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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
WIND RIVER SYSTEMS, INC.
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(Name of Registrant as Specified In Its Charter)
Wind River Systems, Inc.
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14(a)-6(i)(1), 14(a)-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14(a)-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14(a)-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (1)
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(4) Proposed maximum aggregate value of transaction:
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(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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WIND RIVER SYSTEMS, INC.
1010 Atlantic Avenue
Alameda, CA 94501
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 23, 1996
TO THE STOCKHOLDERS OF WIND RIVER SYSTEMS, INC.:
Notice is hereby given that the Annual Meeting of Stockholders of Wind
River Systems, Inc., a Delaware corporation (the "Company"), will be held on
Tuesday, July 23, 1996, at 10:00 a.m. local time at 1010 Atlantic Avenue,
Alameda, California, for the following purposes:
1. To elect five directors to hold office for the ensuing year.
2. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of Common Stock
from 20,000,000 shares to 75,000,000 shares.
3. To approve the Company's Amended and Restated 1987 Equity Incentive Plan,
as amended to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 1,350,000 shares.
4. To ratify the selection of Price Waterhouse LLP as independent auditors of
the Company for its fiscal year ending January 31, 1997.
5. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on May 31, 1996, as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
RICHARD W. KRABER
Secretary
Alameda, California
June 12, 1996
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING.
PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK
OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE
RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
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WIND RIVER SYSTEMS, INC.
1010 Atlantic Avenue
Alameda, California 94501
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of Wind
River Systems, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on JULY 23, 1996, at 10:00 A.M. local
time (the "Annual Meeting"), or at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at WIND RIVER SYSTEMS, INC., 1010 ATLANTIC
AVENUE, ALAMEDA, CALIFORNIA. The Company intends to mail this proxy statement
and accompanying proxy card on or about JUNE 12, 1996, to all stockholders
entitled to vote at the Annual Meeting.
On May 24, 1996, a three-for-two stock split was effected by means of
payment of a stock dividend with respect to all of the Company's Common Stock
outstanding on May 10, 1996. All share numbers and prices in this Proxy
Statement as of a date prior to May 24, 1996 have been adjusted to give effect
to the stock dividend.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company or, at the Company's request, American Stock Transfer and Trust Co. No
additional compensation will be paid to directors, officers or other regular
employees for such services, but American Stock Transfer and Trust Co. will be
paid its customary fee, estimated to be $5,000, if it renders solicitation
services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on May 31,
1996, will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on May 31, 1996, the Company had outstanding and entitled to
vote __,___,___ shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal office, 1010 Atlantic
Avenue, Alameda, California 94501, a written notice of revocation or a duly
executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
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STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1997 annual meeting of stockholders must be received by the Company
not later than November 30, 1996, in order to be included in the proxy statement
and proxy relating to that annual meeting.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and By-laws authorize a
board of five directors. All directors hold office until the next annual
meeting of stockholders and until their successors have been elected and have
qualified, or until their earlier death, resignation or removal.
The Board of Directors is presently composed of five members. All the
nominees for election to this class are currently directors of the Company who
were previously elected by the stockholders. If elected at the Annual Meeting,
each of the nominees would serve until the 1997 annual meeting and until his or
her successor is elected and has qualified, or until such director's earlier
death, resignation or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of the five nominees named below. In the event that any nominee should
be unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. Each person nominated for election has agreed to serve if elected, and
management has no reason to believe that any nominee will be unable to serve.
NOMINEES
Set forth below is biographical information for each person nominated.
Jerry L. Fiddler, 44, co-founded the Company in February 1983, and
currently serves as Chairman of the Board. From February 1983 to March 1994, he
also served as Chief Executive Officer of the Company. Prior to founding the
Company, he was a computer scientist in the Real-Time Systems Group at Lawrence
Berkeley Laboratory. Mr. Fiddler holds a B.A. in music and photography and an
M.S. in computer science from the University of Illinois.
Ronald A. Abelmann, 58, joined the Company in March 1994 as Chief Executive
Officer, President and Director. From 1987 to 1993, he served as the founding
Chief Executive Officer of Vantage Analysis Systems, a developer of VHDL-based
simulation software for design automation. Prior to then, he served as Group
Vice President and General Manager for the Instrument Division of Varian
Associates. Mr. Abelmann holds B.S. and M.S. degrees in applied physics from
the University of California at Los Angeles, and an M.B.A. from Stanford
University.
David N. Wilner, 42, co-founded the Company in February 1983 and currently
serves as Chief Technical Officer and a Director. Prior to founding the
Company, he was a senior staff scientist in the Real-Time Systems Group at
Lawrence Berkeley Laboratory. Mr. Wilner holds a B.S. in computer science from
the University of California at Berkeley.
William B. Elmore, 43, became a director of the Company in August 1990. He
is currently a general partner of Foundation Capital, a venture capital
investment firm. From 1987 to 1995, he was a general partner of Inman & Bowman
and Inman & Bowman Entrepreneurs, venture capital investment firms. Mr. Elmore
holds a B.S. and an M.S. in electrical engineering from Purdue University and an
M.B.A. from Stanford University. Mr. Elmore currently serves on the board of
directors of ParcPlace--Digitalk, Inc.
David B. Pratt, 56, became a director of the Company in April 1995. He
has been an officer of Adobe Systems Incorporated, a developer of software for
printing and publishing, since 1988. He is currently a Senior Vice President
and Chief Operating Officer at Adobe. From 1987 to 1988, he was Executive Vice
President and Chief Operating Officer of Logitech Corporation. From 1986 to
1987, he was Senior Vice President and Chief Operating Officer of Quantum
Corporation. Mr. Pratt holds a
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B.S.E.E. degree from the Massachusetts Institute of Technology and an M.B.A.
from the University of Chicago. Mr. Pratt currently serves on the board of
directors of Radius, Inc.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended January 31, 1996, the Board of Directors held
six meetings. The Board has an Audit Committee and a Compensation Committee.
It has no nominating committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. The Audit Committee is composed of two directors: Messrs.
Elmore and Pratt. It met twice during fiscal 1996.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of two directors: Messrs.
Elmore and Pratt It met three times during fiscal 1996.
During the fiscal year ended January 31, 1996, all directors except David
N. Wilner attended 75% or more of the aggregate of the meetings of the Board and
of the committees on which he served, held during the period for which he was a
director or committee member, respectively.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
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PROPOSAL 2
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
In April 1996, the Board of Directors adopted, subject to stockholder
approval, an amendment to the Company's Restated Certificate of Incorporation to
increase the Company's authorized number of shares of Common Stock from
20,000,000 shares to 75,000,000 shares.
The additional Common Stock to be authorized by adoption of the amendment
would have rights identical to the currently outstanding Common Stock of the
Company. Adoption of the proposed amendment and issuance of the Common Stock
would not affect the rights of the holders of currently outstanding Common Stock
of the Company, except for effects incidental to increasing the number of shares
of the Company's Common Stock outstanding, such as dilution of earnings per
share and voting rights of current holders of Common Stock. If the amendment is
adopted, it will become effective upon filing of a Certificate of Amendment of
the Company's Restated Certificate of Incorporation with the Secretary of State
of Delaware.
In addition to the 13,878,876 shares of Common Stock outstanding at May 1,
1996, 5,550,000 shares were reserved for issuance upon exercise of options and
rights granted under the Company's stock option and stock purchase plans, and
150,000 shares were reserved for issuance upon exercise of outstanding warrants.
The Board of Directors desires to have such shares available to provide
additional flexibility in using its capital stock for business and financial
purposes in the future. The additional shares may be used, without further
stockholder approval, for various purposes including, without limitation,
raising capital; providing equity incentives to employees, officers or directors
under existing plans; establishing strategic relationships with other companies;
acquiring other business or products; or paying stock dividends.
The additional shares of Common Stock that would become available for
issuance if the proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. For example, without further stockholder approval,
the Board could adopt a "poison pill" which would, under certain circumstances
related to an acquisition of shares not approved by the Board, give certain
holders the right to acquire additional shares of Common Stock at a low price,
or the Board could strategically sell shares of Common Stock in a private
transaction to purchasers who would oppose a takeover or favor the current
Board. Although this proposal to increase the authorized Common Stock has been
prompted by business and financial considerations and not by the threat of any
hostile takeover attempt (nor is the Board currently aware of any such attempts
directed at the Company), stockholders nevertheless should be aware that
approval of the proposal could facilitate future efforts by the company to deter
or prevent changes in control of the Company, including transactions in which
the stockholders might otherwise receive a premium for their shares over then
current market prices.
