. Carretta, Mr. Hillson, Mr. Kennard and Mr. Thomsen, the
Named Executive Officers, each have written employment agreements with the
Company.
In May 1996, Mr. Kissner entered into an employment agreement with the
Company pursuant to which Mr. Kissner is to serve as President and Chief
Executive Officer. The term of the agreement extends through May 1998, after
which the agreement may be renewed annually by the mutual consent of the Company
and Mr. Kissner. The agreement provides that (1) if Mr. Kissner is terminated
without cause, he shall be entitled to receive (i) severance pay for twelve
months at his normal monthly salary; (ii) the continuation of vesting of his
stock options for one year from the date of his termination; and (iii) a
proration of his incentive bonus, if earned, for the then current fiscal year
based on the number of months he was employed during the year by the Company and
(2) if the Company is merged or acquired in a transaction in which there is a
change in control of the Company, Mr. Kissner shall be entitled to receive (i)
severance pay in the amount of two times his base annual salary; (ii) a bonus
payment equal to the average of the bonuses paid to him in the last two fiscal
years; and (iii) a proration of his incentive bonus, if earned, for the then
current fiscal year based on the number of months he was employed during the
year by the Company. In connection with Mr. Kissner entering into the
employment agreement with the Company, the Board of Directors authorized the
immediate vesting of 100,000 shares of Mr. Kissner's stock option grants,
effective as of the date of the employment agreement.
Mr. Carretta, Mr. Hillson and Mr. Thomsen entered into employment
agreements with the Company, effective as of May 1996. The term of each of the
agreements extends through May 1998, after which each of the agreements may be
renewed annually by the mutual consent of the Company and the officer. In
connection with each of these officers signing employment agreements with the
Company, the Board of Directors authorized the immediate vesting of fifty
percent of each of the stock option grants awarded to these officers in 1995,
effective as of the date of the employment agreements. The employment
agreements for these officers include the following provisions: (1) if the
officer is terminated without cause, the officer shall be entitled to receive
(i) severance pay for six months at his normal monthly salary; (ii) the
continuation of vesting of his stock options for six months from the date of his
termination; and (iii) a proration of his incentive bonus, if earned, for the
then current fiscal year based on the number of months he was employed during
the year by the Company and (2) if the Company is merged or acquired in a
transaction in which there is a change in control of the Company, the officer
shall be entitled to receive (i) severance pay in the amount of two times his
base annual salary; (ii) a bonus payment equal to that of the average of the
bonuses paid to him in the last two fiscal years; and (iii) a proration to him
of his incentive bonus, if earned, for the then current fiscal year based on the
number of months he was employed during the year by the Company.
In June 1996, Mr. Kennard entered into an employment agreement with the
Company. The term of the agreement extends through June 1998, after which the
agreement may be renewed annually by the mutual consent of the Company and Mr.
Kennard. In connection with Mr. Kennard signing the employment agreement with
the Company, the Board of Directors authorized the immediate vesting of fifty
percent of the stock option grants awarded to Mr. Kennard in 1996, effective as
of the date of the employment agreement. The employment agreement provides
that: (1) if Mr. Kennard is terminated without cause, he shall be entitled to
receive (i) severance pay for six months at his normal monthly salary; (ii) the
continuation of vesting of his stock options for six months from the date of his
termination; and (iii) a proration of his incentive bonus, if earned, for the
then current fiscal year based on the number of months he was employed during
the year by the Company and (2) if the Company is merged or acquired in a
transaction in which there is a change in control of the Company, he shall be
entitled to receive (i) severance pay in the amount of two times his base annual
salary; (ii) a bonus payment equal to that of the average of the bonuses paid to
him in the last two fiscal years; and (iii) a proration to him of his incentive
bonus, if earned, for the then current fiscal year based on the number of months
he was employed during the year by the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has the authority and responsibility to approve
the overall compensation strategy for the Company, administer the Company's
annual and long-term compensation plans, and review and
11
<PAGE>
make recommendations to the Board of Directors with respect to the Company's
executive compensation. The Compensation Committee is comprised of independent,
non-employee Board members.
GENERAL COMPENSATION POLICY. The Compensation Committee's overall policy
is to offer the Company's executive officers competitive compensation
opportunities. The Compensation Committee utilizes competitive data and
summaries provided by Radford Associates, Alexander & Alexander Consulting Group
and the American Electronics Association to develop compensation recommendations
competitive with other companies in the communications industry. The
Compensation Committee's objectives are to (i) create a performance oriented
environment with variable compensation based upon the achievement of annual and
longer-term business results; (ii) focus management on maximizing stockholder
value through stock-based compensation aligned to stockholders' return; and
(iii) provide compensation opportunities dependent upon the Company's
performance relative to its competitors and changes in its own performance over
time.
The Compensation Committee is authorized (i) to establish and maintain
compensation guidelines for salaries and merit pay increases throughout the
Company; and (ii) to make specific recommendations to the Board of Directors
concerning the compensation of executive officers of the Company, including the
Chief Executive Officer. The Compensation Committee also administers the
Company's stock option plans and the Company's retirement and savings plan.
FACTORS. The primary factors considered in establishing the components of
each executive officer's compensation package for the fiscal year ended
March 31, 1997 are summarized below. The Committee may in its discretion apply
entirely different factors, such as different measures of financial performance,
for future fiscal years.
- BASE SALARY. The base salary for each officer is set on the basis of
personal performance, the salary levels in effect for comparable positions
with other companies in the industry, and internal comparability
considerations. Generally, Company performance and profitability are not
taken into account in establishing base salary. Salaries paid to the
Company's executive officers for the fiscal year ended March 31, 1997
ranged from the 50th percentile at the low end to the 75th percentile at
the high end of the compensation data surveyed for the industry. A number
of adjustments were made to the surveyed compensation data for the industry
to reflect differences in management style, organizational structure and
corporate culture, geographic location, product development stage and
market capitalization between the Company and the surveyed entities. As a
result of these adjustments, there is not a meaningful correlation between
the companies in the industry which were taken into account for comparative
compensation purposes and the companies included in the industry group
index which appears later in this Proxy Statement for purposes of
evaluating the price performance of the Company's Common Stock. See "Stock
Performance Graph."
- ANNUAL INCENTIVE COMPENSATION. For the fiscal year ended March 31,
1997, specific financial and organizational objectives, including earnings
per share, revenue and gross margin targets, were established as the basis
for the incentive bonuses to be paid to the executive officers of the
Company.
Specific bonus awards, set as a target percentage of salary, were
established for each officer's position and were to be earned on the basis
of achieving the specified corporate goals and the accomplishment of
specific individual objectives. The corporate goals for the fiscal year
1997 were met, and incentive bonuses were paid to certain officers of the
Company for such fiscal year, including all of the Named Executive
Officers.
- LONG-TERM STOCK-BASED INCENTIVE COMPENSATION. Generally, the
Compensation Committee awards stock options to each of the Company's
executive officers following the initial hiring and from time to time
thereafter. The option grants are designed to align the interests of the
executive officer with those of the stockholders and to provide each
individual with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the business. In
furtherance of this policy, the Company
12
<PAGE>
has implemented the 1994 Incentive Plan to serve as a comprehensive equity
incentive program for the Company's executive officers and other key
employees.
Generally, the size of the option grant made to each executive officer is
set at a level which the Compensation Committee deems appropriate to create
a meaningful opportunity for stock ownership based upon the individual's
current position with the Company, but the Compensation Committee also
takes into account comparable awards to individuals in similar positions in
the industry, as reflected in external surveys, the individual's potential
for future responsibility and promotion, the individual's performance in
recent periods and the number of unvested options held by the individual at
the time of the grant. The relative weight given to each of these factors
will vary from individual to individual in the Committee's discretion. Of
the Named Executive Officers, Messrs. Kissner, Carretta, Hillson and
Kennard received stock option grants in fiscal year 1997.
Each grant allows the executive officer to acquire shares of the Company's
Common Stock at a fixed price per share (the market price on the grant
date) over a specified period of time (up to 10 years). The option will
generally become exercisable in installments over a five-year period,
contingent upon the executive officer's continued employment with the
Company. Accordingly, the option will provide a return to the executive
officer only if he or she remains in the Company's employ, and then only if
the market price of the Company's Common Stock appreciates over the option
term.
CEO COMPENSATION. The Compensation Committee established Mr. Kissner's
base salary with the objective of maintaining the competitiveness of
Mr. Kissner's base salary with salaries paid to similarly situated chief
executive officers. With respect to Mr. Kissner's base salary, it was the
Compensation Committee's intent to provide him with a level of stability and
certainty each year and not have this particular component of compensation
affected to any significant degree by Company performance factors.
Mr. Kissner's base salary for the 1997 fiscal year was set at the 75th
percentile of the salary data surveyed for other chief executive officers in the
industry.
Mr. Kissner received additional compensation from the Company in the 1997
fiscal year in the form of a car allowance. In addition, Mr. Kissner received a
grant of 50,000 stock options.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation
exceeding $1 million paid to certain of the Company's executive officers.
The limitation applies only to compensation which is not considered to be
performance-based. The non-performance based compensation paid to the
Company's executive officers in fiscal year 1997 did not exceed the $1
million limit per officer. At the 1994 Annual Meeting, the stockholders
approved the implementation of the 1994 Incentive Plan under which the number
of shares of Common Stock for which any one individual participating in the
1994 Incentive Plan may be granted stock options, stock appreciation rights
or direct stock issuances is limited to 500,000 shares over the term of the
plan. As a result of this limitation and certain other administrative
provisions of the 1994 Incentive Plan, any compensation deemed paid to a
covered executive officer in connection with the exercise of stock options or
stock appreciation rights granted under the 1994 Incentive Plan with an
exercise price equal to the market price of the shares covered by the option
or stock appreciation right on the grant date will qualify as
performance-based compensation.
The Compensation Committee does not expect that the compensation to be paid
to the Company's covered executive officers for the 1998 fiscal year will exceed
the $1 million limit per officer. The Compensation Committee is aware of the
limitations imposed by Section 162(m), and the exemptions available therefrom,
and will address the issue of deductibility when and if circumstances warrant
and may use such exemptions in addition to the exemption contemplated under the
Company's 1994 Incentive Plan.
Submitted by the Compensation Committee of the Company's Board of
Directors:
James D. Meindl
Billy B. Oliver
13
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage changes in the
cumulative total stockholder return on the Company's Common Stock with the
cumulative total return on the Dow Jones Equity Market Index and the Dow Jones
Communications Technology Index during the five fiscal years ended March 31,
1997. The comparison assumes $100 was invested on March 31, 1992 in the
Company's Common Stock and in each of the foregoing indices and assumes
reinvestment of any dividends.
COMPARISON OF 5-YEAR CUMULATIVE RETURN
AMONG
DIGITAL MICROWAVE CORPORATION,
DOW JONES EQUITY MARKET INDEX AND
DOW JONES COMMUNICATIONS TECHNOLOGY INDEX
Digital Dow Jones Dow Jones
Measurement Period Microwave Equity Market Communications
(Fiscal Year Covered) Corporation Index Technology Index
- --------------------- ----------- ------------- ----------------
Measurement Pt-03/31/92 $100 $100 $100
FYE 03/31/93 $142 $116 $148
FYE 03/31/94 $179 $117 $155
FYE 03/31/95 $165 $135 $166
FYE 03/31/96 $109 $180 $204
FYE 03/31/97 $233 $215 $177
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, which might incorporate future filings made by
the Company under those statutes, the preceding Compensation Committee Report on
Executive Compensation and the Company Stock Performance Graph will not be
incorporated by reference into any of those prior filings; nor will such report
or graph be incorporated into any future filings made by the Company under those
statutes.
14
<PAGE>
PROPOSAL 2:
AMENDMENT AND RESTATEMENT OF THE
1994 STOCK INCENTIVE PLAN
GENERAL
The Company's stockholders are asked to act upon a proposal to ratify the
Board's action to amend the 1994 Incentive Plan.
