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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
WIND RIVER SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(6) Amount Previously Paid:
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(7) Form, Schedule or Registration Statement No.:
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(8) Filing Party:
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(9) Date Filed:
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WIND RIVER SYSTEMS, INC.
1010 ATLANTIC AVENUE
ALAMEDA, CA 94501
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 25, 1998
------------------------
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 Thursday,
June 25, 1998, at 10:00 a.m. local time at 980 Atlantic Avenue, Alameda,
California, for the following purposes:
1. To elect five directors to hold office for the ensuing year and until
their successors are elected and have qualified.
2. To approve an amendment to the Company's Restated Certificate of
Incorporation, as amended, to increase the authorized number of shares of
Common Stock from 75,000,000 shares to 125,000,000 shares.
3. To approve the Company's 1998 Equity Incentive Plan and the issuance of
1,000,000 shares of the Company's Common Stock thereunder.
4. To ratify the selection of Price Waterhouse LLP as independent
accountants of the Company for its fiscal year ending January 31, 1999.
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 4, 1998 as the
record date for the determination of stockholders entitled to notice of and to
vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
RICHARD W. KRABER
SECRETARY
Alameda, California
May 22, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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WIND RIVER SYSTEMS, INC.
1010 ATLANTIC AVENUE
ALAMEDA, CALIFORNIA 94501
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
---------------------
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 JUNE 25, 1998, 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.'s training center at
980 ATLANTIC AVENUE, ALAMEDA, CALIFORNIA. The Company intends to mail this proxy
statement and accompanying proxy card on or about MAY 22, 1998, to all
stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company
or, at the Company's request, D.F. King & Co., Inc. No additional compensation
will be paid to directors, officers or other regular employees for such
services, but D.F. King & Co., Inc. will be paid its customary fee, estimated to
be $3,500, if it renders solicitation services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on May 4,
1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on May 4, 1998, the Company had outstanding and entitled to
vote 26,074,460 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, except with respect to Proposal 2, are not counted for any purpose
in determining whether a matter has been approved. With respect to Proposal 2,
broker non-votes will have the same effect as negative votes.
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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.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1999 annual meeting of stockholders must be received by the Company not later
than January 14, 1999 in order to be included in the proxy statement and proxy
relating to that annual meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
There are five nominees for the five Board positions currently authorized in
the Company's By-laws. Each director to be elected will hold office until the
next annual meeting of stockholders and until his successor is elected and has
qualified, or until such director's earlier death, resignation or removal. Each
nominee currently is a director of the Company and previously was elected by the
stockholders.
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.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
Set forth below is biographical information for each person nominated.
JERRY L. FIDDLER, 46, has served as Chairman of the Board since he
co-founded the Company in February 1983. 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, 60, joined the Company in March 1994 as Chief Executive
Officer, President and a 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 a B.S. and an M.S. in applied physics from the
University of California at Los Angeles and an M.B.A. from Stanford University.
DAVID N. WILNER, 44, has served as Chief Technical Officer and a Director
since he co-founded the Company in February 1983. 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.
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WILLIAM B. ELMORE, 45, became a director of the Company in August 1990. He
currently is 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.
DAVID B. PRATT, 58, became a director of the Company in April 1995. He has
been a Venture Partner with Foundation Capital since January 1998. From 1988 to
December 1997, he was an officer, most recently Executive Vice President and
Chief Operating Officer, of Adobe Systems Incorporated, a developer of software
for printing and publishing. 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 B.S.E.E. degree from the Massachusetts Institute of Technology and
an M.B.A. from the University of Chicago.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended January 31, 1998, the Board of Directors held
seven 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 accountants at
least annually to review the results of the annual audit and discuss the
financial statements; recommends to the Board the independent accountants to be
retained and receives and considers the accountants' comments as to controls,
adequacy of staff and management performance and procedures in connection with
audit and financial controls. The Audit Committee is composed of two
non-employee directors: Messrs. Elmore and Pratt. It met once during fiscal
1998.
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 non-employee directors:
Messrs. Elmore and Pratt. It acted five times during fiscal 1998.
During the fiscal year ended January 31, 1998, each director 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.
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PROPOSAL 2
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
In April 1998, the Board of Directors adopted, subject to stockholder
approval, an amendment to the Company's Restated Certificate of Incorporation,
as amended, to increase the Company's authorized number of shares of Common
Stock from 75,000,000 shares to 125,000,000 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, as amended with the
Secretary of State of Delaware.