The affirmative vote of the holders of a majority of the shares of the
Common Stock will be required to approve this amendment to the Company's
Restated Certificate of Incorporation. As a result, abstentions and broker non-
votes will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
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PROPOSAL 3
APPROVAL OF THE AMENDED AND RESTATED 1987 EQUITY INCENTIVE PLAN
In September 1987, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's Amended and Restated 1987 Equity Incentive
Plan (the "1987 Plan"). As a result of a series of amendments, currently there
are 4,950,000 shares of the Company's Common Stock authorized for issuance under
the 1987 Plan.
At April 25, 1996, options (net of canceled or expired options) covering an
aggregate of 4,177,000 shares of the Company's Common Stock had been granted
under the 1987 Plan, and only 773,000 shares, (plus any shares that might in the
future be returned to the plan as a result of cancellations or expirations of
options), remained available for future grants under the 1987 Plan.
On April 25, 1996, the Board approved an amendment to the 1987 Plan,
subject to stockholder approval of such amendment and of the amendment of the
Company's Restated Certificate of Incorporation as set forth in Proposal 2
above, to enhance the flexibility of the Board and the Compensation Committee in
granting stock options to the Company's employees. The amendment increases the
number of shares authorized for issuance under the 1987 Plan by 1,350,000
shares, from a total of 4,950,000 shares to 6,300,000 shares. The Board adopted
this amendment to ensure that the Company can continue to grant stock options to
employees at levels determined appropriate by the Board and the Compensation
Committee.
Stockholders are requested in this Proposal 3 to approve the 1987 Plan, as
amended. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the meeting
will be required to approve the 1987 Plan, as amended.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the 1987 Plan are outlined below:
GENERAL
The 1987 Plan provides for the grant of both incentive and non-statutory
stock options, stock bonuses, rights to purchase restricted stock and stock
appreciation rights ("Stock Awards"). Incentive stock options granted under the
1987 Plan are intended to qualify as "incentive stock options" within the
meaning of SectionE422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Non-statutory stock options granted under the 1987 Plan are intended
not to qualify as incentive stock options under the Code. See "Federal Income
Tax Information" for a discussion of the tax treatment of incentive and non-
statutory stock options.
PURPOSE
The 1987 Plan was adopted to provide a means by which employees of and
consultants to the Company, and its affiliates, may be given an opportunity to
purchase stock in the Company, to assist in retaining the services of employees
holding key positions, to secure and retain the services of persons capable of
filling such positions and to provide incentives for such persons to exert
maximum efforts for the success of the Company. All of the approximately 230
Company employees and consultants are eligible to participate in the 1987 Plan.
ADMINISTRATION
The 1987 Plan is administered by the Board of Directors of the Company.
The Board has the power to construe and interpret the 1987 Plan and, subject to
the provisions of the 1987 Plan, to determine the persons to whom and the dates
on which options will be granted, the number of shares to be subject to each
option, the time or times during the term of each option within which all or a
portion of such option may be exercised, the exercise price, the type of
consideration and other terms of the
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option. The Board of Directors is authorized to delegate administration of the
1987 Plan to a committee composed of not fewer than two members of the Board,
all of whom shall be disinterested persons. The Board has delegated
administration of the 1987 Plan to the Compensation Committee of the Board. As
used herein with respect to the 1987 Plan, the "Board" refers to the
Compensation Committee as well as to the Board of Directors itself.
In order to preserve certain tax deductions for the Company, Treasury
regulations promulgated under Section 162(m) of the Code require that the
directors who administer awards with respect to certain officers must be
"outside directors." The 1987 Plan provides that, in the Board's discretion,
directors administering such awards under the 1987 Plan will also be "outside
directors" within the meaning of Section 162(m). This limitation would exclude
from the administration of such awards (i) current employees of the Company,
(ii) former employees of the Company receiving compensation for past services
(other than benefits under a tax-qualified pension plan), (iii) current and
former officers of the Company, (iv) directors currently receiving direct or
indirect remuneration from the Company in any capacity (other than as a
director), unless any such person is otherwise considered an "outside director"
for the purposes of Section 162 (m).
ELIGIBILITY
Incentive stock options and stock appreciation rights may be granted under
the 1987 Plan only to employees of the Company and its affiliates. Stock awards
other than incentive stock options and stock appreciation rights may be granted
only to employees, directors or consultants.
A director shall not be eligible for the benefits of the 1987 Plan unless
at the time discretion is exercised in the selection of the director as a person
to whom stock awards may be granted, or in the determination of the number of
shares which may be covered by stock awards granted to the director: (i) the
Board has delegated its discretionary authority over the 1987 Plan to a
committee which consists solely of disinterested persons; or (ii) the 1987 Plan
otherwise complies with the requirements of Rule 16b-3 ("Rule 16b-3") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
No incentive stock option may be granted under the 1987 Plan to any person
who, at the time of the grant, owns (or is deemed to own pursuant to Section
424(d) of the Code) stock possessing more than 10% of the total combined voting
power of the Company or any affiliate of the Company, unless the option exercise
price is at least 110% of the fair market value of the stock subject to the
option on the date of grant, and the term of the option does not exceed five
years from the date of grant.
No employee may be granted stock option or stock appreciation rights
covering more than ___,___ shares of the Company's Common Stock in any calendar
year.
STOCK SUBJECT TO THE 1987 PLAN
If options granted under the 1987 Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such options
again becomes available for issuance under the 1987 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the 1987 Plan. Individual option grants may be more restrictive as to any or all
of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the 1987 Plan may not be less than the fair market value of the Common
Stock (defined as the closing sale price of the Company's Common Stock on the
Nasdaq National Market on the last trading day prior to the date of grant)
subject to the option on the date of the option grant, and in some cases (see
"Eligibility" above), may not be less than 110% of such fair market value. The
exercise price of non-statutory options under
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the 1987 Plan may not be less than 85% of the fair market value of the Common
Stock subject to the option on the date of the option grant.
On May 22, 1996, the closing price of the Common Stock in the Nasdaq
National Market was $30.83 per share. This price per share has been adjusted to
give effect to the three-for-two stock dividend.
The exercise price of options granted under the 1987 Plan must be paid
either: (i) in cash at the time the option is exercised; or (ii) at the
discretion of the Board, (a) by delivery of other Common Stock of the Company,
(b) pursuant to a deferred payment arrangement or (iii) in any other form of
legal consideration acceptable to the Board.
Option Exercise. Options granted under the 1987 Plan may, but need not,
become exercisable in periodic installments (which may, but need not, be equal).
Options granted under the 1987 Plan generally become exercisable at a rate of
1/4 of the shares subject to the option at the end of the first year and 1/48 of
the shares subject to the option at the end of each month thereafter.
Term. The maximum term of options under the 1987 Plan is 10 years.
Options under the 1987 Plan terminate three months after the optionee ceases to
be employed by the Company or any affiliate of the Company, unless (i) the
termination of employment is due to such person's permanent and total disability
(as defined in the Code), in which case the option may, but need not, provide
that it may be exercised at any time within one year of such termination; (ii)
the optionee dies while employed by the Company or any affiliate of the Company,
or within 12 months after termination of such employment, in which case the
option may, but need not, provide that it may be exercised (to the extent the
option was exercisable at the time of the optionee's death) within 12 months of
the optionee's death by the person or persons to whom the rights to such option
pass by will or by the laws of descent and distribution; or (iii) the option by
its terms specifically provides otherwise. Individual options by their terms
may provide for exercise within a longer period of time following termination of
employment or the consulting relationship. The option term may also be extended
in the event that exercise of the option within this period is prohibited for
specific reasons.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
Purchase Price; Payment. The purchase price under each restricted stock
purchase agreement will be determined by the Board. The purchase price must be
paid either: (i) in cash at the time of purchase; (ii) at the discretion of the
Board, according to a deferred payment or other arrangement with the person to
whom the Common Stock is sold; or (iii) in any other form of legal consideration
that may be acceptable to the Board in its discretion. Eligible participants
may be awarded stock pursuant to a stock bonus agreement in consideration of
past services actually rendered to the Company or for its benefit.
Repurchase. Shares of Common Stock sold or awarded under the 1987 Plan
may, but need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule determined by the Board. In the event a
person ceases to be an employee or director of, or consultant to, the Company or
an affiliate of the Company, the Company may repurchase or otherwise re-acquire
any or all of the shares of Common Stock held by that person that have not
vested as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.
STOCK APPRECIATION RIGHTS
The Board may grant stock appreciation rights ("SARs") to employees or
directors of, or consultants to, the Company or its affiliates. The 1987 Plan
authorizes three types of SARs. The Company to date has not issued any SARs.