The Board of Directors amended and restated the 1994 Incentive Plan in
May 1997, subject to stockholder approval, to increase (i) the total number
of shares of Common Stock that each non-employee Director receives under the
1994 Incentive Plan upon becoming a member of the Board from 15,000 shares to
21,000 shares; and (ii) the total number of shares of Common Stock that each
non-employee Board member who has served for at least three years receives
annually thereafter from 5,000 shares to 7,000 shares. The purpose of each
increase is to enable the Company to retain talented non-employee Directors
and to attract talented new non-employee Directors by offering them
participation in the Company's 1994 Incentive Plan at a level that is
competitive with other similarly-situated companies. Management believes
that without such incentive it will be unable to attract and retain the
services of those individuals essential to the Company's growth and financial
success.
A general description of the principal terms of the 1994 Incentive Plan is
set forth below. This description is qualified in its entirety by the terms of
the 1994 Incentive Plan, as proposed to be amended and restated, which is
attached to this Proxy Statement as Exhibit A and is hereby incorporated herein
by reference.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENT AND RESTATEMENT OF THE 1994 INCENTIVE PLAN.
GENERAL DESCRIPTION
In April 1994, the Board of Directors adopted the 1994 Incentive Plan,
which was approved by the stockholders in July 1994 and amended by the
stockholders in August 1996. A total of 900,000 shares of Common Stock were
initially reserved for issuance over the ten year term of the 1994 Incentive
Plan. The number of shares of Common Stock available for issuance automatically
increases on the first trading day of each calendar year for five years from the
adoption of the 1994 Incentive Plan, beginning with the 1995 calendar year, by
an amount equal to one percent (1%) of the total number of shares of Common
Stock outstanding on December 31 of the immediately preceding calendar year, but
in no event shall any such annual increase exceed 150,000 shares. Options
granted under the 1994 Incentive Plan may be either incentive stock options, as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or nonstatutory stock options. See "Certain Federal Income Tax
Information" below for information concerning the tax treatment of both
incentive stock options and nonstatutory stock options. A total of 2,333,330
shares are currently reserved for issuance under the 1994 Incentive Plan. As of
March 31, 1997, options to purchase approximately 1,603,016 shares were
outstanding under the 1994 Incentive Plan, 81,008 options to purchase shares had
been exercised under the 1994 Incentive Plan, and approximately 649,306 shares
remained reserved for issuance thereunder.
SUMMARY OF 1994 INCENTIVE PLAN
The essential terms of the 1994 Incentive Plan, as proposed to be amended
and restated, are summarized below. This summary does not purport to be
complete, and is subject to, and qualified by, reference to all provisions of
the 1994 Incentive Plan, as proposed to be amended and restated, a copy of which
is attached hereto as EXHIBIT A.
PLAN ADMINISTRATION. The 1994 Incentive Plan (other than the Automatic
Option Grant and the Stock Fee Programs) shall be administered by the
Compensation Committee of the Board. The Compensation Committee (the "Plan
Administrator") shall be comprised of two or more non-employee Board members
appointed by the Board and shall have complete discretion (subject to the
provisions of the 1994 Incentive Plan) to authorize stock option grants and
direct stock issuances under the 1994 Incentive Plan. However, all grants under
the Automatic Grant and
15
<PAGE>
the Stock Fee Programs shall be made in strict compliance with the express
provisions of those programs, and no administrative discretion shall be
exercised by the Plan Administrator with respect to the grants made under such
programs. In addition, a subcommittee of the Compensation Committee comprised
solely of two or more "outside directors" (within the meaning of Section 162(m)
of the Code, and the regulations thereunder) shall have sole and exclusive
authority to administer the participation of "covered employees" (within the
meaning of Section 162(m)(3) of the Code) in the 1994 Incentive Plan in order to
qualify grants to covered employees under the 1994 Incentive Plan as
performance-based compensation under Section 162(m) of the Code.
ELIGIBILITY. Officers and other key employees of the Company and its
subsidiaries (whether now existing or subsequently established) and independent
consultants and advisors to the Company and its subsidiaries shall be eligible
to participate in the Discretionary Grant and Stock Issuance Programs. Officers
and other key employees shall also be eligible to participate in the Salary
Reduction Grant Program. Non-employee members of the Board shall only be
eligible to participate in the Automatic Grant and the Stock Fee Programs.
In no event may any one participant in the 1994 Incentive Plan be granted
stock options, separately exercisable stock appreciation rights and direct stock
issuances for more than 500,000 shares in the aggregate over the term of the
1994 Incentive Plan.
VALUATION. The fair market value per share of Common Stock on any relevant
date under the 1994 Incentive Plan shall be the closing selling price per share
on that date on The Nasdaq National Market. If there is no reported sale for
such date, then the closing selling price for the last previous date for which
such quotation exists shall be determinative of fair market value.
EQUITY INCENTIVE PROGRAMS. The 1994 Incentive Plan contains five
separate equity incentive programs: (i) a Discretionary Grant Program under
which key employees and consultants may be granted stock options to purchase
shares of Common Stock; (ii) an Automatic Grant Program under which option
grants shall be made at specified intervals to non-employee Directors; (iii)
a Salary Reduction Grant Program under which officers and other key employees
may elect to have a portion of their base salary reduced each year in return
for options to purchase shares of Common Stock at a discount from current
fair market value equal to the amount of their salary reduction; (iv) a Stock
Fee Program under which non-employee Directors may elect to apply all or a
portion of their annual retainer fee to the acquisition of shares of Common
Stock; and (v) a Stock Issuance Program under which eligible individuals may
be issued shares of Common Stock directly, through the immediate purchase of
the shares, as a bonus tied to their performance of services or the Company's
attainment of financial milestones, or pursuant to their individual elections
to receive such shares in lieu of their base salary. The implementation and
use of any of these equity incentive programs (other than the Automatic Grant
Program and the Stock Fee Program) is within the sole discretion of the Plan
Administrator.
DISCRETIONARY GRANT PROGRAM. Under the Discretionary Grant Program, the
exercise price per share for options shall not be less than 100% of the fair
market value per share of Common Stock on the grant date. For incentive stock
options granted to employees possessing 10% or more of the total combined voting
power of all classes of stock of the Company or any of its subsidiaries (a "10%
Holder"), the exercise price per share may not be less than 110% of such fair
market value. The Plan Administrator shall have complete discretion to grant
options (i) which are immediately exercisable for vested shares, (ii) which are
immediately exercisable for unvested shares subject to the Company's repurchase
rights or (iii) which become exercisable in installments for vested shares over
the optionee's period of service. No granted option shall, however, have a
maximum term in excess of ten years. No incentive stock option granted to a 10%
Holder shall have a maximum term in excess of five years.
Any option held by the optionee at the time of cessation of service
normally shall not remain exercisable beyond the limited period designated by
the Plan Administrator (not to exceed 36 months) at the time of the option
grant. During that period the option generally shall be exercisable only for
the number of shares of Common Stock in which the optionee is vested at the time
of cessation of service. However, the Plan Administrator shall have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding option may be exercised and/or to accelerate
the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
Any unvested share of Common Stock shall be subject to repurchase by
16
<PAGE>
the Company, at the original exercise price paid per share, upon the optionee's
cessation of service prior to vesting in those shares. The Plan Administrator
shall have complete discretion in establishing the vesting schedule for any such
unvested shares and shall have full authority to cancel the Company's
outstanding repurchase rights with respect to those shares in whole or in part
at any time.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Grant Program: tandem stock appreciation rights and limited stock
appreciation rights.
Tandem stock appreciation rights provide holders with the right to
surrender their options for an appreciation distribution from the Company equal
in amount to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution may, at the
discretion of the Plan Administrator, be made in cash or in shares of Common
Stock.
Limited stock appreciation rights may be granted to officers of the Company
as part of their option grants. Any option with such a limited stock
appreciation right in effect for at least six months may be surrendered to the
Company upon the successful completion of a hostile tender offer for securities
possessing more than 50% of the total combined voting power of the Company's
outstanding securities. In return for the surrendered option, the officer shall
be entitled to a cash distribution from the Company in an amount per surrendered
option share equal to the excess of (i) the highest price per share of Common
Stock paid in such hostile tender offer over (ii) the exercise price payable for
such share.
AUTOMATIC GRANT PROGRAM. Under the Automatic Grant Program, each
individual who first becomes a non-employee Director on or after the date of the
1994 Annual Stockholders Meeting, whether through election by the stockholders
or appointment by the Board, shall automatically be granted at the time of such
initial election or appointment, an option grant for 21,000 shares of Common
Stock, provided such individual has not been in the Company's prior employ. In
addition, option grants for 7,000 shares of Common Stock shall automatically be
made to non-employee Directors who have served for at least three years annually
thereafter. Accordingly, on the date of each Annual Stockholders Meeting, each
individual who is re-elected to serve as a non-employee Director and who has
served for at least three years shall automatically be granted a stock option to
purchase 7,000 shares of Common Stock. There shall be no limit on the number of
such additional 7,000-share option grants any one non-employee Director may
receive over his or her period of Board service, and non-employee Directors
shall be eligible to receive these option grants for 7,000 shares of Common
Stock, regardless of whether they joined the Board prior to the 1994 Annual
Meeting or were previously in the Company's employ.
Under the Automatic Grant Program, the exercise price per share shall be
equal to 100% of the fair market value per share of Common Stock on the
automatic grant date. Each option shall have a maximum term of ten years from
the grant date and each option shall be immediately exercisable for all option
shares, but any purchased shares shall be subject to repurchase by the Company
until vested, at the exercise price paid per share, upon the optionee's
cessation of Board service.
The option shares shall vest and the Company's repurchase rights shall
lapse with respect to option shares in three equal annual installments over the
optionee's period of Board service, with the first such installment to vest upon
the completion of one year of Board service measured from the automatic grant
date.
Should the optionee die or become permanently disabled while serving as a
Board member, then the Company's repurchase rights subject to each automatic
option grant held by that individual optionee shall immediately lapse in full
and those vested shares may be purchased at any time within the twelve-month
period following the date of the optionee's cessation of Board service.
The Company's repurchase rights subject to each automatic option grant
shall immediately lapse upon certain changes in control or ownership of the
Company, as discussed in more detail below under "General Provisions." In
addition, upon the successful completion of a hostile tender offer for
securities possessing more than 50% of the total combined voting power of the
Company's outstanding securities, each automatic option grant which has been
outstanding for at least six months may be surrendered to the Company for a cash
distribution per surrendered option share in an amount equal to the excess of
(i) the highest price per share of Common Stock paid in such hostile tender
offer over (ii) the exercise price payable for such share.
17
<PAGE>
The remaining terms and conditions of the option grants under the Automatic
Grant Program shall conform in general to the terms described above for option
grants made under the Discretionary Grant Program and shall be incorporated into
the option agreement evidencing the automatic grant.
SALARY REDUCTION GRANT PROGRAM. In the event that the Company chooses to
implement a Salary Reduction Grant Program, the Plan Administrator shall have
complete discretion in selecting the individuals, if any, who are to
participate. Under the Salary Reduction Grant Program, participants may elect
to have a portion of their base salary reduced each year in return for options
to purchase shares of the Company's Common Stock at a discount from current
market value. The formula for determining how many option shares shall be
granted at the discounted exercise price insures that the total value of the
spread on the option shall not exceed the dollar amount of the optionee's salary
reduction.
Each option shall be subject to substantially the same terms and conditions
applicable to option grants made under the Discretionary Grant Program, except
that the exercise price per share shall be equal to one-third of the fair market
value per share of Common Stock on the grant date and the number of option
shares shall be determined by dividing the total dollar amount of the approved
reduction in the participant's base salary by two-thirds of the fair market
value per share of Common Stock on the grant date. As a result, the total
spread on the option (the fair market value of the option shares on the grant
date less the aggregate exercise price payable for those shares) shall equal the
dollar amount of the reduction to the optionee's base salary in effect for the
calendar year for which the grant is made.
Provided the optionee continues in the Company's employ, the option shall
become exercisable for 50% of the option shares on the last day of June in the
calendar year for which the grant is made and shall become exercisable for the
balance of the option shares in a series of successive monthly installments on
the last day of each of the next six calendar months.
Should the optionee die or become disabled while in service, the option
shall immediately become exercisable for that number of option shares equal to
(i) one-twelfth of the total number of option shares multiplied by (ii) the
number of full calendar months which have elapsed from the first day of the
calendar year for which the option is granted and the last day of the calendar
month during which the optionee ceases service.