At May 4, 1998, in addition to the 26,074,460 shares of Common Stock
outstanding, 5,833,721 shares were reserved for issuance under the Company's
stock plans (excluding the 1998 Equity Incentive Plan, which is the subject of
Proposal 3), 2,886,598 shares were reserved for issuance upon conversion of 5%
Convertible Subordinated Notes due 2002 and 225,000 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;
expanding the Company's business or product lines through the acquisition of
other business or products; or paying stock dividends. The Board of Directors
has not taken any definitive action with respect to such shares.
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 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 amended. 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 COMPANY'S 1998 EQUITY INCENTIVE PLAN
In April 1998, the Board of Directors adopted, subject to stockholder
approval, the Wind River Systems, Inc. 1998 Equity Incentive Plan (the "Equity
Plan") and authorized and reserved 1,000,000 shares of the Company's Common
Stock for issuance under the Equity Plan. The Equity Plan provides for the grant
of incentive and nonstatutory stock options, stock appreciation rights, rights
to purchase restricted stock and stock bonuses. The Board adopted the Equity
Plan as a means to retain the services of persons who are now employees and
directors of and consultants to the Company and its affiliates, to secure and
retain the services of new employees, directors and consultants and to provide
incentives for such persons to exert maximum efforts on behalf of the Company.
As of April 30, 1998, no awards had been granted under the Equity Plan.
Stockholders are requested in this Proposal 3 to approve the Equity Plan.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the Equity Plan.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the Equity Plan are outlined below.
GENERAL
The Equity Plan provides for the grant of "Stock Awards," which may be
incentive stock options ("ISOs"), nonstatutory stock options ("NSOs"), stock
appreciation rights ("SARs"), rights to purchase restricted stock or stock
bonuses. ISOs granted under the Equity Plan are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). NSOs granted under the Equity
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 the
various Stock Awards included in the Equity Plan.
PURPOSE
The Equity Plan was adopted to provide a means by which employees (including
officers) and directors of and consultants to the Company and its affiliates may
be given an opportunity to purchase stock of the Company, to secure and retain
the services of persons holding or capable of filling such positions and to
provide incentives for such persons to exert maximum efforts on behalf of the
Company.
ADMINISTRATION
The Equity Plan is administered by the Board. The Board has the power to
construe and interpret the Equity Plan and, subject to the provisions of the
Equity Plan, to determine the persons to whom and the dates on which Stock
Awards will be granted, what type of Stock Award will be granted, the number of
shares to be subject to each Stock Award, the time or times during the term of
each Stock Award within which all or a portion of such Stock Award may be
exercised, the exercise price, the type of consideration and other terms of the
Stock Award. The Board is authorized to delegate administration of the Equity
Plan to a committee or committees composed of one or more members of the Board
and has delegated such administration to the Compensation Committee. The
Compensation Committee has the powers to administer the Equity Plan which were
originally possessed by the Board, subject to such limitations as the Board
provides. As used herein with respect to the Equity Plan, the "Board" refers to
the Compensation Committee as well as to the Board of Directors.
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In order to maximize the Company's ability to recognize a business expense
deduction under Section 162(m) of the Code in connection with compensation
recognized by "covered employees" (defined in Section 162(m) as the chief
executive officer and other four most highly compensated officers), the
regulations under Section 162(m) require that the directors who serve as members
of the committee responsible for administering the Equity Plan with respect to
these covered employees must be "outside directors." The Board currently intends
to limit the directors who may serve as members of the Compensation Committee to
those who are "outside directors" as defined in Section 162(m) of the Code. This
limitation excludes from the Compensation Committee (i) current employees of the
Company, (ii) former employees of the Company receiving compensation for past
services (other than benefits under a tax-qualified pension plan), (iii) current
and former officers of the Company, and (iv) directors currently receiving
direct or indirect remuneration from the Company in any capacity (other than as
a director), unless any such person is otherwise considered an "outside
director" for purposes of Section 162(m).
The Board or 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 subject to Section 16 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and/or who are either (i) not then employees covered by
Section 162(m) of the Code and are not expected to be covered by Section 162(m)
of the Code at the time of recognition of income resulting from such Stock
Award, or (ii) not persons with respect to whom the Company wishes to avoid the
application of Section 162(m) of the Code. The Board may abolish such committee
at any time and revest in the Board the administration of the Equity Plan.