Tandem Stock Appreciation Rights. Tandem SARs are tied to an underlying
option and require the holder to elect whether to exercise the underlying option
or to surrender the option for an appreciation distribution equal to the market
price of the vested shares purchasable under the
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surrendered option less the aggregate exercise price payable for such shares.
Amounts payable upon exercise of tandem SARs must be paid in cash.
Concurrent Stock Appreciation Rights. Concurrent SARs are tied to an
underlying option and are exercised automatically at the same time the
underlying option is exercised. The holder receives an appreciation
distribution equal to the market price of the vested shares purchased under the
option less the aggregate exercise price payable for such shares. Amounts
payable upon exercise of concurrent SARs must be paid in cash.
Independent Stock Appreciation Rights. Independent SARs are granted
independently of any option and entitle the holder to receive upon exercise an
appreciation distribution equal to the market price of a number of shares equal
to the number of share equivalents to which the holder is vested under the
independent SAR less the fair market value of such number of shares of stock on
the date of grant of the independent SAR. Amounts payable upon exercise of
independent SARs may, at the Board's discretion, be paid in cash, in shares of
Common Stock or a combination thereof.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1987 Plan or subject to
any option granted under the 1987 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the 1987 Plan and Stock
Awards outstanding thereunder will be appropriately adjusted as to the class and
the maximum number of shares subject to such plan, the maximum number of shares
which may be granted to any employee during any calendar year, and the class,
number of shares and price per share of stock subject to such outstanding Stock
Awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1987 Plan provides that, in the event of a dissolution or liquidation
of the Company, or a specified type of merger or other corporate reorganization,
to the extent permitted by law, any surviving corporation will be required to
either assume Stock Awards outstanding under the 1987 Plan or substitute similar
Stock Awards for those outstanding under such plan, or such outstanding Stock
Awards will continue in full force and effect. In the event that any surviving
corporation declines to assume or continue Stock Awards outstanding under the
1987 Plan, or to substitute similar Stock Awards, then the time during which
such Stock Awards may be exercised will be accelerated and the Stock Awards
terminated if not exercised during such time. The 1987 Plan also provides for
the acceleration of vesting for stock options which otherwise would vest within
the thirty (30) month period following the occurrence of certain hostile changes
of control. A "hostile" change of control would involve either (i) the
acquisition by any person or related group of a majority of the company's voting
securities which has not been approved by the Board of Directors or (ii) a
change of a majority of the members of the Board of Directors in a 24-month
period where the new directors were not approved by a majority of the members of
the Board of Directors at the beginning of such period or were seated as the
result of a proxy contest or other contest over election of members of the Board
of Directors.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1987 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1987 Plan will terminate in September 2002.
The Board may also amend the 1987 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve months before or after its adoption by the Board if
the amendment would: (i) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval in
order for the 1987 Plan to satisfy Section 422 of the Code, if applicable, or
Rule 16b-3; (ii) increase the number of shares reserved for issuance upon
exercise of Stock Awards; or (iii) change any other provision
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of the 1987 Plan in any other way if such modification requires stockholder
approval in order to comply with Rule 16b-3 or satisfy the requirements of
Section 422 of the Code.
RESTRICTIONS ON TRANSFER
Under the 1987 Plan, an option may not be transferred by the optionee other
than by will or by the laws of descent and distribution. During the lifetime of
an optionee, an option may be exercised only by the optionee. In addition,
shares subject to repurchase by the Company under stock bonus agreements,
restricted stock purchase agreements or early exercise stock purchase agreements
may be subject to restrictions on transfer which the Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m) which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1 million for a covered employee. It is possible that
compensation attributable to Stock Awards, when combined with all other types
of compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Code Section 162(m),
compensation attributable to stock options and SARs will qualify as performance-
based compensation, provided that the option or SAR is granted by a compensation
committee comprised solely of "outside directors" and either: (i) the plan
contains a per-employee limitation on the number of shares for which options and
SARs may be granted during a specified period; the per-employee limitation is
approved by the stockholders; and the exercise price of the option or SAR is no
less than the fair market value of the stock on the date of grant; or (ii) the
option or SAR is granted (or exercisable) only upon the achievement (as
certified by the compensation committee) of objective performance goals
established by the compensation committee while the outcome is substantially
uncertain and the terms of that option or SAR are approved by stockholders.
In order that the Company may generally continue to deduct as a business
expense the compensation attributable to the exercise of stock options under the
1987 Plan, the 1987 Plan includes a per-employee limitation in order to satisfy
the first condition listed above.
Incentive Stock Options. Incentive Stock options under the 1987 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition the optionee will
realize taxable ordinary income equal to the lesser of (i) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(ii) the optionee's actual gain, if any, on the purchase and sale. The
optionee's additional gain, or any loss upon the disqualifying disposition, will
be a capital gain or loss which will be long-term or short-term depending on
whether the stock was held for more than one year. Capital gains currently are
generally subject to lower tax rates than ordinary income. The maximum capital
gains rate for federal income tax purposes is currently 28% while the maximum
ordinary income rate is effectively 39.6%. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
Page 10
<PAGE>
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Non-statutory Stock Options. Non-statutory stock options granted under the
1987 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a non-statutory stock option. Upon exercise of a non-statutory
stock option, the optionee normally will recognize taxable ordinary income equal
to the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code, and the
satisfaction of any tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be long-
or short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Restricted Stock and Stock Bonuses. Restricted stock and stock bonuses
granted under the 1987 Plan generally have the following federal income tax
consequences:
Upon acquisition of stock under a restricted stock or stock bonus award,
the recipient normally will recognize taxable ordinary income equal to the
excess of the stock's fair market value over the purchase price, if any.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting restrictions
lapse unless the recipient elects to be taxed upon the receipt of the stock.
Generally, with respect to employees, the Company is required to withhold from
regular wages or supplemental wages an amount based on the ordinary income
recognized. Subject to the requirement of reasonableness, the provisions of
Section 162 (m) of the Code, and the satisfaction of any tax reporting
obligation, the Company will be entitled to a business expense deduction equal
to the taxable ordinary income realized by the recipient. Upon disposition of
the stock, the recipient will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock, if any, plus any amount recognized as ordinary income upon acquisition
(or vesting) of the stock. Such gain or loss will be long- or short-term
depending on whether the stock was held for more than one year from the date
ordinary income is measured. Slightly different rules may apply to persons who
acquire stock subject to forfeiture under Section 16(b) of the Exchange Act.
Stock Appreciation Rights. No taxable income is realized upon the receipt
of a stock appreciation right, but upon exercise of the stock appreciation right
the fair market value of the shares (or cash in lieu of shares) received must be
treated as compensation taxable as ordinary income to the recipient in the year
of such exercise. Generally, with respect to employees, the Company is required
to withhold from the payment made on exercise of the stock appreciation right or
from regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, the provisions
of Section 162(m) of the Code, and the satisfaction of any tax reporting
obligation, the Company will be entitled to a business expense deduction equal
to the taxable ordinary income recognized by the recipient.
In the event that there is a change in control of the Company, payments
received by certain individuals that are contingent upon the change in control
may constitute "parachute payments." If, by reason of such change in control,
the exercisability of outstanding Stock Awards is accelerated, the value of the
acceleration is added to other contingent payments, if any, in determining
whether the individual has received "excess parachute payments." In general, if
an individual receives excess
Page 11
<PAGE>
parachute payments, an excise tax equal to 20% of the amount of parachute
payments is imposed on the individual, and the Company does not receive a
deduction for such amount.
The following table presents certain information with respect to options
granted under the 1987 Plan for the year ended January 31, 1996, to: (i) the
named executive officers; (ii) all executive officers as a group; (iii) non-
executive officer directors as a group; and (iv) all non-executive officer
employees as a group:
<TABLE>
<CAPTION>
1987 Equity Incentive Plan
--------------------------
Number
Dollar ---------
Name and Position Value (1) of Shares
- - ----------------- ----------- ---------
<S> <C> <C>
Ronald A. Abelmann $1,107,000 90,000
President, Chief Executive Officer
and Director
Jerry L. Fiddler 391,000 31,500
Chairman of the Board
David N. Wilner 391,000 31,500
Chief Technical Officer and Director
Robert L. Wheaton 375,000 36,000
Senior Vice President of Sales
David G. Fraser 250,000 24,000
Vice President of Engineering
All executive officers 4,996,000 384,000
as a group
All non-executive officer 3,392,000 484,500
employees as a group (2)
</TABLE>
(1) Exercise price multiplied by the number of shares underlying the options.