Each option shall have a term of ten years measured from the grant date,
whether or not the individual continues in service for the Company.
STOCK FEE PROGRAM. Under the Stock Fee Program, each individual serving as
a non-employee Director shall be eligible to elect to apply all or any portion
of the annual retainer fee otherwise payable in cash to him or her to the
acquisition of unvested shares of Common Stock. The non-employee Director must
make the stock election prior to the start of the calendar year for which the
election is to be in effect. On the first trading day in January of the
calendar year for which the election is in effect, the portion of the retainer
fee subject to such election shall be applied to the acquisition of Common Stock
by dividing the elected dollar amount by the fair market value per share of
Common Stock on that trading day. The issued shares shall be held in escrow by
the Company until the individual vests in those shares. The non-employee
Director shall have full stockholder rights, including voting and dividend
rights, with respect to all issued shares held in escrow on his or her behalf.
Upon completion of each month of Board service during the year for which
the election is in effect, the non-employee Director shall vest one-twelfth of
the issued shares, and the stock certificate for those shares shall be released
from escrow. Immediate vesting in all the issued shares shall occur in the
event the individual dies or becomes disabled during his or her period of Board
service or certain changes in control or ownership of the Company are effected
during such period. Should the Director cease service prior to vesting in one
or more monthly installments of the issued shares, then those installments shall
be forfeited.
STOCK ISSUANCE PROGRAM. Shares may be sold under the Stock Issuance
Program at a price per share not less than 85% of fair market value, payable in
cash or through a promissory note payable to the Company. Shares may also be
issued solely as a bonus for past services or pursuant to an irrevocable
election by the individual to receive such shares in lieu of a portion of his or
her salary.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
financial milestones. Unvested shares shall be subject to certain
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transfer restrictions and to repurchase or cancellation by the Company if the
vesting requirements are not satisfied. The Plan Administrator shall, however,
have the discretionary authority to accelerate the vesting of any issued shares
in whole or in part at any time. Individuals holding shares under the Stock
Issuance Program shall have full stockholder rights with respect to those
shares, whether the shares are vested or unvested.
GENERAL PROVISIONS
OPTION VESTING ACCELERATION. Outstanding options under the 1994 Incentive
Plan shall become immediately exercisable, and unvested shares issued or
issuable under the 1994 Incentive Plan shall be subject to accelerated vesting,
in the event of certain changes in the ownership or control of the Company.
Such option vesting acceleration is triggered by (i) the acquisition of the
Company by any person or entity through merger, consolidation or asset sale (a
"Corporate Acquisition") or (ii) a hostile take over of the Company through a
successful tender offer for securities of more than 50% of the total combined
voting power of the Company's outstanding securities or a change in the majority
of the Board effected through one or more contested elections for Board
membership (a "Change in Control").
Each option outstanding under the Discretionary Grant Program or Salary
Reduction Program at the time of a Corporate Acquisition shall automatically
become fully and immediately exercisable. However, an outstanding option under
the Discretionary Grant Program shall not accelerate to the extent such option
is to be assumed by the successor corporation or replaced by a comparable option
to purchase shares of the capital stock of the successor corporation. The Plan
Administrator shall have the discretion to provide for the subsequent
acceleration of any option which does not accelerate at the time of a Corporate
Acquisition, in the event the optionee's service terminates within a designated
period following a Corporation Acquisition.
Upon a Corporate Acquisition, the Company's outstanding repurchase rights
under the Discretionary Grant and Stock Issuance Programs shall also terminate,
and the shares subject to those terminated rights shall become fully vested,
except to the extent one or more of those repurchase rights are expressly
assigned to the successor corporation. The Plan Administrator shall have the
discretion to provide for the subsequent termination of any repurchase rights
which remain in existence after a Corporate Acquisition, in the event the
optionee's service terminates within a designated period following a Corporate
Acquisition.
Upon a Corporate Acquisition, the Plan Administrator shall also have the
authority to provide for the acceleration of options outstanding under the
Discretionary Grant Program at the time of any Change in Control so that each
such option shall become fully and immediately exercisable. The Plan
Administrator may also provide for the automatic termination of all of the
outstanding repurchase rights held by the Company under the Discretionary Option
Grant and Stock Issuance Programs (with the concurrent vesting of the shares
subject to those terminated rights) in the event of such a Change in Control.
Alternatively, the Plan Administrator may condition such accelerated option
vesting and termination of the repurchase rights upon the individual's cessation
of service under certain circumstances following a Change in Control.
The shares of Common Stock subject to each option outstanding under the
Salary Reduction and the Automatic Grant Programs at the time of any Corporate
Acquisition or Change in Control shall immediately vest, and the options shall
accordingly become exercisable. In addition, all unvested shares issued under
the Stock Fee Program or issued under the Stock Issuance Program in lieu of base
salary shall immediately vest at that time.
The acceleration of options in the event of a Corporate Acquisition or
Change in Control may be seen as an anti-takeover provision and may have the
effect of discouraging a merger proposal, a take over attempt or other efforts
to gain control of the Company.
CHANGES IN CAPITALIZATION. In the event any change is made to the
outstanding shares of Common Stock by reason of any recapitalization, stock
dividend, stock split, combination of shares, exchange of shares or other change
in corporate structure effected without the Company's receipt of consideration,
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the 1994 Incentive Plan and the maximum number and/or
class of securities for which the share reserve is to increase annually during
the first five years pursuant to the automatic 1% increase provisions of the
1994 Incentive Plan; (ii) the maximum number and/or class of securities for
which any one individual may be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances over the term of the 1994
Incentive Plan; (iii) the number and/or class
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of securities and price per share in effect under each outstanding option; and
(iv) the number and/or class of securities for which option grants shall
subsequently be made under the Automatic Grant Program to each newly-elected or
continuing non-employee Director.
TRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS. Any option shall
be assignable or transferable to the extent determined by the Plan Administrator
and provided in the agreement evidencing such option. However, any assignee or
transferee shall be entitled to exercise any such option or any related tandem
rights or limited rights in the same manner and only to the same extent as the
optionee or right holder would have been entitled to exercise such option or
such related rights had it not been transferred and shall be subject to the same
restrictions, repurchase rights, and other limitations that bound the optionee
or right holder, unless otherwise determined by the Plan Administrator.
FINANCIAL ASSISTANCE. The Plan Administrator may institute a loan program
in order to assist one or more optionees in financing their exercise of
outstanding options under the Discretionary Grant or Salary Reduction Grant
Program or the purchase of shares under the Stock Issuance Program. The form in
which such assistance is to be made available (including loans or installment
payments) and the terms upon which such assistance is to be provided shall be
determined by the Plan Administrator. However, the maximum amount of financing
provided any participant may not exceed the amount of cash consideration payable
for the issued shares plus all applicable Federal, state and local taxes
incurred in connection with the acquisition of the shares. Any such financing
may be subject to forgiveness in whole or in part, at the discretion of the Plan
Administrator, over the participant's period of service.
SPECIAL TAX ELECTION. The Plan Administrator may provide one or more
holders of nonstatutory options or unvested shares under the Discretionary
Grant, Salary Reduction Grant and Stock Issuance Programs with the right to have
the Company withhold a portion of the shares of Common Stock otherwise issuable
to such individuals in satisfaction of the Federal and state income and
employment tax liability incurred by such individuals in connection with the
exercise of those options or the vesting of the shares. Alternatively, the Plan
Administrator may allow such individuals to deliver previously acquired shares
of Common Stock in payment of such tax liability.
AMENDMENT AND TERMINATION. The Board may amend or modify the 1994
Incentive Plan in any or all respects whatsoever, subject to obtaining any
required stockholder approval. In addition, the Automatic Option Grant Program
and the Stock Fee Program may not be amended at intervals more frequently than
once every six months, other than to the extent necessary to comply with Federal
income tax laws, the Employee Retirement Income Security Act of 1974, as
amended, or any applicable rules and regulations thereunder. The 1994 Incentive
Plan shall in all events terminate on April 28, 2004, unless sooner terminated
by the Board.
CERTAIN FEDERAL INCOME TAX INFORMATION
The following summary of the Federal income tax consequences of 1994
Incentive Plan transactions is based upon Federal income tax laws in effect on
the date of this Proxy Statement. This summary does not purport to be complete,
and does not discuss foreign, state or local tax consequences.
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee shall, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of disposition. For Federal tax purposes, dispositions are divided into
two categories: (i) qualifying and (ii) disqualifying. The optionee makes a
qualifying disposition of the purchased shares if the sale or other disposition
of such shares is made after the optionee has held the shares for more than two
years after the grant date of the option and more than one year after the
exercise date. If the optionee fails to satisfy either of these two minimum
holding periods prior to the sale or other disposition of the purchased shares,
then a disqualifying disposition shall result.
Upon a qualifying disposition of the shares, the optionee shall recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over
(ii) the exercise price paid for those shares. If there is a disqualifying
disposition of the shares then the lesser of (i) the difference between the
amount realized on disposition of the shares and the exercise price paid for
those shares or (ii) the difference between the fair market value of the shares
on the exercise date and the exercise price
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paid for the shares shall be taxable as ordinary income. Any additional gain
recognized upon the disposition shall be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company shall be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the amount of ordinary income
recognized by the optionee. In no other instance shall the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
NONSTATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a nonstatutory option. The optionee shall in general recognize
ordinary income in the year in which the option is exercised equal to the excess
of the fair market value of the purchased shares on the exercise date over the
exercise price paid for the shares, and the optionee shall be required to
satisfy the tax withholding requirements applicable to such income.
Special provisions of the Code apply to the acquisition of unvested shares
of Common Stock under a nonstatutory option. These special provisions are
summarized below.
If the shares acquired upon exercise of the nonstatutory option are subject
to repurchase by the Company at the original exercise price in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee shall not recognize any taxable income at the time of exercise but
shall have to report as ordinary income, as and when the Company's repurchase
right lapses, an amount equal to the excess of (i) the fair market value of the
shares on the date the repurchase right lapses with respect to those shares over
(ii) the exercise price paid for the shares.
The optionee may, however, elect under Section 83(b) of the Code to include
as ordinary income in the year of exercise of the nonstatutory option an amount
equal to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee shall not recognize any additional ordinary
income as and when the repurchase right lapses.
The Company shall be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised nonstatutory option. In general, the deduction shall be allowed for
the taxable year of the Company in which such ordinary income is recognized by
the optionee.
APPRECIATION RIGHTS. An optionee who is granted a stock appreciation right
shall recognize ordinary income in the year exercised equal to the amount of the
appreciation distribution. The Company shall be entitled to an income tax
deduction equal to the appreciation distribution for the taxable year in which
the ordinary income is recognized by the optionee.
DIRECT STOCK ISSUANCE. The tax principles applicable to direct stock
issuances under the 1994 Incentive Plan shall be substantially the same as those
summarized above for the exercise of unvested shares of Common Stock under
nonstatutory option grants.
PARACHUTE PAYMENTS. If the exercisability of an option or the vesting of
shares issued under the 1994 Incentive Plan were accelerated as a result of a
change in control or sale of a substantial portion of the Company's assets, all
or a portion of the value of the option or stock subject to such acceleration
may constitute a parachute payment for purposes of the excess parachute
provisions of the Code. If total parachute payments exceed three times an
employee's average compensation for the five tax years preceding the change of
control, the employer loses its deduction for, and the recipient is subject to a
20% excise tax on the amount of the parachute payments in excess of one times
such average compensation.