ELIGIBILITY
ISOs and SARs appurtenant thereto may be granted under the Equity Plan to
employees (including officers) of the Company and any affiliates. Employees
(including officers), directors and consultants are eligible to receive awards
other than ISOs and SARs appurtenant thereto under the Equity Plan. As of May 4,
1998, all of the Company's approximately 485 employees, directors and
consultants were eligible to participate in the Equity Plan.
No ISO may be granted under the Equity Plan to any person who, at the time
of the grant, owns (or is deemed to own) stock possessing more than 10 percent
of the total combined voting power of the Company or any affiliate of the
Company, unless the option exercise price is at least 110 percent 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 To the
extent an optionee would have the right in any calendar year to exercise for the
first time one or more ISOs for shares having an aggregate fair market value
(under all plans of the Company and its affiliates and determined for each share
as of the date the option was granted ) in excess of $100,000, any such excess
options will be treated as NSOs.
The Company has included in the Equity Plan a per-employee limitation of
750,000 shares of Common Stock subject to stock options and SARs that may be
granted during a calendar year. The purpose of including this limitation is to
ensure that the Company generally will be able to deduct for tax purposes the
compensation attributable to the exercise of options and SARs granted under the
Equity Plan.
STOCK SUBJECT TO THE PLAN
If any Stock Award granted under the Equity Plan expires or otherwise
terminates in whole or in part without having been exercised in full (or vested
in the case of restricted stock), the Common Stock not purchased under such
Stock Award will revert to and again become available for issuance under the
Incentive Plan. Shares of stock subject to exercised stock appreciation rights
shall not again become available for issuance under the Equity Plan.
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TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
Equity 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 ISOs under the Equity Plan
may not be less than 100 percent of the fair market value of the Common Stock
subject to the option on the date of the option grant, (110 percent for
optionees deemed to own more than 10 percent of the outstanding voting power of
the Company), and the exercise price of NSOs under the Equity Plan may not be
less than 85 percent of the fair market value of Common Stock subject to the
option on the date of the option grant. With respect to any options granted with
exercise prices below fair market value to covered employees, deductions for
compensation attributable to the exercise of such options could be limited by
Section 162(m). See "Federal Income Tax Information." As of May 4, 1998, the
closing price of the Company's Common Stock, as reported on the Nasdaq National
Market, was $35.56 per share.
The exercise price of options granted under the Equity Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement; or (iii) in any other form of
legal consideration acceptable to the Board.
EXERCISE/VESTING. Options granted under the Equity Plan may become
exercisable ("vest") in cumulative increments as determined by the Board. Such
typically is time-based or performance-based. The Board has the power to
accelerate the time during which an option may be exercised. In addition,
options granted under the Equity Plan may permit exercise prior to vesting, but
in such event the optionee may be required to enter into an early exercise stock
purchase agreement that allows the Company to repurchase shares not yet vested
at their exercise price should the optionee leave the employ of the Company
before vesting. To the extent provided by the terms of an option, an optionee
may satisfy any federal, state or local tax withholding obligation relating to
the exercise of such option by a cash payment upon exercise, by authorizing the
Company to withhold a portion of the stock otherwise issuable to the optionee,
by delivering already-owned and unencumbered stock of the Company or by a
combination of these means.
TERM. The maximum term of stock options under the Equity Plan is 10 years,
except that in certain cases (see "Eligibility") the maximum term is five years.
Options under the Equity Plan generally terminate three months after termination
of the optionee's employment or relationship as a consultant or director of the
Company or any affiliate of the Company, unless (a) such termination is due to
such person's 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; (b) the optionee dies while serving, or
within in a three-month period of having served, the Company or any affiliate of
the Company, in which case the option may, but need not, be exercisable (to the
extent that the option was exercisable at the time of the optionee's death)
within 18 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 (c) 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 other relationship.
RESTRICTIONS ON TRANSFER. No stock option may be transferred by the
optionee other than by will or the laws of descent or distribution, provided
however that the Board of Directors may grant a NSO that is transferable, and
provided further that an optionee may designate a beneficiary who may exercise
the option following the optionee's death. In addition, shares subject to
repurchase by the Company under an early exercise stock purchase agreement may
be subject to restrictions on transfer which the Board deems appropriate.