(2) No directors who are not executive officers were granted options under the
1987 Plan during fiscal 1996.
Page 12
<PAGE>
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Price Waterhouse LLP as the Company's
independent auditors for the fiscal year ending January 31, 1997 and has further
directed that management submit the selection of independent auditors for
ratification by the stockholders at the Annual Meeting. Price Waterhouse LLP
began auditing the Company's financial statements with the fiscal year ended
January 31, 1990. Representatives of Price Waterhouse LLP are expected to be
present at the Annual Meeting, will have an opportunity to make a statement if
they so desire and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Price Waterhouse LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Price Waterhouse
LLP to the stockholders for ratification as a matter of good corporate practice.
If the stockholders fail to ratify the selection, the Audit Committee and the
Board will reconsider whether or not to retain that firm. Even if the selection
is ratified, the Audit Committee and the Board in their discretion may direct
the appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Price Waterhouse LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4.
Page 13
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and footnotes set forth certain information regarding
the ownership of the Company's Common Stock as of April 30, 1996, by: (i) each
director and nominee for director as of April 30, 1996; (ii) each of the
Executive Officers named in the Summary Compensation Table employed by the
Company in that capacity on January 31, 1996; (iii) all executive officers and
directors of the Company as a group; and (iv) all those known by the Company to
be beneficial owners of more than five percent of its Common Stock:
Beneficial Ownership (1)
------------------------
<TABLE>
<CAPTION>
Beneficial Owners Number of Shares Percent of Total
- - ----------------- ---------------- -----------------
<S> <C> <C>
Jerry L. Fiddler(2) 2,741,070 19.74%
1010 Atlantic Avenue
Alameda, CA 94501
David N. Wilner(3) 1,969,125 14.18
1010 Atlantic Avenue
Alameda, CA 94501
Ronald A. Abelmann(4) 288,063 2.04
William B. Elmore(5) 155,664 1.12
Robert L. Wheaton(6) 104,991 0.75
David G. Fraser(7) 58,710 0.42
David Pratt (8) 5,250 0.04
All officers and directors as a group 5,525,640 38.15
(11 persons) (9)
</TABLE>
(1) This table is based upon information supplied by officers, directors and
principal stockholders. Unless otherwise indicated in the footnotes to this
table and subject to community property laws where applicable, each of the
stockholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned. Applicable
percentages are based on 13,878,876 shares outstanding on April 30, 1996,
adjusted as required by rules promulgated by the SEC.
(2) Includes 2,735,445 shares held by The Fiddler and Alden Family Trust, of
which Mr. Fiddler is a trustee. Also includes 5,625 shares subject to
stock options exercisable within 60 days of April 30, 1996.
(3) Includes 172,500 shares held in trust for Mr. Wilner's minor child. Also
includes 5,625 shares subject to stock options exercisable within 60 days
of April 30, 1996.
(4) Includes 257,043 shares subject to stock options exercisable within 60 days
of April 30, 1996.
(5) Includes 3,750 shares subject to stock options exercisable within 60 days
of April 30, 1996.
(6) Includes 104,991 shares subject to stock options exercisable within 60 days
of April 30, 1996.
(7) Includes 54,809 shares subject to stock options exercisable within 60 days
of April 30, 1996.
(8) Includes 3,750 shares subject to stock options exercisable within 60 days
of April 30, 1996.
(9) Includes 605,307 shares subject to stock options held by officers and
directors exercisable within 60 days of April 30, 1996.
Page 14
<PAGE>
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 SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater
than ten percent shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended January 31, 1996, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
DIRECTORS' AND EXECUTIVE OFFICERS' COMPENSATION(1)
COMPENSATION OF DIRECTORS
Each Non-Employee Director receives a per meeting fee of $1,200. In
accordance with Company policy, Directors may be reimbursed for certain expenses
in connection with attendance at Board and committee meetings. Directors who
are also executive officers of the Company are not separately compensated for
their service as directors.
All Non-Employee Directors participate in the Company's 1995 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"). The Directors' Plan
provides for the automatic grant of options to purchase Common Stock of the
Company to directors of the Company who are not employees of, or consultants to,
the Company or any affiliate of the Company ("Non-Employee Directors"). Under
the Directors' Plan, each person who was a Non-Employee Director on April 27,
1995, and each person after such date who is elected for the first time as a
Non-Employee Director will automatically be granted an option to purchase 15,000
shares of Common Stock upon the date of his or her election to the Board,
whichever is applicable. Additionally, on April 1 of each year, commencing with
April 1, 1996, each person who is then a Non-Employee director automatically
will be granted an option to purchase 3,000 shares of Common Stock. The
aggregate number of shares of Common Stock authorized for issuance pursuant to
the exercise of options granted under the Directors' Plan is 150,000.
During the last fiscal year, the Company granted options covering 30,000
shares to each of Messrs. Elmore and Pratt at an exercise price of $8.25 per
share. The fair market value of such Common Stock on the date of such grant was
$8.25 per share (based on the closing sales price reported on the Nasdaq
National Market for the date of grant). As of May 22, 1996, no options had been
exercised under the Directors' Plan.
(1) On May 24, 1996, a three-for-two stock split was effected by means of
payment of a stock dividend with respect to all of the Company's Common
Stock outstanding on May 10, 1996. All share numbers and prices in this
section have been adjusted to give effect to the stock dividend.
Page 15
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows for the fiscal year ended January 31, 1996,
compensation awarded or paid to, or earned by the Company's Chief Executive
Officer and its other four most highly compensated executive officers who earned
over $100,000, (the "Named Executive Officers"):
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Fiscal Annual Compensation All ---------------------
------ --------------------------------- --------------- Shares Underlying
Name and Principal Position Year Salary Bonus(1) Other(2) Options (#)(3)
- - ---------------------------------- ------ ------------------- ------------ --------------- ---------------------
<S> <C> <C> <C> <C> <C>
Ronald A. Abelmann (4) 1996 $201,667 $100,000 -- 90,000
President, Chief Executive 1995 171,975 75,000 -- 543,750
Officer and Director 1994 -- -- -- --
Jerry L. Fiddler 1996 140,833 64,228 -- 31,500
Chairman of the Board 1995 135,000 32,326 $ 3,000 --
1994 125,000 -- 3,000 --
David N. Wilner 1996 140,833 64,398 -- 31,500
Chief Technical Officer and 1995 135,000 31,401 3,000 --
Director 1994 135,000 -- 3,000 --
Robert L. Wheaton 1996 135,000 83,115 -- 36,000
Senior Vice President of Sales 1995 135,000 66,249 -- --
1994 110,000 87,594 -- 75,000
David G. Fraser 1996 123,750 58,256 -- 24,000
Vice President of Engineering 1995 108,000 14,745 -- 73,013
1994 97,569 31,000 -- 15,300
</TABLE>
(1) Includes bonuses earned in respective fiscal year and paid the following
fiscal year pursuant to the Company's fiscal management incentive
arrangements and sales commission.
(2) Includes perquisites consisting of cost of tax and financial planning by
third parties.
(3) All options are issued at prices ranging from 85% to 110% of fair market
value.
(4) Mr. Abelmann joined the Company in March 1994.
Page 16
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The following tables show for the fiscal year ended January 31, 1996, certain
information regarding options granted to, exercised by, and held at year end by
the Named Executive Officers:
Option Grants in last fiscal year
---------------------------------
<TABLE>
<CAPTION>
Potential Realizable Value at Assumed
Number of Annual Rates of
Shares % of Total Stock Price Appreciation
Underlying Options Granted Per Share for Option Term (3)
Options to Employees in Exercise Expiration --------------------------------------
Name Granted(1) Fiscal Year (2) Price Date 0% 5% 10%
- - ---- ---------- --------------- --------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald A. Abelmann 37,500 4.3% $ 7.01 6/26/05 $ 46,000 $241,000 $ 539,000
52,500 6.0 16.08 1/31/06 149,000 774,000 1,732,000
Jerry L. Fiddler 22,500 2.6 9.07 6/26/00 - 33,000 95,000
9,000 1.0 20.81 1/31/01 - 30,000 87,000
David N. Wilner 22,500 2.6 9.07 6/26/00 - 33,000 95,000
9,000 1.0 20.81 1/31/01 - 30,000 87,000
Robert L. Wheaton 22,500 2.6 7.01 6/26/05 28,000 145,000 324,000
13,500 1.6 16.08 1/31/06 38,000 199,000 445,000
David G. Fraser 15,000 1.7 7.01 6/26/05 19,000 96,000 216,000
9,000 1.0 16.08 1/31/06 26,000 133,000 297,000
</TABLE>
(1) Options granted become exercisable at a rate of 1/4 of the shares subject
to option at the end of the first year and 1/48 of the shares subject to
the option at the end of each month thereafter. All options may be
repriced by the Company's board of directors.