AMENDED PLAN BENEFITS
The Company cannot now determine the number of options to be granted in the
future under the 1994 Incentive Plan, as proposed to be amended, to all current
executive officers as a group, all current Directors excluding current executive
officers as a group or all employees (excluding current executive officers) as a
group. The table under the caption "Option Grants in 1997 Fiscal Year" provides
information with respect to the grant of options to the Named Executive Officers
of the Company during the 1997 fiscal year. The following table sets forth
additional information with respect to options granted under the 1994 Incentive
Plan during the 1997 fiscal year:
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WEIGHTED
AVERAGE
OPTIONS % OF TOTAL EXERCISE PRICE
IDENTITY OF GROUP GRANTED OPTIONS GRANTED PER SHARE
----------------- ------- --------------- --------------
Executive Officers as a group 243,000 37.16% $15.42
Employees that are not Executive
Officers, as a group 396,000 60.55% $22.49
Directors that are not Executive
Officers, as a group 15,000 2.29% $18.50
PLAN AMENDMENT: INCREASE SHARES GRANTED UNDER CERTAIN OPTIONS
In order to attract and retain talented non-employee Directors, it is
proposed that the 1994 Incentive Plan be amended and restated to increase (i)
the total number of shares of Common Stock that each non-employee Director
receives under the 1994 Incentive Plan upon becoming a member of the Board
from 15,000 shares to 21,000 shares; and (ii) the total number of shares of
Common Stock that each non-employee Board member who has served at least
three years receives annually thereafter from 5,000 shares to 7,000 shares.
The amended and restated 1994 Incentive Plan also clarifies that the
automatic grants to non-employee Directors of the Company who have served at
least three years are made on an annual basis.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present or represented at the Annual Meeting is required
to approve the above amendment and restatement of the 1994 Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENT AND RESTATEMENT OF THE 1994 INCENTIVE PLAN.
AN ABSTENTION WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL.
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PROPOSAL 3:
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee, pursuant to authority granted to it by the Board of
Directors, appointed Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending March 31, 1998.
Although the appointment of Arthur Andersen LLP is not required to be
submitted to a vote of the stockholders, the Board of Directors believes it
appropriate as a matter of policy to request that the stockholders ratify the
appointment of the independent public accountants for the fiscal year ending
March 31, 1998. In the event a majority of the votes cast at the meeting are
not voted in favor of ratification, the adverse vote will be considered as a
direction to the Board of Directors of the Company to select other auditors for
the fiscal year ending March 31, 1998.
The Company anticipates that a representative of Arthur Andersen LLP will
be present at the Annual Meeting. The representative will be given the
opportunity to make a statement if he desires to do so, and is expected to be
available to respond to questions submitted either orally or in writing at the
meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
SELECTION OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT
PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING MARCH 31, 1998.
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STOCKHOLDER PROPOSALS
The deadline for stockholder proposals intended to be considered for
inclusion in the Company's Proxy Statement for next year's Annual Meeting of
Stockholders is expected to be March 5, 1998. Such proposals may be included in
next year's Proxy Statement if they comply with certain rules and regulations
promulgated by the Securities and Exchange Commission.
OTHER BUSINESS
The Board of Directors is not aware of any other matter which may be
presented for action at the Annual Meeting. Should any other matter requiring a
vote of the stockholders arise, the enclosed proxy card gives authority to the
persons listed on the card to vote at their discretion in the best interest of
the Company.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Charles D. Kissner
Charles D. Kissner
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Dated: July 3, 1997
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DIGITAL MICROWAVE CORPORATION
1994 STOCK INCENTIVE PLAN
(amended and restated May 13, 1997)
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
A. This 1994 Stock Incentive Plan (the "Plan") is intended to
promote the interests of Digital Microwave Corporation, a Delaware corporation
(the "Corporation"), by providing (i) key employees (including officers) of the
Corporation (or its Parent or Subsidiary corporations) who are responsible for
the management, growth and financial success of the Corporation, (ii) the
non-employee members of the Corporation's Board of Directors (the "Board") or
the board of directors of any Parent or Subsidiary corporation and (iii) those
consultants and other independent contractors who provide valuable services to
the Corporation (or its Parent or Subsidiary corporations) with the opportunity
to acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to remain in the service
of the Corporation (or its Parent or Subsidiary corporations).
B. The Plan shall become effective upon approval by the
Corporation's stockholders at the 1994 Annual Meeting to be held on July 27,
1994. Such date is hereby designated as the Effective Date of the Plan.
II. STRUCTURE OF THE PLAN
A. STOCK PROGRAMS. The Plan shall be divided into five separate
components:
- The Discretionary Option Grant Program under which eligible
individuals may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock in accordance with the
provisions of Article Two.
- The Automatic Option Grant Program under which non-employee
Board members shall automatically receive special option grants at periodic
intervals to purchase shares of Common Stock in accordance with the
provisions of Article Three.
- The Stock Fee Program under which the non-employee Board members
may elect to apply all or a portion of their annual cash retainer fee to
the acquisition of shares of Common Stock in accordance with the provisions
of Article Four.
- The Salary Reduction Grant Program under which eligible
individuals may, pursuant to the provisions of Article Five, elect to have
a portion of their base salary reduced each year in return for options to
purchase shares of Common Stock at an aggregate discount from the Fair
Market Value of the option shares on the grant date equal to the salary
reduction amount.
- The Stock Issuance Program under which eligible individuals may,
pursuant to the provisions of Article Six, be issued shares of Common Stock
directly, through the immediate purchase of such shares at a price not less
than eighty-five percent (85%) of their Fair Market Value at the time of
issuance, as a bonus tied to the performance of services or the
Corporation's attainment of financial objectives, or pursuant to the
individual's election to receive such shares in lieu of base salary.
B. GENERAL PROVISIONS. Unless the context clearly indicates
otherwise, the provisions of Articles One and Seven shall apply to the
Discretionary Option Grant, Automatic Option Grant, Salary Reduction
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Grant, Stock Issuance and Stock Fee Programs and shall accordingly govern the
interests of all individuals under the Plan.
C. GLOSSARY. Capitalized terms shall, except as otherwise
specifically defined within the provisions of the Plan, have the meanings
assigned to such terms in the Glossary.
III. ADMINISTRATION OF THE PLAN
A. The Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant, Salary Reduction Grant and Stock
Issuance Programs. No Board member shall be eligible to serve on the Committee
if such individual has, within the twelve (12)-month period immediately
preceding the date such individual is to be appointed to the Committee, received
an option grant or stock issuance under this Plan or any other stock option,
stock appreciation, stock bonus or other stock plan of the Corporation (or any
Subsidiary), other than pursuant to the Automatic Option Grant Program specified
in Article Three or the Stock Fee Program specified in Article Four or the
predecessor automatic option grant program in effect under the Corporation's
1984 Stock Option Plan. Members of the Committee shall serve for such period as
the Board may determine and shall be subject to removal by the Board at any
time.
B. The Committee as Plan Administrator shall have full power and
discretion (subject to the express provisions of the Plan) to establish such
rules and regulations as it may deem appropriate for the proper administration
of the Discretionary Option Grant, Salary Reduction Grant and Stock Issuance
Programs and to make such determinations under, and issue such interpretations
of, the provisions of each such program and any outstanding option grants or
stock issuances thereunder as it may deem necessary or advisable. Decisions of
the Plan Administrator shall be final and binding on all parties who have an
interest in those programs or any outstanding option or stock issuance
thereunder.
C. Service on the Committee shall constitute service as a Board
member, and members of the Committee shall accordingly be entitled to full
indemnification and reimbursement as Board members for their service on the
Committee. No member of the Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option grants or share
issuances under the Plan.
D. Administration of the Automatic Option Grant and Stock Fee
Programs shall be self-executing in accordance with the express terms and
conditions of those programs, and the Plan Administrator shall not exercise any
discretionary functions with respect to the option grants or stock issuances
made pursuant to such programs.
E. Notwithstanding the foregoing provisions of this Part III, the
Subcommittee shall have sole and exclusive authority to administer the
participation of Covered Employees in the Discretionary Option Grant, Salary
Deduction Grant and Stock Issuance Programs to the extent necessary to qualify
the grants under such programs as "performance-based compensation" under
Section 162(m) of the Code. In the case of such grants to Covered Employees,
references to the "Plan Administrator" shall be deemed to be references to the
Subcommittee.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant, Salary Reduction Grant and Stock Issuance Programs are as follows:
- officers and other key employees of the Corporation (or any
Parent or Subsidiary) who render services which contribute to the
management, growth and financial success of the Corporation; and
- those consultants or other independent contractors who provide
valuable services to the Corporation (or any Parent or Subsidiary).
B. Non-employee Board members shall NOT be eligible to participate
in the Discretionary Option Grant, Salary Reduction Grant or Stock Issuance
Program or in any other stock option, stock purchase, stock
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bonus or other stock plan of the Corporation (or its Subsidiaries). Such
non-employee Board members shall, however, be eligible to participate in the
Automatic Option Grant and Stock Fee Programs.
C. The Plan Administrator shall have full authority to determine,
(i) with respect to grants made under the Discretionary Option Grant and Salary
Reduction Grant Programs, which eligible individuals are to receive such grants,
the number of shares to be covered by each such grant, the status of any granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times at which each granted option is to become exercisable and the maximum term
for which the option may remain outstanding and (ii) with respect to stock
issuances under the Stock Issuance Program, which eligible individuals are to be
selected for participation, the number of shares to be issued to each selected
individual, the vesting schedule (if any) to be applicable to the issued shares
and the consideration to be paid for such shares.
V. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the
Plan and shall be drawn from either the Corporation's authorized but unissued
shares of Common Stock or from reacquired shares of Common Stock, including
shares repurchased by the Corporation on the open market. The number of shares
of Common Stock reserved for issuance over the term of the Plan shall be fixed
at 2,183,330 shares, subject to adjustment as provided below.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of each calendar
year during each of the first five years of the term of the Plan, beginning with
the 1995 calendar year, by an amount equal to one percent (1%) of the shares of
Common Stock outstanding on December 31 of the immediately preceding calendar
year; but in no event shall any such annual increase exceed 150,000 shares.
None of the additional shares resulting from such annual increases may be made
the subject of Incentive Options granted under the Plan.
C. No one individual participating in the Plan may be granted stock
options, separately exercisable stock appreciation rights and receive direct
stock issuances for more than 500,000 shares in the aggregate over the term of
the Plan.
D. Should one or more outstanding options under this Plan expire or
terminate for any reason prior to exercise in full, then the shares subject to
the portion of each option not so exercised shall be available for subsequent
issuance under the Plan. Shares subject to any stock appreciation rights
exercised under the Plan and all share issuances under the Plan (other than
issuances in payment of exercised stock appreciation rights), whether or not the
issued shares are subsequently repurchased by the Corporation pursuant to its
repurchase rights under the Plan, shall reduce on a share-for-share basis the
number of shares of Common Stock available for subsequent issuance under the
Plan. In addition, should the exercise price of an outstanding option under the
Plan be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Corporation in satisfaction
of the withholding taxes incurred in connection with the exercise of an
outstanding option under the Plan or the vesting of a share issuance under the
Plan, then the number of shares of Common Stock available for issuance under the
Plan shall be reduced by the gross number of shares for which the option is
exercised or which vest under the share issuance, and not by the net number of
shares of Common Stock actually issued to the holder of such option or share
issuance.
E. Should any change be made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which the share reserve is to increase automatically each year
over the first five years of the term of the Plan, (iii) the maximum number
and/or class of securities for which any one individual participating in the
Plan may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances in the aggregate over the term of the Plan,
(iv) the number and/or class of securities for which automatic option grants are
to be subsequently made to each newly elected or continuing non-employee Board
member under the Automatic Option Grant Program and (v) the number and/or class
of securities and price
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per share in effect under each option outstanding under the Plan. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under those
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Grant Program shall be
authorized by action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Options or Non-Statutory
Options. Individuals who are not Employees may only be granted Non-Statutory
Options. Each granted option shall be evidenced by one or more instruments in
the form approved by the Plan Administrator; provided, however, that each such
instrument shall comply with the terms and conditions specified below. Each
instrument evidencing an Incentive Option shall, in addition, be subject to the
provisions of the Plan applicable to such grants.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
The exercise price per share of Common Stock subject to an
Incentive Option shall in no event be less than one hundred percent (100%)
of the Fair Market Value of such Common Stock on the grant date.
The exercise price per share of Common Stock subject to a
Non-Statutory Option shall in no event be less than one hundred percent
(100%) of the Fair Market Value of such Common Stock on the grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one of the alternative forms specified
below:
(i) full payment in cash or check made payable to the
Corporation's order,
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market Value on the date
the option is exercised,
(iii) full payment in a combination of shares of Common
Stock held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at Fair
Market Value on the date the option is exercised and cash or check made
payable to the Corporation's order, or
(iv) to the extent the option is exercised for vested
shares, full payment through a broker-dealer sale and remittance procedure
pursuant to which the Optionee shall provide concurrent irrevocable written
instructions (I) to a Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of
the sale proceeds available on the settlement date, sufficient funds to cover
the aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required to
be withheld by the Corporation in connection with such purchase and (II) to
the Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale transaction.