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TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
PURCHASE PRICE; PAYMENT. The purchase price under each stock purchase
agreement will be determined by the Board, but in no event shall the purchase
price be less than 85 percent of the stock's fair market value on the date such
award is made. The purchase price of stock pursuant to a stock purchase
agreement 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 the Common Stock sold or awarded under the Equity
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 of or ceases to serve as a director of
or consultant to the Company or an affiliate of the Company, the Company may
repurchase or otherwise reacquire any or all of the shares of the bonus or
restricted 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. The Board has the power to
accelerate such vesting.
RESTRICTIONS ON TRANSFER. Rights under a stock bonus or restricted stock
bonus agreement may not be transferred except where such assignment is required
by law or expressly authorized by the terms of the applicable stock bonus or
restricted stock purchase agreement.
STOCK APPRECIATION RIGHTS
The Equity Plan authorizes three types of 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 surrendered option less the
aggregate exercise price payable for such shares. Appreciation distributions
payable upon exercise of tandem stock appreciation rights must be made 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. Appreciation distributions
payable upon exercise of concurrent stock appreciation rights must be made 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 fair market value on the date of exercise
of a number of shares equal to the number of share equivalents to which the
holder is vested under the independent stock appreciation right less the fair
market value of such number of shares of stock on the date of grant.
Appreciation distributions payable upon exercise of independent stock
appreciation rights may, at the Board's discretion, be made in cash, in shares
of the Common Stock or a combination thereof.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Equity Plan or subject to
any award granted under the Equity 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 Equity Plan and awards
outstanding thereunder will be appropriately adjusted as to the type of security
and the maximum number of shares subject to such plan,
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the maximum number of shares which may be granted to an employee during any
calendar year, and the type of security, number of shares and price per share of
stock subject to such outstanding Stock Awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The Equity Plan provides that, in the event of a dissolution or liquidation
of the Company, specified type of merger or other corporate reorganization, at
the sole discretion of the Board and to the extent permitted by law, any
surviving corporation will be required to either assume Stock Awards outstanding
under the Equity Plan or substitute similar Stock Awards for those outstanding
under the Equity Plan, such outstanding Stock Awards will continue in full force
and effect or such Stock Awards will be accelerated. In the event that any
surviving corporation declines to assume or continue awards outstanding under
the Equity Plan, or to substitute similar awards, then the time during which
such Stock Awards may be exercised will be accelerated and the Stock Awards
terminated if not exercised at or prior to such event. The acceleration of a
Stock Award in the event of an acquisition or similar corporate event may be
viewed as an anti-takeover provision, which may have the effect of discouraging
a proposal to acquire or otherwise obtain control of the Company.
The Equity Plan also provides for the acceleration of vesting for Stock
Awards 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 Equity Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Equity Plan will terminate on December 16, 2006.
The Board may also amend the Equity Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company, to the extent stockholder approval is necessary in order for the
Plan to satisfy Section 422 of the Code, if applicable, Rule 16b-3 or Nasdaq or
other securities exchange listing requirements. The Board may submit any other
amendment to the Equity Plan for stockholder approval, including, but not
limited to, amendments intended to satisfy the requirements of Section 162(m) of
the Code regarding the exclusion of performance-based compensation from the
limitation on the deductibility of compensation paid to certain employees.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the Equity 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 cause an optionee to
become subject to alternative minimum tax liability or increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will
9
<PAGE>
be a mid-term or 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 (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The optionee's
additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term, mid-term or short-term depending
on how long the optionee holds the stock. Long-term capital gains currently are
generally subject to lower tax rates than ordinary income. The maximum long-term
capital gains rate for federal income tax purposes currently is 20 percent (28
percent for mid-term capital gain), while the maximum ordinary income rate
currently is effectively 39.6 percent. 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.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
Equity Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company generally will 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-term, mid-term or short-term depending on how long the optionee holds the
stock. 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 PURCHASE AWARDS AND STOCK BONUSES. Restricted stock
purchase awards and stock bonuses granted under the Equity Plan generally have
the following federal income tax consequences:
Upon acquisition of stock, 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 at the time
of receipt of the stock. With respect to employees, the Company generally 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, Section 162(m) of the Code and the satisfaction of a tax
reporting obligation, the Company generally 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-term, mid-term or short-term depending on how long the stock was held.