(2) Based on 868,500 options shares granted in fiscal year 1996.
(3) The potential realizable value is based on the term of the option at its
time of grant. It is calculated by assuming that the stock price on the
date of grant appreciates at the indicated annual rate, compounded annually
for the entire term of the option and that the option is exercised and sold
on the last day of its term for the appreciated stock price. No gain to
the optionee is possible unless the stock price increases over the option
term, which will benefit all stockholders. There can be no assurance that
the values shown in this table will be achieved.
Page 17
<PAGE>
Aggregated Option Exercises in Fiscal Year 1996,
and Value of Options at End of Fiscal Year 1996
-----------------------------------------------
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options at End Options at End
Number of of Fiscal 1996 of Fiscal 1996 (2)
Shares Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($)(1) Unexercisable Unexercisable
- - ---- ------------------ --------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Ronald A. Abelmann -- -- 228,109/405,641 $4,247,000/$7,552,000
Jerry L. Fiddler -- -- 0/31,500 $0/$417,000
David N. Wilner -- -- 0/31,500 $0/$417,000
Robert L. Wheaton 13,500 $146,895 89,081/77,420 $1,541,000/$1,340,000
David G. Fraser -- -- 41,705/74,546 $714,000/$1,325,000
</TABLE>
(1) Value realized is based on the fair market value of the Company's Common
Stock on the date of exercise minus the exercise price and does not
necessarily indicate that the optionee sold such stock.
(2) Fair market value of the Company's Common Stock at January 31, 1996 minus
the exercise price of the options.
Page 18
<PAGE>
EMPLOYMENT AGREEMENT
In March 1994, Ronald A. Abelmann joined the Company as President and Chief
Executive Officer. Mr. Abelmann's current base salary is $230,000 per year with
a bonus of up to 50% of such base salary determined upon the achievement of
worldwide goals related to revenue and net income.
As part of his compensation package, Mr. Abelmann was granted an option to
purchase 543,750 shares of the Company's Common Stock under the 1987 Plan at
fair market value at that time. In addition, 75,000 shares of the Company's
Common Stock were purchased with cash and a full recourse promissory note (the
"Note"), also under the 1987 Plan. None of such shares is subject to any
repurchase option by the Company. The Note in the amount of $182,812.50 bears
interest at 5.36% per annum with interest payable annually in arrears and the
outstanding principal due and payable on March 4, 1998. The full amount of the
Note is secured by a pledge of shares of Common Stock of the Company. On May
24, 1996, a three-for-two stock split was effected by means of payment of a
stock dividend with respect to all of the Company's Common Stock outstanding on
May 10, 1996. All share numbers and prices in this section have been adjusted
to give effect to the stock dividend.
SEVERANCE PLAN
In November 1995, the Compensation Committee of the Board of Directors
adopted a Change in Control Incentive and Severance Benefit Plan (the "Severance
Plan") to provide an incentive to officers of the Company with the title of Vice
President or above in the event of certain "change of control" transactions, and
severance benefits in the event of certain terminations of employment within
twelve (12) months of the change of control.
Upon the occurrence of a change of control, all executive officers, except
the Chief Executive Officer, will receive acceleration of vesting for all shares
subject to stock options which would otherwise have vested within one year of
the date of the change of control. The Chief Executive Officer will receive two
years' worth of accelerated vesting credit, except to the extent that the option
acceleration would create adverse tax consequences for the Chief Executive
Officer and the Company under the golden parachute provisions of sections 280G
and 49999 of the Code.
If an executive officer other than the Chief Executive Officer is
terminated without "Cause" or voluntarily terminates with "Good Reason" (in each
case as defined in the Severance Plan) within twelve (12) months of a change in
control, the executive will receive continued pay for 12 months (including an
estimated bonus amount), continued health insurance for the same period, and
accelerated vesting for stock options which would otherwise vest within one year
of the date of termination. In addition, any shares which would have received
acceleration vesting on account of the change in control but did not because of
the limitation to avoid the golden parachute tax provisions shall receive
accelerated vesting at this time. If the total severance payments would cause
an executive to become liable for golden parachute excise tax payments, then the
Company shall pay that executive's excise tax liability and all other taxes
associated with the company's payment of the excise tax in order to leave the
executive in the same after-tax position as if no excise tax had been imposed.
Page 19
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION (1)
To: The Board of Directors
The Board of Directors has delegated to the Compensation Committee of the
Board of Directors (the "Committee") the authority to establish and maintain the
compensation programs for all employees, including executives. For the Chief
Executive Officer and other executive officers, the Committee evaluates
performance and determines compensation policies and levels. The Compensation
Committee is presently comprised of two non-employee directors. Neither of
these non-employee directors has any interlocking or other type of relationship
that would call into question his independence as a committee member.
The Compensation Committee believes that, with respect to the application
of Section 162(m) of the Code, at the present time it is highly unlikely that
the cash compensation paid to any Named Executive Officer in a taxable year will
exceed $1 million. However, options granted with exercise prices at least 100%
of fair market value are intended to qualify under the 1987 Plan as
"performance-based compensation."
The objectives of the Company's executive compensation policies are to
attract, retain and reward executive officers who contribute to the Company's
success, to align the financial interests of executive officers with the
performance of the Company, to strengthen the relationship between executive pay
and shareholder value, to motivate executive officers to achieve the Company's
business objectives and to reward individual performance. In carrying out these
objectives, the Committee considers the level of compensation paid to executive
officers in positions of companies similarly situated in size and products, the
individual performance of each executive officer, corporate performance, and the
responsibility and authority of each position relative to other positions within
the Company.
The method used by the Compensation Committee to determine executive
compensation is designed to provide for a base salary that, while competitive
with comparable companies, is nevertheless calculated to result in a base salary
that is at the lower end of the competitive range for those companies. Base
salary is supplemented by two additional compensation components: first, the
Management Incentive Plan ("MIP"), designed to reward participants for
individual and Company-wide performance; and second, options granted under the
1987 Plan, designed to provide long-term incentives to all employees of the
Company. Each of these components is discussed in turn below:
Base Salary
In establishing base salaries for executive officers, the Company considers
the individual executive's level of responsibility, compensation surveys and
market data of general industry companies of similar size. These companies
include some, but not all, of the companies on the Nasdaq Computer and Data
Processing Stocks Index and are selected to represent the types of companies
with which the Company competes in the market for executive talent. Salaries
for executives are reviewed on an annual basis and may be changed at that time
on the basis of a subjective analysis of the individual performance of the
executive, the Company's financial performance and changes in salary levels at
comparable companies.
(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC, and is not to be incorporated by reference into any
filing of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after
the date hereof and irrespective of any general incorporation language
contained in such filing.
Page 20
<PAGE>
Management Incentive Plan
The MIP has been established to reward executives for their contributions
to the achievement of Company-wide performance goals. The structure of the MIP
provides for the development of a compensation Pool based on achieving worldwide
goals related to revenue and net income in the Company's operating plan, as well
as other objectives in the operating plan specific to such officers' individual
areas of management responsibility.
1987 Equity Incentive Plan
The 1987 Plan offered was been established to provide all employees of the
Company with an opportunity to share, along with the stockholders of the
Company, in the long-term performance of the Company.
Periodic grants of stock options are generally made annually to all
eligible employees, with additional grants being made to certain employees upon
commencement of employment and, occasionally, following a significant change in
job responsibilities, scope or title. Stock options granted under the 1987 Plan
generally have a non-statutory four-year vesting schedule and generally expire
ten years from the date of grant. The exercise price of incentive stock options
granted under the 1987 Plan is generally 100% of fair market value of the
underlying stock on the date of grant, and the exercise price of non-qualified
stock options granted under the 1987 Plan is usually 85% of fair market value of
the underlying stock on the date of grant.
The Compensation Committee considers, periodically, the grant of stock-
based compensation to all executive officers. Such grants are made on the
basis of a subjective analysis of individual performance, the Company's
financial performance, and the executive's existing options.