B. TERM AND EXERCISE OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the instrument
evidencing such option. No option shall, however, have a maximum term in excess
of ten (10) years.
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During the lifetime of the Optionee, the option, together with any
stock appreciation rights pertaining to such option, shall be exercisable only
by the Optionee and shall not be assignable or transferable except for a
transfer of the option effected by will or by the laws of descent and
distribution following the Optionee's death; provided, however, that effective
as of August 15, 1996, any Non-Statutory Option shall be assignable or
transferable to the extent determined by the Plan Administrator and provided in
the agreement evidencing such option. However, any assignee or transferee shall
be entitled to exercise any such Non-Statutory Option or any related Tandem
Rights or Limited Rights in the same manner and only to the same extent as the
Optionee or right holder would have been entitled to exercise such option or
such related rights had it not been transferred and shall be subject to the same
restrictions, repurchase rights, and other limitations that bound the Optionee
or right holder, unless otherwise determined by the Plan Administrator.
C. TERMINATION OF SERVICE.
1. Except to the extent otherwise expressly authorized by the Plan
Administrator, no Optionee shall have more than a thirty-six (36)-month period
measured from the date of such individual's cessation of Service in which to
exercise his or her outstanding options under the Plan.
2. Any option exercisable in whole or in part by the Optionee at the
time of death may be subsequently exercised by the personal representative of
the Optionee's estate or by the person or persons to whom the option is
transferred pursuant to the Optionee's will or in accordance with the laws of
descent and distribution. However, no such option shall remain exercisable for
more than thirty-six (36) months after the date of the Optionee's death.
3. Under no circumstances shall any such option be exercisable after
the specified expiration date of the option term.
4. During the applicable post-Service exercise period, the option
may not be exercised in the aggregate for more than the number of shares (if
any) in which the Optionee is vested at the time of his or her cessation of
Service. Upon the expiration of the limited post-Service exercise period or (if
earlier) upon the specified expiration date of the option term, each such option
shall terminate and cease to remain outstanding with respect to any vested
shares for which the option has not otherwise been exercised. However, each
outstanding option shall immediately terminate and cease to remain outstanding,
at the time of the Optionee's cessation of Service, with respect to any shares
for which the option is not otherwise at that time exercisable or in which the
Optionee is not otherwise vested.
5. Should the Optionee's Service be terminated for Misconduct, all
outstanding options held by that individual shall terminate immediately and
cease to remain outstanding.
6. The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding:
- to permit one or more options to be exercised not only with
respect to the number of vested shares of Common Stock for which each such
option is exercisable at the time of the Optionee's cessation of Service
but also with respect to one or more subsequent installments of vested
shares for which the option would otherwise have become exercisable had
such cessation of Service not occurred;
- to extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service or death
from the limited period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the specified expiration date of the option term.
D. STOCKHOLDER RIGHTS. An Optionee shall have none of the rights of
a stockholder with respect to any option shares until such individual shall have
exercised the option and paid the exercise price for the purchased shares.
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E. REPURCHASE RIGHTS. The shares of Common Stock acquired under
this Discretionary Grant Program may be subject to repurchase by the Corporation
in accordance with the following provisions:
1. The Plan Administrator shall have the discretion to grant options
which are exercisable for unvested shares of Common Stock. Should the Optionee
cease Service while holding any unvested shares purchased under such options,
then the Corporation shall have the right to repurchase any or all of those
unvested shares at the exercise price paid per share. The terms and conditions
upon which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
instrument evidencing such repurchase right.
2. All of the Corporation's outstanding repurchase rights shall
automatically terminate, and all shares subject to such terminated rights shall
immediately vest in full, upon the occurrence of a Corporate Transaction, except
to the extent: (i) any such repurchase right is expressly assigned to the
successor corporation (or parent thereof) in connection with the Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
3. The Plan Administrator shall have the discretionary authority,
exercisable either before or after the Optionee's cessation of Service, to
cancel the Corporation's outstanding repurchase rights with respect to one or
more shares purchased or purchasable by the Optionee under the Plan and thereby
accelerate the vesting of such shares in whole or in part at any time.
I. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under the Plan. Incentive Options may only be
granted to individuals who are Employees. Options which are specifically
designated as Non-Statutory Options when issued under the Plan shall NOT be
subject to such terms and conditions.
A. DOLLAR LIMITATION. The aggregate Fair Market Value (determined
as of the respective date or dates of grant) of the Common Stock for which one
or more options granted to any Employee under this Plan (or any other option
plan of the Corporation or its Subsidiaries) may for the first time become
exercisable as incentive stock options under the Federal tax laws during any one
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options which
become exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as incentive stock options
under the Federal tax laws shall be applied on the basis of the order in which
such options are granted. Should the number of shares of Common Stock for which
any Incentive Option first becomes exercisable in any calendar year exceed the
applicable One Hundred Thousand Dollar ($100,000) limitation, then the option
may nevertheless be exercised in that calendar year for the excess number of
shares as a Non-Statutory Option under the Federal tax laws.
B. 10% STOCKHOLDER. If any individual to whom an Incentive Option
is granted is the owner of stock (as determined under Section 424(d) of the
Code) possessing ten percent (10%) or more of the total combined voting power of
all classes of stock of the Corporation or any one of its Subsidiaries, then the
exercise price per share shall not be less than one hundred ten percent (110%)
of the Fair Market Value per share of Common Stock on the grant date and the
option term shall not exceed five (5) years measured from the grant date.
II. CORPORATE TRANSACTIONS/CHANGES IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the specified effective date for such Corporate
Transaction, become fully exercisable with respect to the total number of shares
of Common Stock at the time subject to such option and may be exercised for all
or any portion of such shares. However, an outstanding option shall not so
accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable option to purchase
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shares of the capital stock of the successor corporation or parent thereof, (ii)
such option is to be replaced with a cash incentive program of the successor
corporation which preserves the option spread existing at the time of the
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to such option or (iii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options upon the occurrence of a Corporate Transaction, whether
or not those options are to be assumed or replaced in the Corporate Transaction.
Alternatively, the Plan Administrator shall have the authority to provide for
the subsequent acceleration of any outstanding options which do not otherwise
accelerate at the time of the Corporate Transaction, or the subsequent
termination of any of the Corporation's outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction, should the
Optionee's Service terminate through an Involuntary Termination effected within
a designated period following the effective date of such Corporate Transaction.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate, except to the extent
assumed by the successor corporation or its parent company.
D. Each outstanding option under this Discretionary Grant Program
that is assumed in connection with the Corporate Transaction or is otherwise to
continue in effect shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply and pertain to the number and class of
securities which would have been issued to the option holder, in consummation of
such Corporate Transaction, had such person exercised the option immediately
prior to such Corporate Transaction. Appropriate adjustments shall also be made
to the exercise price payable per share, provided the aggregate exercise price
payable for such securities shall remain the same. In addition, the class and
number of securities available for issuance under the Plan on both an aggregate
and per individual basis following the consummation of the Corporate Transaction
shall be appropriately adjusted.
E. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options (and the termination of one or more of the
Corporation's outstanding repurchase rights) upon the occurrence of a Change in
Control. The Plan Administrator shall also have full power and authority to
condition any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent termination of the Optionee's Service
through an Involuntary Termination effected within a specified period following
the Change in Control.
F. Any options accelerated in connection with the Change in Control
shall remain fully exercisable until the expiration or sooner termination of the
option term.
G. The grant of options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
incentive stock option under the Federal tax laws only to the extent the
applicable One Hundred Thousand Dollar limitation is not exceeded. To the
extent such dollar limitation is exceeded, the accelerated portion of such
option shall be exercisable as a Non-Statutory Option under the Federal tax
laws.
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III. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority,
exercisable in its sole discretion, to grant to selected Optionees: (i) Tandem
Stock Appreciation Rights ("Tandem Rights") and/or Limited Stock Appreciation
Rights ("Limited Rights").
B. The following terms and conditions shall govern the grant and
exercise of Tandem Rights:
1. One or more Optionees may be granted the Tandem Right,
exercisable upon such terms and conditions as the Plan Administrator
may establish, to elect between the exercise of the underlying stock
option for shares of Common Stock and the surrender of that option in
exchange for a distribution from the Corporation in an amount equal to
the excess of (i) the Fair Market Value (on the option surrender date)
of the number of shares in which the Optionee is at the time vested
under the surrendered option (or surrendered portion thereof) over
(ii) the aggregate exercise price payable for such vested shares.
2. No such option surrender shall be effective unless it
is approved by the Plan Administrator. If the surrender is so
approved, then the distribution to which the Optionee shall
accordingly become entitled may be made in shares of Common Stock
valued at Fair Market Value on the option surrender date, in cash, or
partly in shares and partly in cash, as the Plan Administrator shall
in its sole discretion deem appropriate.
3. If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the LATER of (i) five (5) business days after the
receipt of the rejection notice or (ii) the last day on which the
option is otherwise exercisable in accordance with the terms of the
instrument evidencing such option, but in no event may such rights be
exercised more than ten (10) years after the date of the option grant.
C. The following terms and conditions shall govern the grant and
exercise of Limited Rights:
1. One or more officers of the Corporation subject to the
short-swing profit restrictions of the federal securities laws may, in
the Plan Administrator's sole discretion, be granted Limited Rights
with respect to their outstanding options.
2. Upon the occurrence of a Hostile Take-Over, each such
officer holding one or more options with such a Limited Right shall
have the unconditional right (exercisable for a thirty (30)-day period
following such Hostile Take-Over) to surrender each such option to the
Corporation, to the extent the option is at the time exercisable for
fully vested shares of Common Stock. The officer shall in return be
entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the vested shares of
Common Stock at the time subject to each surrendered option (or
surrendered portion of such option) over (ii) the aggregate exercise
price payable for such vested shares. Such cash distribution shall be
made within five (5) days following the option surrender date.
3. Neither the approval of the Plan Administrator nor the
consent of the Board shall be required in connection with such option
surrender and cash distribution. Any unsurrendered portion of the
option shall continue to remain outstanding and become exercisable in
accordance with the terms of the instrument evidencing such grant.
A-8
<PAGE>
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
A. ELIGIBLE OPTIONEES. The individuals eligible to receive
automatic option grants pursuant to the provisions of this Automatic Grant
Program shall be limited to (i) those individuals who are first elected as
non-employee Board members at the 1994 Annual Meeting of Stockholders, (ii)
those individuals who are first elected or appointed as non-employee Board
members after the date of such Annual Meeting, whether through appointment by
the Board or election by the Corporation's stockholders, and (iii) those
individuals who are reelected to serve as non-employee Board members at one or
more Annual Stockholder Meetings beginning with the 1995 Annual Meeting. Only
individuals who have not been in the prior Service of the Corporation (or any
Parent or Subsidiary) may receive an automatic option grant under clause (i) or
(ii) above. Any non-employee Board member eligible to participate in the
Automatic Grant Program pursuant to the foregoing criteria is hereby designated
an Eligible Director for purposes of such program.
B. LIMITATION. Except for the option grants to be made pursuant to
the provisions of this Automatic Option Grant Program and any share issuance to
be made pursuant to the provisions of the Stock Fee Program, non-employee Board
members shall NOT be eligible to receive any option grants or stock issuances
under this Plan or any other stock plan of the Corporation (or any Parent or
Subsidiary).
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. GRANT DATES. Option grants shall be made on the dates specified
below:
1. Each individual first elected as an Eligible Director at the 1994
Annual Stockholders Meeting shall automatically be granted on the date of such
Meeting a Non-Statutory Option to purchase 15,000 shares of Common Stock.
2. Each individual who first becomes an Eligible Director after the
date of the 1994 Annual Stockholders Meeting but before the date of the 1997
Annual Stockholders Meeting, whether through election by the Corporation's
stockholders or appointment by the Board, shall automatically be granted, at the
time of such initial election or appointment, a Non-Statutory Option to purchase
15,000 shares of Common Stock.
3. Each individual who first becomes an Eligible Director on or
after the date of the 1997 Annual Stockholders Meeting, whether through election
by the Corporation's stockholders or appointment by the Board, shall
automatically be granted, at the time of such initial election or appointment, a
Non-Statutory Option to purchase 21,000 shares of Common Stock.
4. On the date of the 1995 Annual Stockholders Meeting, each
individual who is at that time re-elected as a non-employee Board member and who
has not otherwise received any prior automatic option grants during the two
preceding calendar years shall automatically be granted a Non-Statutory Option
to purchase an additional 5,000 shares of Common Stock, provided such individual
has served as a Board member for at least twelve (12) months. On the date of
the 1996 Annual Stockholders Meeting, each such individual who is at that time
re-elected as a non-employee Board member shall automatically be granted a
Non-Statutory option to purchase an additional 5,000 shares of Common Stock.
5. On the date of each Annual Stockholders Meeting, beginning with
the 1997 Annual Meeting, each individual who is at that time re-elected as a
non-employee Board member and who has served on the Board for three years shall
automatically be granted each year thereafter a Non-Statutory Option to purchase
an additional 7,000 shares of Common Stock.
B. NO LIMITATION. There shall be no limit on the number of such
7,000-share annual option grants any one Eligible Director may receive over his
or her period of Board service.
A-9
<PAGE>
C. EXERCISE PRICE. The exercise price per share of Common Stock of
each automatic option grant shall be equal to one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the automatic grant date.
D. PAYMENT. The exercise price shall be payable in any of the
alternative forms authorized under the Discretionary Option Grant Program. To
the extent the option is exercised for any unvested shares, the Optionee must
execute and deliver to the Corporation a stock purchase agreement for those
unvested shares which provides the Corporation with the right to repurchase, at
the exercise price paid per share, any unvested shares held by the Optionee at
the time of cessation of Board service and which precludes the sale, transfer or
other disposition of the purchased shares at any time while those shares remain
subject to such repurchase right.
E. OPTION TERM. Each automatic grant shall have a maximum term of
ten (10) years measured from the grant date.
F. EXERCISABILITY/VESTING. Each automatic grant shall be
immediately exercisable for any or all of the option shares. However, any
shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's cessation
of Board service prior to vesting in those shares. Each automatic grant shall
vest, and the Corporation's repurchase right shall lapse, in a series of three
(3) equal and successive annual installments over the Optionee's period of
continued service as a Board member, with the first such installment to vest
upon Optionee's completion of one (1) year of Board service measured from the
automatic grant date.
G. TRANSFERABILITY. Prior to August 15, 1996, during the lifetime
of the Optionee, the automatic option grant, together with the limited stock
appreciation right pertaining to such option, shall be exercisable only by the
Optionee and shall not be assignable or transferable except for a transfer of
the option effected by will or by the laws of descent and distribution following
the Optionee's death. Effective as of August 15, 1996, the automatic option
grant, together with the limited stock appreciation right pertaining to such
option, shall be fully assignable and transferable notwithstanding any contrary
provision of the agreement evidencing such option and related stock appreciation
right; provided, however, that any assignee or transferee shall be entitled to
exercise such option and any related stock appreciation right in the same manner
and only to the same extent as the Optionee would have been entitled to exercise
such option and the related stock appreciation right had it not been transferred
and shall be subject to the same restrictions, repurchase rights, and other
limitations that bound the Optionee, unless otherwise determined by the Plan
Administrator.
H. TERMINATION OF BOARD SERVICE.
1. Should the Optionee cease to serve as a Board member for any
reason (other than death or Permanent Disability) while holding one or more
automatic option grants, then such individual shall have a six (6)-month period
following the date of such cessation of Board service in which to exercise each
such option for any or all of the option shares in which the Optionee is vested
at the time of such cessation of Board service. However, each such option shall
immediately terminate and cease to remain outstanding, at the time of such
cessation of Board service, with respect to any option shares in which the
Optionee is not otherwise at that time vested under such option.
2. Should the Optionee die within six (6) months after cessation of
Board service, then any automatic option grant held by the Optionee at the time
of death may subsequently be exercised, for any or all of the option shares in
which the Optionee is vested at the time of his or her cessation of Board
service (less any option shares subsequently purchased by the Optionee prior to
death), by the personal representative of the Optionee's estate or by the person
or persons to whom the option is transferred pursuant to the Optionee's will or
in accordance with the laws of descent and distribution. The right to exercise
each such option shall lapse upon the expiration of the twelve (12)-month period
measured from the date of the Optionee's death.
3. Upon the Optionee's death or Permanent Disability while serving
as a Board member, the shares of Common Stock at the time subject to each
automatic option grant held by the Optionee shall immediately vest in full (and
the Corporation's repurchase right with respect to such shares shall terminate),
and the
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Optionee (or the representative of the Optionee's estate or the person or
persons to whom the option is transferred upon the Optionee's death) shall have
a twelve (12)-month period following the date of such cessation of Board service
in which to exercise such option for any or all of those vested shares of Common
Stock.
4. In no event shall any automatic grant remain exercisable after
the expiration date of the ten (10)-year option term. Upon the expiration of
the applicable post-service exercise period provided above or (if earlier) upon
the expiration of the ten (10)-year option term, the automatic grant shall
terminate and cease to be outstanding for any option shares in which the
Optionee was vested at the time of his or her cessation of Board service but for
which such option was not otherwise exercised.
I. STOCKHOLDER RIGHTS. The holder of an automatic option grant
under this Automatic Grant Program shall have none of the rights of a
stockholder with respect to any shares subject to that option until such
individual shall have exercised the option and paid the exercise price for the
purchased shares.
J. REMAINING TERMS. The remaining terms and conditions of each
automatic option grant shall be as set forth in the form Automatic Stock Option
Agreement attached as Exhibit A to the Plan.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. The shares of Common Stock subject to each automatic option grant
outstanding at the time of any Corporate Transaction but not otherwise vested
shall automatically vest in full and the Corporation's repurchase right with
respect to those shares shall terminate, so that each such option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become fully exercisable for all of the shares of Common Stock at the time
subject to that option and may be exercised for all or any portion of such
shares as fully vested shares of Common Stock. Immediately following the
consummation of the Corporate Transaction, all automatic option grants shall
terminate and cease to remain outstanding, except to the extent assumed by the
successor entity or its parent corporation.
B. The shares of Common Stock subject to each automatic option grant
outstanding at the time of any Change in Control but not otherwise vested shall
automatically vest in full and the Corporation's repurchase right with respect
to those shares shall terminate, so that each such option shall, immediately
prior to the specified effective date for the Change in Control, become fully
exercisable for all of the shares of Common Stock at the time subject to that
option and may be exercised for all or any portion of such shares as fully
vested shares of Common Stock. Each option shall remain so exercisable for all
the option shares following the Change in Control until the expiration or sooner
termination of the option term.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
also have a thirty (30) day period in which to surrender to the Corporation each
automatic option grant held by him or her. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to the surrendered option over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. Neither the approval
of the Plan Administrator nor the consent of the Board shall be required in
connection with such option surrender and cash distribution. The shares of
Common Stock subject to each option surrendered in connection with the Hostile
Take-Over shall not be available for subsequent issuance under the Plan.
D. The automatic option grants outstanding under the Plan shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
The provisions of this Automatic Option Grant Program, together with
the outstanding automatic option grants, may not be amended at intervals more
frequently than once every six (6) months, other than to the extent necessary to
comply with applicable Federal income tax laws, the Employee Retirement Income
Security Act
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of 1974, as amended, or any applicable rules and regulations thereunder;
provided, however, that effective as of August 15, 1996, this limitation on
amendments of the Automatic Option Grant Program shall no longer apply.
ARTICLE FOUR
STOCK FEE PROGRAM
-----------------
I. ELIGIBILITY
Each individual serving as a non-employee Board member shall be
eligible to elect to apply all or any portion of the annual retainer fee
otherwise payable to such individual in cash to the acquisition of unvested
shares of Common Stock upon the terms and conditions of this Stock Fee Program.
II. ELECTION PROCEDURE
A. FILING. The non-employee Board member must make the
stock-in-lieu-of-fee election prior to the start of the calendar year for which
the election is to be effective. The first calendar year for which any such
election may be filed shall be the 1995 calendar year. The election, once
filed, shall be irrevocable. The election for any upcoming calendar year may be
filed at any time prior to the start of that year, but in no event later than
December 31 of the immediately preceding calendar year. The non-employee Board
member may file a standing election to be in effect for two (2) or more
consecutive calendar years or to remain in effect indefinitely until revoked by
written instrument filed with the Plan Administrator at least six (6) months
prior to the start of the first calendar year for which such standing election
is no longer to remain in effect.
B. ELECTION FORM. The election must be filed with the Plan
Administrator on the appropriate form provided for this purpose. On the
election form, the non-employee Board member must indicate the percentage or
dollar amount of his or her annual retainer fee to be applied to the acquisition
of unvested shares.
III. SHARE ISSUANCE
A. ISSUE DATE. On the first trading day in January of the calendar
year for which the election is effective, the portion of the retainer fee
subject to such election shall automatically be applied to the acquisition of
shares of Common Stock by dividing the elected dollar amount by the Fair Market
Value per share of Common Stock on that trading day. The number of issuable
shares shall be rounded down to the next whole share, and the issued shares
shall be held in escrow by the Secretary of the Corporation as partly-paid
shares until the non-employee Board member vests in those shares. The
non-employee Board member shall have full shareholder rights, including voting,
dividend and liquidation rights, with respect to all issued shares held in
escrow on his or her behalf, but such shares shall not be assignable or
transferable while they remain unvested.
B. VESTING. Upon completion of each calendar month of Board service
during the year for which the election is in effect, the non-employee Board
member shall vest in one-twelfth (1/12) of the issued shares, and the stock
certificate for those shares shall be released from escrow. Immediate vesting
in all the issued shares shall occur in the event (i) the non-employee Board
member should die or become Permanently Disabled during his or her period of
Board service or (ii) there should occur a Corporate Transaction or Change in
Control while such individual remains in Board service. Should such individual
cease Board service prior to vesting in one or more monthly installments of the
issued shares, then those unvested shares shall be canceled by the Corporation,
and the non-employee Board member shall not be entitled to any cash payment or
other consideration from the Corporation with respect to the canceled shares and
shall have no further shareholder rights with respect to such shares.
IV. AMENDMENT OF THE STOCK FEE PROGRAM PROVISIONS
The provisions of this Stock Fee Program, together with any
outstanding unvested share issuances, may not be amended at intervals more
frequently than once every six (6) months, other than to the extent necessary to
comply with applicable Federal income tax laws, the Employee Retirement Income
Security Act of
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1974, as amended, or any applicable rules and regulations thereunder;
provided, however, that effective as of August 15, 1996, this limitation on
amendments of the Stock Fee Program shall no longer apply.
ARTICLE FIVE
SALARY REDUCTION GRANT PROGRAM
------------------------------
I. ELIGIBILITY
The Plan Administrator shall have plenary authority to select,
prior to the start of each calendar year, the particular key employees who
shall be eligible for participation in the Salary Reduction Grant Program for
that calendar year. In order to participate for a particular calendar year,
each selected individual must, prior to the start of that calendar year, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by a designated multiple of one percent (1%), but in no event less than
five percent (5%).
The Plan Administrator shall review the filed authorizations and
determine whether to approve, in whole or in part, one or more of those
authorizations. To the extent the Plan Administrator approves one or more
authorizations, the individuals who filed those authorizations shall be
granted options under this Salary Reduction Grant Program.
Options granted under the Salary Reduction Grant Program, such
options shall be Non-Statutory Options evidenced by instruments in such form
as the Plan Administrator shall from time to time approve; PROVIDED, however,
that each such instrument shall comply with and incorporate the terms and
conditions specified below.
II. TERMS AND CONDITIONS OF OPTION
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and one-third
percent (33-1/3%) of the Fair Market Value per share of Common Stock on the
grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall be payable in any of the alternative forms authorized under
the Discretionary Grant Program.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
for which each grant is to be made to a selected Optionee shall be determined
pursuant to the following formula (rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the approved reduction in the
Optionee's base salary for the calendar year, and
B is the Fair Market Value per share of Common Stock on the
date of the grant.