CEO Compensation
The base salary, incentives and stock options for the Chief Executive
Officer were determined in accordance with the criteria described in the "Base
Salary," "Management Incentive Plan," and "1987 Equity Incentive Plan" sections
of this report.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
William B. Elmore
David Pratt
Page 21
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON (1)
The following charts show a comparison of cumulative returns for the
Company, the Nasdaq Stock Market (United States Companies) and the Nasdaq
Computer and Data Processing Stocks beginning April 15, 1993, when the Company's
Common Stock commenced public trading. The graph assumes reinvestment of the
full amount of all dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT
---------------------------------------------------
<TABLE>
<CAPTION>
Base
Period
Company/Index 15-Apr-93 1994 1995 1996
- - ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
WIND RIVER SYSTEMS INC 100 60.49 87.65 280.25
NASDAQ US INDEX COMPOSITE 100 119.67 114.17 161.40
NASDAQ COMPUTER & DATA PROCESSING 100 113.23 127.32 197.05
</TABLE>
(1) The Section is not "soliciting material," is not deemed filed with the SEC,
and is not to be incorporated by reference into any filing of the Company
under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, whether made before or after the date hereof and
irrespective of any general incorporation language contained in such
filing.
Page 22
<PAGE>
<TABLE>
<CAPTION>
ANNUAL RETURN PERCENTAGE
Years Ending January 31,
Company/Index 1994 1995 1996
- - ----------------------------------------------------------------------
<S> <C> <C> <C>
WIND RIVER SYSTEMS INC -39.51 44.90 219.72
NASDAQ US INDEX COMPOSITE 19.67 -4.60 41.37
NASDAQ COMPUTER & DATA PROCESSING 13.23 12.45 54.77
INDEXED RETURNS
Years Ending January 31,
</TABLE>
<TABLE>
<CAPTION>
Base
Period
Company/Index 15-Apr-93 1994 1995 1996
- - ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
WIND RIVER SYSTEMS INC 100 60.49 87.65 280.25
NASDAQ US INDEX COMPOSITE 100 119.67 114.17 161.40
NASDAQ COMPUTER & DATA PROCESSING 100 113.23 127.32 197.05
</TABLE>
Page 23
<PAGE>
CERTAIN TRANSACTIONS
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer and director, under the circumstances and to the extent provided
for therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be made a party by
reason of his position as a director, officer or other agent of the Company, and
otherwise to the full extent permitted under Delaware law and the Company's By-
laws.
In March 1994, Mr. Abelmann purchased 75,000 shares of the Company's Common
Stock, with cash and a full recourse promissory note (the "Note"). None of such
shares is subject to any repurchase option by the Company. The Note in the
amount of $182,812.50 bears interest at 5.36% per annum with interest payable
annually in arrears and the outstanding principal due and payable on March 4,
1998. The full amount of the Note is secured by a pledge of shares of Common
Stock of the Company. On May 24, 1996, a three-for-two stock split was effected
by means of payment of a stock dividend with respect to all of the Company's
Common Stock outstanding on May 10, 1996. All share numbers and prices in this
section have been adjusted to give effect to the stock dividend.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
RICHARD W. KRABER
Secretary
June 12, 1996
Page 24
<PAGE>
(Side A)
WIND RIVER SYSTEMS INC.
Proxy Solicited on Behalf of Board of Directors
The undersigned hereby appoints Jerry L. Fiddler, Ronald A. Abelmann, David
N. Wilner or any of them with full power of substitution, proxies to vote at the
Annual Meeting of the Stockholders of Wind River Systems, Inc. (the "Company"),
to be held on July 23, 1996 at 10:00 a.m., local time, and at any and all
postponements, continuations and adjournments thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
<PAGE>
(Side B)
X Please mark your votes as in this example.
- - -
1. ELECTION OF DIRECTORS. ___ FOR all nominees listed.
Nominees: Jerry L. Fiddler ___ WITHHOLD AUTHORITY
Ronald A. Abelmann to vote for all nominees listed
David N. Wilner
William B. Elmore
David B. Pratt
To withhold authority to vote for any
nominee(s), write such nominee(s)'
name(s) below:
-------------------------------------
FOR AGAINST ABSTAIN
--- ------- -------
2. To amend the Company's Restated Certificate
of Incorporation to increase the authorized
number of shares of Common Stock from
20,000,000 to 75,000,000. ___ ___ ___
3. To approve the Company's 1987 Equity
Incentive Plan to increase the authorized
number of shares from 4,950,000 to 6,300,000. ___ ___ ___
4. To ratify selection of Price Waterhouse as
the Company's independent auditors for the
fiscal year ending January 31, 1997. ___ ___ ___
Unless a contrary direction is indicated, this proxy will be voted for all
nominees listed in Proposal 1 and for Proposals 2, 3 and 4, as more specifically
described in the Proxy Statement. If specific instructions are indicated, this
proxy will be voted in accordance therewith.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Signature________________________________ Date_______________
Signature________________________________ Date_______________
Note: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as an attorney, executor, administrator, trustee or
guardian, please give full title as such.
<PAGE>
AMENDED AND RESTATED
WIND RIVER SYSTEMS, INC.
1987 EQUITY INCENTIVE PLAN
Amended effective as of May 24, 1996
[Approved by the Stockholders July 23, 1996]
1. PURPOSES.
(a) The purpose of the 1987 Equity Incentive Plan (the "Plan") is to
provide a means by which employees of and consultants to the Company, and its
Affiliates, may be given an opportunity to benefit from increases in value of
the stock of the Company through the granting of (i) Incentive Stock Options,
(ii) Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase
restricted stock, and (v) stock appreciation rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company, to
secure and retain the services of new Employees, Directors and Consultants, and
to provide incentives for such persons to exert maximum efforts for the success
of the Company.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to paragraph 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to paragraph 7 hereof, or (iii) stock
appreciation rights granted pursuant to paragraph 8 hereof. All Options shall
be separately designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and in such form as issued pursuant to section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections
424(e) and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance with
subsection 3(c) of the Plan.
(e) "Company" means Wind River Systems, Inc., a Delaware corporation.
(f) "Concurrent Stock Appreciation Right" or "Concurrent Right" means a
right granted pursuant to subsection 8(b)(ii) of the Plan.
(g) "Consultant" means any person, including an advisor, engaged by the
<PAGE>
Company or an Affiliate to render services and who is compensated for such
services, provided that the term "Consultant" shall not include Directors who
are paid only a director's fee by the Company or who are not compensated by the
Company for their services as Directors.
(h) "Continuous Status as an Employee, Director or Consultant" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated by the Company or any Affiliate. The Board, in its sole discretion,
may determine whether Continuous Status as an Employee, Director or Consultant
shall be considered interrupted in the case of: (i) any leave of absence
approved by the Board, including sick leave, military leave, or any other
personal leave; provided, however, that for purposes of Incentive Stock Options
and Stock Appreciation Rights appurtenant thereto, any such leave may not exceed
ninety (90) days, unless reemployment upon the expiration of such leave is
guaranteed by contract (including certain Company policies) or statute; or (ii)
transfers between locations of the Company or between the Company, Affiliates or
its successor.
(i) "Covered Executive" means each employee, director or consultant to the
Company or an Affiliate subject to Section 16 of the Exchange Act with respect
to the Company.
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as defined in Section
22(e)(3) of the Code.
(l) "Disinterested Person" means a Director: (i) who was not during the
one year prior to service as an administrator of the Plan granted or awarded
equity securities pursuant to the Plan or any other plan of the Company or any
of its affiliates entitling the participants therein to acquire equity
securities of the Company or any of its affiliates except as permitted by Rule
16b-3(c)(2)(i); or (ii) who is otherwise considered to be a "disinterested
person" in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules,
regulations or interpretations of the Securities and Exchange Commission.
(m) "Employee" means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company. Neither service as a Director
nor payment of a director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Fair Market Value" means, as of any date, the value of the common
stock of the Company determined as follows:
(i) If the common stock is listed on any established stock exchange or
a national market system, including without limitation the National Market
System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
<PAGE>
(ii) If the common stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of common stock shall be the mean between the high bid and high asked
prices for the common stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(iii) In the absence of an established market for the common stock,
the Fair Market Value shall be determined in good faith by the Board.
(p) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(q) "Independent Stock Appreciation Right" or "Independent Right" means a
right granted under subsection 8(b)(iii) of the Plan.
(r) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(s) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "Option" means a stock option granted pursuant to the Plan.
(u) "Option Agreement" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(v) "Optionee" means an Employee, Director or Consultant who holds an
outstanding Option.
(w) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (as defined in the
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an affiliated corporation receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an affiliated corporation at
any time, and is not currently receiving compensation for personal services in
any capacity other than as a Director, or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(x) "Plan" means this 1987 Equity Incentive Plan.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(z) "Stock Appreciation Right" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(aa) "Stock Award" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any Stock
Appreciation Right.
<PAGE>
(ab) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. The Stock Award Agreement is subject to the terms
and conditions of the Plan.