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C. TERM AND EXERCISE OF OPTIONS.
1. Each option shall have a maximum term of ten (10) years measured
from the grant date. Provided the Optionee continues in Service, the option
shall become exercisable for (i) fifty percent (50%) of the option shares on the
last day of June in the calendar year for which the option is granted and for
(ii) the balance of the option shares in a series of six (6) successive equal
monthly installments on the last day of each of the next six (6) calendar
months.
2. Prior to August 15, 1996, the option shall be exercisable only by
the Optionee and shall not be assignable or transferable other than by transfer
of the option effected by will or by the laws of descent and distribution
following the Optionee's death. However, effective as of August 15, 1996, the
option shall be assignable or transferable to the extent determined by the Plan
Administrator and provided in the agreement evidencing such option. However,
any assignee or transferee shall be entitled to exercise the option in the same
manner and only to the same extent as the Optionee would have been entitled to
exercise the option had it not been transferred and shall be subject to the same
restrictions, repurchase rights, and other limitations that bound the Optionee
or right holder, unless otherwise determined by the Plan Administrator.
D. EFFECT OF TERMINATION OF SERVICE.
1. Should an Optionee cease Service for any reason after his or her
outstanding option has become exercisable in whole or in part, then that option
shall remain exercisable, for any or all of the shares for which the option is
exercisable on the date of such cessation of Service, until the expiration of
the ten (10) year option term or any sooner termination in connection with a
Corporate Transaction. Following the Optionee's death, such option may be
exercised, for any or all of the shares for which the option is exercisable at
the time of the Optionee's death, by the personal representative of the
Optionee's estate or by the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent and
distribution. Such right of exercise shall lapse, and the option shall
terminate, upon the expiration of the ten (10)-year option term or any sooner
termination in connection with a Corporate Transaction.
2. Should the Optionee die before his or her outstanding option
becomes exercisable for any of the option shares, then the personal
representative of the Optionee's estate or the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution shall nevertheless have the right to exercise
such option for up to that number of option shares equal to (i) one-twelfth
(1/12) of the total number of option shares multiplied by (ii) the number of
full calendar months which have elapsed between the first day of the calendar
year for which the option is granted and the last day of the calendar month
during which the Optionee ceases Service. Such right of exercise shall lapse,
and the option shall terminate, upon the EARLIEST to occur of (i) the specified
expiration date of the option term, (ii) the termination of the option in
connection with a Corporate Transaction or (iii) the third anniversary of the
date of the Optionee's death. However, the option shall, with respect to any
and all option shares for which it is not exercisable at the time of the
Optionee's cessation of Service, terminate immediately upon such cessation of
Service and shall cease to remain outstanding with respect to those option
shares.
3. Should the Optionee become Permanently Disabled and cease by
reason thereof to remain in Service before his or her outstanding option becomes
exercisable for any of the option shares, then the Optionee shall nevertheless
have the right to exercise such option for up to that number of option shares
equal to (i) one-twelfth (1/12) of the total number of option shares multiplied
by (ii) the number of full calendar months which elapse between the first day of
the calendar year for which the option is granted and the last day of the
calendar month during which the Optionee ceases Service. Such right of exercise
shall lapse, and the option shall terminate, upon the expiration of the ten
(10)-year option term or any sooner termination in connection with a Corporate
Transaction. However, the option shall, with respect to any and all option
shares for which it is not exercisable at the time of the Optionee's cessation
of Service, terminate immediately upon such cessation of Service and shall cease
to remain outstanding with respect to those option shares.
4. Except to the limited extent specifically provided above, should
the Optionee cease for any reason to remain in Service before his or her
outstanding option first becomes exercisable for one or more
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option shares, then that option shall immediately terminate upon such cessation
of Service and shall cease to remain outstanding.
E. STOCKHOLDER RIGHTS. The Optionee shall have none of the rights
of a stockholder with respect to any option shares until such individual shall
have exercised the option and paid the exercise price for those shares.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. Should any Corporate Transaction occur while the Optionee remains
in Service, then each outstanding option held by such Optionee under this Salary
Reduction Program shall become exercisable, immediately prior to the specified
effective date of such Corporate Transaction, for all of the shares at the time
subject to such option and may be exercised for any or all of such shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each such option shall terminate unless assumed by
the successor entity or its parent corporation.
B. Upon the Involuntary Termination of the Optionee's Service
following a Change in Control, each outstanding option held by such Optionee
under this Salary Reduction Program shall immediately become exercisable for all
of the shares at the time subject to such option and may be exercised for any or
all of such shares as fully-vested shares of Common Stock. The option shall
remain so exercisable until the expiration of the ten (10)-year option term.
C. Option grants under this Salary Reduction Program shall not
affect the Corporation's right to adjust, reclassify, reorganize or change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer any or all of its assets.
ARTICLE SIX
STOCK ISSUANCE PROGRAM
----------------------
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate purchases without any intervening stock
option grants. The issued shares shall be evidenced by a Stock Issuance
Agreement ("Issuance Agreement") that complies with the terms and conditions
below.
A. CONSIDERATION
1. Newly Issued Shares shall be issued under the Stock Issuance
Program for one or more of the following items of consideration that the Plan
Administrator may deem appropriate in each individual instance:
(i) full payment in cash or check made payable to the
Corporation's order,
(ii) a promissory note payable to the Corporation's order in
one or more installments, which may be subject to cancellation in whole
or in part upon terms and conditions established by the Plan
Administrator, or
(iii) past services rendered to the Corporation or any Parent
or Subsidiary.
2. Newly Issued Shares must be issued for consideration with a value
not less than eighty-five percent (85%) of the Fair Market Value of such shares
at the time of issuance.
3. Treasury Shares may be issued under the Stock Issuance Program
for such consideration (including one or more of the items of consideration
specified above) as the Plan Administrator may deem
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appropriate, whether such consideration is in an amount less than, equal to or
greater than the Fair Market Value of the Treasury Shares at the time of
issuance. Treasury Shares may, in lieu of any cash consideration, be issued
subject to such vesting requirements tied to the Participant's period of future
Service or the Corporation's attainment of specified performance objectives as
the Plan Administrator may establish at the time of issuance.
4. Shares of Common Stock may also, in the Plan Administrator's
absolute discretion, be issued pursuant to an irrevocable election by the
Participant to receive a portion of his or her base salary in shares of Common
Stock in lieu of such base salary. Any such issuance shall be effected in
accordance with the following guidelines:
- On the first trading day in January of the calendar year for
which the election is effective, the portion of base salary subject to
such election shall automatically be applied to the acquisition of Common
Stock by dividing the elected dollar amount by the Fair Market Value per
share of the Common Stock on that trading day. The number of issuable
shares shall be rounded down to the next whole share, and the issued
shares shall be held in escrow by the Secretary of the Corporation as
partly-paid shares until the Participant vests in those shares. The
Participant shall have full stockholder rights, including voting,
dividend and liquidation rights, with respect to all issued shares held
in escrow on his or her behalf, but such shares shall not be assignable
or transferable while they remain unvested.
- Upon completion of each calendar month of Service during the
year for which the election is in effect, the Participant shall vest in
one-twelfth (1/12) of the issued shares, and the stock certificate for
those shares shall be released from escrow. All the issued shares shall
immediately vest upon (i) the consummation of a Corporate Transaction or
(ii) the Involuntary Termination of the Participant's Service following a
Change in Control. Should the Participant otherwise cease Service prior
to vesting in one or more monthly installments of the issued shares, then
those unvested shares shall immediately be surrendered to the Corporation
for cancellation, and the Participant shall not be entitled to any cash
payment or other consideration from the Corporation with respect to the
canceled shares and shall have no further stockholder rights with respect
to such shares.
B. VESTING PROVISIONS
1. The shares of Common Stock issued under the Stock Issuance
Program (other than shares issued in lieu of salary) may, in the absolute
discretion of the Plan Administrator, be fully and immediately vested upon
issuance or may vest in installments over the Participant's period of Service.
The elements of the vesting schedule applicable to any unvested shares of Common
Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant or the
performance objectives to be achieved by the Corporation,
(ii) the number of installments in which the shares are to vest,
(iii) the interval or intervals (if any) which are to lapse
between installments, and
(iv) the effect which death, Permanent Disability or other event
designated by the Plan Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued.
2. The Participant shall have full stockholder rights with respect
to any shares of Common Stock issued to him or her under the Stock Issuance
Program, whether or not his or her interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares. Any new, additional or
different shares of stock or other property (including money
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paid other than as a regular cash dividend) which the Participant may have the
right to receive with respect to his or her unvested shares by reason of any
stock dividend, stock split, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration shall be issued, subject to
(i) the same vesting requirements applicable to the Participant's unvested
shares and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. Should the Participant cease to remain in Service while holding
one or more unvested shares of Common Stock under the Stock Issuance Program,
then those shares shall be immediately canceled by the Corporation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the canceled shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money promissory note), the Corporation shall repay to
the Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such canceled shares. The canceled shares may,
at the Plan Administrator's discretion, be retained by the Corporation as
Treasury Shares or may be retired to authorized but unissued share status.
4. The Plan Administrator may in its discretion elect to waive the
cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the non-completion of the
vesting schedule applicable to such shares. Such waiver shall result in the
immediate vesting of the Participant's interest in the shares of Common Stock as
to which the waiver applies. Such waiver may be effected at any time, whether
before or after the Participant's cessation of Service or the attainment or
non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTIONS/CHANGE IN CONTROL
A. Upon the occurrence of any Corporate Transaction, all unvested
shares of Common Stock at the time outstanding under this Stock Issuance Program
shall immediately vest in full and the Corporation's repurchase rights shall
terminate, except to the extent: (i) any such repurchase right is expressly
assigned to the successor corporation (or parent thereof) in connection with the
Corporate Transaction or (ii) such termination is precluded by other limitations
imposed in the Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority,
exercisable at any time while unvested shares remain outstanding under this
Stock Issuance Program, to provide for the immediate and automatic vesting of
those shares in whole or in part upon the occurrence of a Change in Control.
The Plan Administrator shall also have full power and authority to condition any
such accelerated vesting upon the subsequent termination of the Participant's
Service through an Involuntary Termination effected within a specified period
following the Change in Control.
III. TRANSFER RESTRICTIONS/SHARE ESCROW
A. Unvested shares may, in the Plan Administrator's discretion, be
held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing such unvested shares. To the extent an
escrow arrangement is utilized, the unvested shares and any securities or other
assets issued with respect to such shares (other than regular cash dividends)
shall be delivered in escrow to the Corporation to be held until the
Participant's interest in such shares (or other securities or assets) vests.
Alternatively, if the unvested shares are issued directly to the Participant,
the restrictive legend on the certificates for such shares shall read
substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE
SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS AND (II) CANCELLATION OR
REPURCHASE IN THE EVENT THE REGISTERED HOLDER (OR HIS/HER PREDECESSOR
IN INTEREST) CEASES TO REMAIN IN THE CORPORATION'S SERVICE. SUCH
TRANSFER RESTRICTIONS AND THE TERMS AND CONDITIONS OF SUCH
CANCELLATION OR REPURCHASE ARE SET FORTH IN A STOCK ISSUANCE AGREEMENT
BETWEEN THE CORPORATION AND THE REGISTERED HOLDER (OR
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HIS/HER PREDECESSOR IN INTEREST) DATED ______________, A COPY OF WHICH IS
ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION."
B. The Participant shall have no right to transfer any unvested
shares of Common Stock issued to him or her under the Stock Issuance Program.
For purposes of this restriction, the term "transfer" shall include (without
limitation) any sale, pledge, assignment, encumbrance, gift, or other
disposition of such shares, whether voluntary or involuntary. Upon any such
attempted transfer, the unvested shares shall immediately be canceled, and
neither the Participant nor the proposed transferee shall have any rights with
respect to such canceled shares. However, the Participant shall have the right
to make a gift of unvested shares acquired under the Stock Issuance Program to
the Participant's spouse or issue, including adopted children, or to a trust
established for such spouse or issue, provided the transferee of such shares
delivers to the Corporation a written agreement to be bound by all the
provisions of the Stock Issuance Program and the Issuance Agreement applicable
to the transferred shares.
ARTICLE SEVEN
MISCELLANEOUS
-------------
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any
Optionee or Participant (including an Optionee or Participant who is an officer
of the Corporation), in the exercise of one or more options granted to such
Optionee under the Discretionary Grant Program or the Salary Reduction Grant
Program or the purchase of one or more shares issued to such Participant under
the Stock Issuance Program, including the satisfaction of any Federal, state and
local income and employment tax obligations arising therefrom, by (i)
authorizing the extension of a loan from the Corporation to such Optionee or
Participant or (ii) permitting the Optionee or Participant to pay the exercise
price or purchase price for the acquired shares in installments over a period of
years. The terms of any loan or installment method of payment (including the
interest rate and terms of repayment) shall be upon such terms as the Plan
Administrator specifies in the applicable option or issuance agreement or
otherwise deems appropriate under the circumstances. Loans or installment
payments may be authorized with or without security or collateral. However, the
maximum credit available to the Optionee or Participant may not exceed the
exercise or purchase price of the acquired shares (less the par value of such
shares) plus any Federal, state and local income and employment tax liability
incurred by the Optionee or Participant in connection with the acquisition of
such shares.
B. The Plan Administrator may, in its absolute discretion, determine
that one or more loans extended under this financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator may deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to amend
or modify the Plan (or any component thereof) in any or all respects whatsoever.
However, no such amendment or modification shall adversely affect rights and
obligations with respect to stock options, stock appreciation rights or unvested
stock issuances at the time outstanding under the Plan, unless the Optionee or
Participant consents to such amendment. In addition, the Board may not, without
the approval of the Corporation's stockholders, amend the Plan to (i) materially
increase the maximum number of shares issuable under the Plan, the number of
shares for which options may be granted to newly elected or continuing
non-employee Board members under the Automatic Grant Program or the maximum
number of shares for which any one individual participating in the Plan may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances in the aggregate over the term of the Plan, except for
permissible adjustments in the event of certain changes in the Corporation's
capitalization, (ii) materially modify the eligibility requirements for Plan
participation or (iii) materially increase the benefits accruing to Optionees or
Participants. Effective as of August 15, 1996, the Plan Administrator shall
have the discretion to amend any outstanding agreement evidencing a
Non-Statutory Option or stock appreciation right granted under the Discretionary
Option Grant or Salary Deduction Grant Programs to provide for such
assignability and transferability of such option or stock appreciation right as
the Plan Administrator in its discretion deems advisable.
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B. Options to purchase shares of Common Stock may be granted under
the Discretionary Grant Program and the Salary Reduction Grant Program and
shares of Common Stock may be issued under the Stock Issuance Program, which are
in excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under those programs are held in
escrow until stockholder approval is obtained for a sufficient increase in the
number of shares available for issuance under the Plan. If such stockholder
approval is not obtained within twelve (12) months after the date the first such
excess option grants or excess share issuances are made, then (i) any
unexercised excess options shall terminate and cease to be exercisable and (ii)
the Corporation shall promptly refund the purchase price paid for any excess
shares actually issued under the Plan and held in escrow, together with interest
(at the applicable short term federal rate) for the period the shares were held
in escrow.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of stock options or stock appreciation rights or the direct
issuance or vesting of such shares under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local income tax and
employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options (other than the automatic option grants made
pursuant to the Automatic Grant Program) or unvested shares under the Stock
Issuance Program with the right to use shares of Common Stock in satisfaction of
all or part of the Federal, state and local income and employment tax
liabilities (the "Taxes") incurred by such holders in connection with the
exercise of their options or the vesting of their shares. Such right may be
provided to any such holder in either or both of the following formats:
- STOCK WITHHOLDING: The holder of the Non-Statutory Option or
unvested shares may be provided with the election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (up to one hundred percent (100%)) specified by such
holder.
- STOCK DELIVERY: The holder of the Non-Statutory Option or the
unvested shares may be provided with the election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised or the shares
vest, one or more shares of Common Stock previously acquired by such
individual (other than in connection with the option exercise or share
vesting triggering the Taxes) with an aggregate Fair Market Value equal to
the percentage of the Taxes (up to one hundred percent (100%)) specified by
such holder.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. This Plan shall become effective immediately upon approval by the
Corporation's stockholders at the 1994 Annual Meeting.
B. The Plan shall terminate upon the EARLIER of (i) April 28, 2004
or (ii) the date on which all shares available for issuance under the Plan shall
have been issued or canceled pursuant to the exercise of options or stock
appreciation rights or the issuance of shares (whether vested or unvested) under
the Plan. If the date of termination is determined under clause (i) above, then
all option grants and unvested stock issuances outstanding on such date shall
thereafter continue to have force and effect in accordance with the provisions
of the instruments evidencing such grants or issuances.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares pursuant to option grants or stock issuances under the Plan shall be
used for general corporate purposes.
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VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or
stock appreciation right under the Plan, the issuance of any shares under the
Stock Issuance Program, and the issuance of Common Stock upon the exercise of
the stock options and stock appreciation rights granted hereunder shall be
subject to the
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Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the stock options and stock
appreciation rights granted under it and the Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any securities exchange on which the Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor
any action taken by the Plan Administrator hereunder, nor any provision of the
Plan shall be construed so as to grant any individual the right to remain in the
Service of the Corporation (or Subsidiary) for any period of specific duration,
and the Corporation (or any Subsidiary retaining the services of such
individual) may terminate such individual's Service at any time and for any
reason, with or without cause.
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GLOSSARY
--------
The following definitions shall be in effect under the Plan:
CHANGE IN CONTROL: a change in ownership or control of the
Corporation effected through any of the following transactions:
- the direct or indirect acquisition by any person or related
group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control
with, the Corporation) of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept, or
- a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board
members (rounded up to the next whole number) ceases, by reason of one
or more contested elections for Board membership, to be comprised of
individuals who either (a) have been Board members continuously since
the beginning of such period or (b) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (a) who were still in office at
the time such election or nomination was approved by the Board.
CODE: the Internal Revenue Code of 1986, as amended.
COMMITTEE: a committee of two (2) or more non-employee Board members
appointed by the Board to administer the Plan.
CORPORATE TRANSACTION: any of the following stockholder-approved
transactions to which the Corporation is a party:
- a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which
is to change the state in which the Corporation is incorporated,
- a sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation, or
- any reverse merger in which the Corporation is the surviving
entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior
to such merger.
COVERED EMPLOYEE: an individual defined as a "Covered Employee" under
Section 162(m) of the Code and the regulations thereunder.
EMPLOYEE: an individual who performs services while in the employ of
the Corporation or one or more Subsidiaries, subject to the control and
direction of the employer entity not only as to the work to be performed but
also as to the manner and method of performance.
FAIR MARKET VALUE: the closing selling price per share on the date in
question on the NASDAQ National Market. If there is no reported closing selling
price for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which such
quotation exists.
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HOSTILE TAKE-OVER: a change in ownership of the Corporation effected
through the following transaction:
- the direct or indirect acquisition by any person or related
group of persons of securities possessing more than fifty percent
(50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept, AND
- more than fifty percent (50%) of the acquired securities are
accepted from holders other than the officers and directors of the
Corporation subject to the short-swing profit restrictions of Section
16 of the 1934 Act.
INCENTIVE OPTION: a stock option which satisfies the
requirements of Code Section 422.
INVOLUNTARY TERMINATION: the termination of the Service of any
Optionee or Participant which occurs by reason of:
- such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
- such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
any non-discretionary and objective-standard incentive payment or
bonus award) by more than five percent (5%) or (C) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
by the Corporation without the individual's consent.
MISCONDUCT: the commission of any act of fraud, embezzlement or
dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such individual of confidential information or trade secrets of the
Corporation or any Parent or Subsidiary, or any other intentional misconduct
by such individual adversely affecting the business or affairs of the
Corporation in a material manner. The foregoing definition shall not be
deemed to be inclusive of all the acts or omissions which the Corporation or
any Parent or Subsidiary may consider as grounds for the dismissal or
discharge of any Optionee, Participant or other individual in the Service of
the Corporation.
NEWLY ISSUED SHARES: shares of Common Stock drawn from the
Corporation's authorized but unissued shares of Common Stock.
1934 ACT: the Securities and Exchange Act of 1934, as amended.
NON-STATUTORY OPTION: a stock option not intended to meet the
requirements of Code Section 422.
OPTIONEE: any person to whom an option is granted under the
Discretionary Grant, Automatic Grant or Salary Reduction Grant Program in
effect under the Plan.
PARENT: each corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
such corporation (other than the Corporation) in the unbroken chain owns, at
the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in any other
corporation in such chain.
PARTICIPANT: any person who receives a direct issuance of Common
Stock under the Stock Issuance Program in effect under the Plan.
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PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the
Optionee or the Participant to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
PLAN ADMINISTRATOR: the committee of two (2) or more non-employee
Board members appointed by the Board to administer the Discretionary Option
Grant, the Salary Reduction and the Stock Issuance Programs.
SERVICE: the provision of services on a periodic basis to the
Corporation or any Parent or Subsidiary in the capacity of an Employee, a
non-employee member of the board of directors or an independent consultant or
advisor, except to the extent otherwise specifically provided in the
applicable stock option or stock issuance agreement.
SUBCOMMITTEE: a subcommittee of the Committee comprised solely of
two or more "outside directors" within the meaning of Section 162(m) of the
Code and the regulations thereunder.
SUBSIDIARY: each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
such corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in any
other corporation in such chain.
TAKE-OVER PRICE: the GREATER of (i) the Fair Market Value per
share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest
reported price per share of Common Stock paid by the tender offer or in
effecting such Hostile Take-Over. However, if the surrendered option is an
Incentive Option, the Take-Over Price shall not exceed the clause (i) price
per share.
TREASURY SHARES: shares of Common Stock reacquired by the
Corporation and held as treasury shares.
A-24
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF DIGITAL MICROWAVE CORPORATION
FOR THE 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 5, 1997
The undersigned stockholder of DIGITAL MICROWAVE CORPORATION, a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated July 3, 1997, and the 1997
Annual Report to Stockholders, and hereby appoints Charles D. Kissner, Carl
A. Thomsen and Carol A. Goudey or any one of them, proxies, with full power
to each of substitution, on behalf and in the name of the undersigned, to
represent the undersigned at the 1997 Annual Meeting of Stockholders of
DIGITAL MICROWAVE CORPORATION to be held on August 5, 1997 at 3:00 p.m.,
local time, at the Network Meeting Center, 5201 Great America Parkway, Santa
Clara, California, and at any adjournment or adjournments thereof, and to
vote all shares of Common Stock which the undersigned would be entitled to
vote if then and there personally present, on the matters set forth below.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE AMENDMENT AND
RESTATEMENT OF THE DIGITAL MICROWAVE CORPORATION 1994 STOCK INCENTIVE PLAN,
FOR THE RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS OF DIGITAL MICROWAVE CORPORATION, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
1. ELECTION OF OFFICERS
___ FOR all nominees listed below ___ WITHHOLD AUTHORITY to vote for
(except as indicated) all nominees listed below
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW.
CHARLES D. KISSNER
RICHARD C. ALBERDING
JOHN W. COMBS
CLIFFORD H. HIGGERSON
JAMES D. MEINDL
BILLY B. OLIVER
2. PROPOSAL TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE DIGITAL
MICROWAVE CORPORATION 1994 STOCK INCENTIVE PLAN TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK GRANTED TO NON-EMPLOYEE DIRECTORS OF DIGITAL MICROWAVE
CORPORATION THEREUNDER:
_____ FOR _____ AGAINST _____ ABSTAIN
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<PAGE>
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE
INDEPENDENT PUBLIC ACCOUNTANTS OF DIGITAL MICROWAVE CORPORATION FOR FISCAL
1998:
_____ FOR _____ AGAINST _____ ABSTAIN
DATED: ______________, 1997
___________________________________
Signature
___________________________________
Signature
This Proxy should be marked, dated
and signed by the stockholder(s)
exactly as his or her name appears
hereon, 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.
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