(ac) "Tandem Stock Appreciation Right" or "Tandem Right" means a right
granted under subsection 8(b)(i) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how Stock Awards shall be
granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory
Stock Option, a stock bonus, a right to purchase restricted stock, a stock
appreciation right, or a combination of the foregoing; the provisions of each
Stock Award granted (which need not be identical), including the time or times
when a person shall be permitted to receive stock pursuant to a Stock Award;
whether a person shall be permitted to receive stock upon exercise of an
Independent Stock Appreciation Right; and the number of shares with respect to
which Stock Awards shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan as provided in Section 14.
(4) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be Disinterested Persons, if required by the provisions
of subsection 3(d) and may also be, in the discretion of the Board, Outside
Directors as defined by the provisions of subparagraph 2(w). If administration
is delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan. Notwithstanding anything in this Section 3 to the contrary, the Board
or the Committee may delegate to a committee of one or more members of the Board
the authority to grant Stock Awards to eligible persons who are not then Covered
Executives.
<PAGE>
(d) Any requirement that an administrator of the Plan be a Disinterested
Person shall not apply if the Board or the Committee expressly declares that
such requirement shall not apply. Any Disinterested Person shall otherwise
comply with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate six million three hundred thousand (6,300,000)
shares of the Company's common stock. If any Stock Award shall for any reason
expire or otherwise terminate without having been exercised in full, the stock
not purchased under such Stock Award shall again become available for the Plan.
Shares subject to Stock Appreciation Rights exercised in accordance with Section
8 of the Plan shall not be available for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
(b) A Director shall in no event be eligible for the benefits of the Plan
unless at the time discretion is exercised in the selection of the Director as a
person to whom Stock Awards may be granted, or in the determination of the
number of shares which may be covered by Stock Awards granted to the Director:
(i) the Board has delegated its discretionary authority over the Plan to a
Committee which consists solely of Disinterested Persons; or (ii) the Plan
otherwise complies with the requirements of Rule 16b-3. The Board shall
otherwise comply with the requirements of Rule 16b-3. This subsection 5(b)
shall not apply if the Board or Committee expressly declares that it shall not
apply.
(c) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Incentive Stock Option is at
least one hundred ten percent (110%) of the Fair Market Value of such stock at
the date of grant and the Incentive Stock Option is not exercisable after the
expiration of five (5) years from the date of grant.
(d) No employee shall be eligible to be granted Options and Stock
Appreciation Rights covering more than six hundred seventy-two thousand eight
hundred fifty-five (672,855) shares of the Company's common stock in any
calendar year.
6. OPTION PROVISIONS.
<PAGE>
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the fair market value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the fair market value of the stock subject to the Option on the date the
Option is granted.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the option is exercised, or (ii) at
the discretion of the Board or the Committee, either at the time of the grant or
exercise of the Option, (A) by delivery to the Company of other common stock of
the Company, (B) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
common stock of the Company) with the person to whom the Option is granted or to
whom the Option is transferred pursuant to subsection 6(d), or (C) in any other
form of legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be payable at
least annually and shall be charged at the minimum rate of interest necessary to
avoid the treatment as interest, under any applicable provisions of the Code, of
any amounts other than amounts stated to be interest under the deferred payment
arrangement.
(d) Transferability. An Option shall not be transferable except by will or
by the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person.
(e) Vesting. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. During the remainder of the term of the Option (if its term extends
beyond the end of the installment periods), the option may be exercised from
time to time with respect to any shares then remaining subject to the Option.
The provisions of this subsection 6(e) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(f) Securities Law Compliance. The Company may require any Optionee, or
any person to whom an Option is transferred under subsection 6(d), as a
condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the
<PAGE>
merits and risks of exercising the Option; and (2) to give written assurances
satisfactory to the Company stating that such person is acquiring the stock
subject to the Option for such person's own account and not with any present
intention of selling or otherwise distributing the stock. These requirements,
and any assurances given pursuant to such requirements, shall be inoperative if
(i) the issuance of the shares upon the exercise of the Option has been
registered under a then currently effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws.
(g) Termination of Employment or Relationship as a Director or Consultant.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or Disability), the
Optionee may exercise his or her Option, but only within such period of time as
is determined by the Board, and only to the extent that the Optionee was
entitled to exercise it at the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the case of an Incentive Stock Option, the Board shall determine such period
of time (in no event to exceed three (3) months from the date of termination)
when the Option is granted. If, at the date of termination, the Optionee is not
entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified in the Option Agreement, the Option shall terminate, and the shares
covered by such Option shall revert to the Plan.
(h) Disability of Optionee. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option, but only within twelve
(12) months from the date of such termination (or such shorter period specified
in the Option Agreement), and only to the extent that the Optionee was entitled
to exercise it at the date of such termination (but in no event later than the
expiration of the term of such Option as set forth in the Option Agreement).
If, at the date of termination, the Optionee is not entitled to exercise his or
her entire Option, the shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified herein, the Option shall terminate,
and the shares covered by such Option shall revert to the Plan.
(i) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised, at any time within twelve (12) months following the
date of death (or such shorter period specified in the Option Agreement) (but in
no event later than the expiration of the term of such Option as set forth in
the Option Agreement), by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
the Optionee was entitled to exercise the Option at the date of death. If, at
the time of death, the Optionee was not entitled to exercise his or her entire
Option, the shares covered by the unexercisable portion of the Option shall
revert to the Plan. If, after death, the Optionee's estate or a person who
acquired the right to exercise the Option by bequest or inheritance does not
exercise the Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to the Plan.
(j) Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant
<PAGE>
to exercise the Option as to any part or all of the shares subject to the
Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to
any other restriction the Board determines to be appropriate.
(k) Withholding. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following means
or by a combination of such means: (1) tendering a cash payment; (2)
authorizing the Company to withhold shares from the shares of the common stock
otherwise issuable to the participant as a result of the exercise of the Option;
or (3) delivering to the Company owned and unencumbered shares of the common
stock of the Company.
(l) Re-Load Options. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the Re-
Load Option on the date of exercise of the original Option or, in the case of a
Re-Load Option which is an Incentive Stock Option and which is granted to a 10%
stockholder (as described in subparagraph 5(c)), shall have an exercise price
which is equal to one hundred ten percent (110%) of the Fair Market Value of the
stock subject to the Re-Load Option on the date of exercise of the original
Option.
Any such Re-Load Option may be an Incentive Stock Option or a Nonqualified
Stock Option, as the Board or Committee may designate at the time of the grant
of the original Option, provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subparagraph 12(d) of the Plan and in Section 422(d) of the
Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load
Option shall be subject to the availability of sufficient shares under
subparagraph 4(a) and shall be subject to such other terms and conditions as the
Board or Committee may determine.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) Purchase Price. The purchase price under each stock purchase
<PAGE>
agreement shall be such amount as the Board or Committee shall determine and
designate in such agreement. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(b) Transferability. No rights under a stock bonus or restricted stock
purchase agreement shall be assignable by any participant under the Plan, either
voluntarily or by operation of law, except where such assignment is required by
law or expressly authorized by the terms of the applicable stock bonus or
restricted stock purchase agreement.
(c) Consideration. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in their discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) Vesting. Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or the Committee.
(e) Termination of Employment or Relationship as a Director or Consultant.
In the event a Participant's Continuous Status as an Employee, Director or
Consultant terminates, the Company may repurchase or otherwise reacquire any or
all of the shares of stock held by that person which have not vested as of the
date of termination under the terms of the stock bonus or restricted stock
purchase agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights to
Employees or Directors of or Consultants to, the Company or its Affiliates under
the Plan. Each such right shall entitle the holder to a distribution based on
the appreciation in the fair market value per share of a designated amount of
stock.
(b) three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(i) Tandem Stock Appreciation Rights. Tandem Rights will be granted
appurtenant to an Option and will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution equal to the
excess of (A) the Fair Market Value (on the date of Option surrender) of vested
shares of stock purchasable under the surrendered Option over (B) the aggregate
exercise price payable for such shares.
(ii) Concurrent Stock Appreciation Rights. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of stock subject to the underlying Option and will be exercised
automatically at the same time the Option is exercised for those shares. The
appreciation distribution to which the
<PAGE>
holder of such concurrent right shall be entitled upon exercise of the
underlying Option shall be in an amount equal to the excess of (A) the
aggregate fair market value (at date of exercise) of the vested shares
purchased under the underlying Option with such concurrent rights over (B) the
aggregate exercise price paid for those shares.
(iii) Independent Stock Appreciation Rights. Independent Rights may
be granted independently of any Option and will entitle the holder upon exercise
to an appreciation distribution equal in amount to the excess of (A) the
aggregate fair market value (at the date of exercise) of a number of shares of
stock equal to the number of vested share equivalents exercised at such time (as
described in subsection 7(c)(iii)(B)) over (B) the aggregate fair market value
of such number of shares of stock at the date of grant.
(c) The terms and conditions applicable to each Tandem Right, Concurrent
Right and Independent Right shall be as follows:
(i) Tandem Rights.
(A) Tandem Rights may be tied to either Incentive Stock Options or
Nonstatutory Stock Options. Each such right shall, except as specifically set
forth below, be subject to the same terms and conditions applicable to the
particular Option to which it pertains. If Tandem Rights are granted
appurtenant to an Incentive Stock Option, they shall satisfy any applicable
Treasury Regulations so as not to disqualify such Option as an Incentive Stock
Option under the Code.
(B) The appreciation distribution payable on the exercised Tandem
Right shall be in cash in an amount equal to the excess of (I) the fair market
value (on the date of the Option surrender) of the number of shares of stock
covered by that portion of the surrendered Option in which the optionee is
vested over (II) the aggregate exercise price payable for such vested shares.
(ii) Concurrent Rights.
(A) Concurrent Rights may be tied to any or all of the shares of
stock subject to any Incentive Stock Option or Nonstatutory Stock Option grant
made under the Plan. A Concurrent Right shall, except as specifically set forth
below, be subject to the same terms and conditions applicable to the particular
Option grant to which it pertains.
(B) A Concurrent Right shall be automatically exercised at the same
time the underlying Option is exercised with respect to the particular shares of
stock to which the Concurrent Right pertains.
(C) The appreciation distribution payable on an exercised Concurrent
Right shall be in cash in an amount equal to such portion as shall be determined
by the Board or the Committee at the time of the grant of the excess of (I) the
aggregate fair market value (on the Exercise Date) of the vested shares of stock
purchased under the underlying Option which have Concurrent Rights appurtenant
to them over (II) the aggregate exercise price paid for such shares.
(iii) Independent Rights.
(A) Independent Rights shall, except as specifically set forth
<PAGE>
below, be subject to the same terms and conditions applicable to Nonstatutory
Stock Options as set forth in Section 6. They shall be denominated in share
equivalents.
(B) The appreciation distribution payable on the exercised
Independent Right shall be in an amount equal to the excess of (I) the aggregate
fair market value (on the date of the exercise of the Independent Right) of a
number of shares of Company stock equal to the number of share equivalents in
which the holder is vested under such Independent right, and with respect to
which the holder is exercising the Independent Right on such date, over (II) the
aggregate fair market value (on the date of the grant of the Independent Right)
of such number of shares of Company stock.
(C) The appreciation distribution payable on the exercised Independent
Right may be paid, in the discretion of the Board or the Committee, in cash, in
shares of stock or in a combination of cash and stock. Any shares of stock so
distributed shall be valued at fair market value on the date the Independent
Right is exercised.
(iv) Terms Applicable to Tandem Rights,Concurrent Rights and
Independent
Rights.
(A) To exercise any outstanding Tandem, Concurrent or Independent
Right, the holder must provide written notice of exercise to the Company in
compliance with the provisions of the instrument evidencing such right.
(B) If a Tandem, Concurrent, or Independent Right is granted to an
individual who is at the time subject to Section 16(b) of the Exchange Act (a
"Section 16(b) Insider"), then the instrument of grant shall incorporate all the
terms and conditions at the time necessary to assure that the subsequent
exercise of such right shall qualify for the safe-harbor exemption from short-
swing profit liability provided by Rule 16b-3 promulgated under the Exchange Act
(or any successor rule or regulation).
(C) No limitation shall exist on the aggregate amount of cash
payments the Company may make under the Plan in connection with the exercise of
Tandem, Concurrent or Independent Rights.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
The Board or the Committee shall have the authority to effect, at any time
and from time to time, with the consent of the affected holders of Options
and/or Stock Appreciation Rights, (i) the repricing of any outstanding Options
and/or any Stock Appreciation Rights under the Plan and/or (ii) the cancellation
of any outstanding Options and/or any Stock Appreciation Rights under the Plan
and the grant in substitution therefor of new Options and/or Stock Appreciation
Rights under the Plan covering the same or different numbers of shares of stock,
but having an exercise price per share not less than eighty-five percent (85%)
of the Fair Market Value (one hundred percent (100%) of the Fair Market Value in
the case of an Incentive Stock Option or, in the case of a 10% stockholder (as
described in subparagraph 5(c)), not less than one hundred ten percent (110%) of
the Fair Market Value) per share of stock on the new grant date. Shares subject
to an Option and/or Stock Appreciation Rights canceled under this Section 9
shall continue to be counted against the maximum award of Options and/or Stock
Appreciation Rights permitted to be granted pursuant to
<PAGE>
subsection 5(d) of the Plan. The repricing of an Option and/or Stock
Appreciation Rights under this Section 9, resulting in a reduction of the
exercise price, shall be deemed to be a cancellation of the original Option
and/or Stock Appreciation Rights and the grant of a substitute Option and/or
Stock Appreciation Rights; in the event of such repricing, both the original
and the substituted Options and or Stock Appreciation Rights shall be counted
against the maximum awards of Options and/or Stock Appreciation Rights
permitted to be granted pursuant to subsection 5(d) of the Plan. The
provisions of this Section 9 shall be applicable only to the extent required by
Section 162(m) of the Code.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock Awards
up to the number of shares of stock authorized under the Plan
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock under the Stock Awards; provided, however, that
this undertaking shall not require the Company to register under the Securities
Act either the Plan, any Stock Award or any stock issued or issuable pursuant to
any such Stock Award. If, after reasonable efforts, the Company is unable to
obtain from any such regulatory commission or agency the authority which counsel
for the Company deems necessary for the lawful issuance and sale of stock under
the Plan, the Company shall be relieved from any liability for failure to issue
and sell stock under such Stock Awards unless and until such authority is
obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
12. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such Option unless and
until such person has satisfied all requirements for exercise of the Option
pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant, Optionee,
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate (or to continue acting as a Director or Consultant) or
shall affect the right of the Company or any Affiliate to terminate the
employment or relationship as a Director or Consultant of any Employee,
Director, Consultant or Optionee with or without cause.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options granted
after 1986
<PAGE>
are exercisable for the first time by any Optionee during any calendar year
under all plans of the Company and its Affiliates exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Plan and outstanding Stock Awards will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding Stock Awards.
(b) In the event of: (1) a dissolution or liquidation of the Company; (2)
a merger or consolidation in which the Company is not the surviving corporation;
or (3) a reverse merger in which the Company is the surviving corporation but
the shares of the Company's common stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise, then, subject to paragraph (c) of this
Section 13, at the sole discretion of the Board and to the extent permitted by
applicable law: (i) any surviving corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar Stock Awards for those
outstanding under the Plan, (ii) such Stock Awards shall continue in full force
and effect, or (iii) the time during which such Stock Awards become vested or
may be exercised shall be accelerated and any outstanding unexercised rights
under any Stock Awards terminated if not exercised prior to such event.
(c) In the event of either (i) the acquisition by any person, entity or
group within the meaning of Section 13(d) or 14(d) of the Exchange Act or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or an Affiliate of the Company) of
the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, which acquisition has not been approved by
resolution of the Company's Board of Directors, or (ii) a change in a majority
of the membership of the Company's Board of Directors within a twenty-four (24)
month period where the selection of such majority either (A) was not approved by
a majority of the members of the Board of Directors at the beginning of such
twenty-four (24) month period or (B) occurred as the result of an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of any person other than the Board (a "Proxy Contest"),
including by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest, then to the extent not prohibited by applicable law,
the time during which options outstanding under the Plan may be exercised shall
be accelerated prior to such event, but only to the extent that such options
would have become exercisable within thirty (30) months of the date of such
event, and the options terminated if not exercised after such acceleration and
at or prior to such event.
14. AMENDMENT OF THE PLAN.
<PAGE>
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock Awards under the
Plan;
(ii) Modify the requirements as to eligibility for participation in
the Plan to the extent such modification requires stockholder approval in order
for the Plan to satisfy the requirements of Section 422 of the Code; or
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to satisfy the requirements of
Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(c) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(d) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on September 29, 2002. No Stock Awards may
be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was granted.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercisable unless and until the Plan has
been approved by the stockholders of the Company, and, if required, an
appropriate permit has been issued by the Commissioner of Corporations of the
State of California.