Slightly different rules may apply to persons who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
10
<PAGE>
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,
Section 162(m) of the Code and the satisfaction of a reporting obligation, the
Company will be entitled to a business expense deduction equal to the taxable
ordinary income recognized by the recipient.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid to
certain employees in a taxable year to the extent that compensation exceeds
$1,000,000 for a covered employee. It is possible that compensation attributable
to awards under the Equity Plan, 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 Section 162(m), compensation
attributable to stock options and SARs will qualify as performance-based
compensation, provided that the award is granted by a compensation committee
comprised solely of "outside directors" and either: (i) the plan contains a
per-employee limitation on the number of shares for which options may be granted
during a specified period, the per-employee limitation is approved by the
stockholders, and the exercise price of the award is no less than the fair
market value of the stock on the date of grant; or (ii) the award is granted (or
exercisable) only upon the achievement (as certified in writing by the
compensation committee) of an objective performance goal established in writing
by the compensation committee while the outcome is substantially uncertain, and
the option is approved by stockholders.
Compensation attributable to restricted stock will qualify as
performance-based compensation, provided that: (i) the award is granted by a
compensation committee comprised solely of "outside directors"; and (ii) the
purchase price of the award is no less than the fair market value of the stock
on the date of grant. Stock bonuses qualify as performance-based compensation
under the Treasury regulations only if: (i) the award is granted by a
compensation committee comprised solely of "outside directors;" (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain; (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied; and (iv) prior to the granting (or
exercisability) of the award, stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount
(or formula used to calculate the maximum amount) payable upon attainment of the
performance goal).
OTHER STOCK PLANS OF THE COMPANY
1987 AMENDED AND RESTATED EQUITY INCENTIVE PLAN. The Company's Amended and
Restated 1987 Equity Incentive Plan (the "1987 Plan") provides for grants of
ISOs, NSOs, stock bonuses, rights to purchase restricted stock and SARs. An
aggregate of 9,450,000 shares of Common Stock have been reserved for issuance
under the 1987 Plan. As of May 4, 1998, options to purchase 5,003,135 shares of
Common Stock were outstanding under the 1987 Plan, and 646,788 shares remained
available for grant. ISOs and SARs appurtenant thereto may be granted to
employees (including officers) of the Company and any affiliates. Employees
(including officers), directors and consultants are eligible to receive awards
other than ISOs and SARs appurtenant thereto. The exercise price of ISOs granted
under the 1987 Plan may not be less than 100 percent of the fair market value of
the Company's Common Stock on the date of grant (110 percent for optionees
deemed to own more than 10 percent of the outstanding voting power of the
Company), and the exercise price of NSOs may not be less than 85 percent of the
fair market value of the
11
<PAGE>
Common Stock on the date of grant. The purchase price under a restricted stock
purchase agreement may not be less than 85 percent of the stock's fair market
value on the date of grant. Stock bonuses may be awarded in consideration of
services rendered. All stock options have a maximum term of 10 years. Options
granted under the 1987 Plan typically vest over a four-year period. Certain
options have been granted that vest after seven years, subject to acceleration
in installments based upon the achievement of certain performance criteria. The
1987 Plan and awards thereunder may be amended by the Board at any time or from
time to time. Certain amendments require stockholder approval, if necessary for
the Plan to satisfy Section 422 of the Code, Rule 16b-3 or Nasdaq or other
securities exchange listing requirements. The 1987 Plan also contains the
adjustment and change of control provisions described above with respect to the
Equity Plan. The 1987 Plan will terminate on September 29, 2002.
1998 NON-OFFICER STOCK OPTION PLAN. The Company's 1998 Non-Officer Stock
Option Plan (the "Non-Officer Plan"), adopted in April 1998, provides for grants
of NSOs to employees and consultants who are not officers or directors of the
Company. An aggregate of 300,000 shares of Common Stock have been reserved for
issuance under the Non-Officer Plan. The exercise price of NSOs granted under
the Non-Officer Plan may not be less than 85 percent of the fair market value of
the Common Stock on the date of grant. All NSOs granted under the Non-Officer
Plan have a maximum term of 10 years. Options generally will vest over four
years, although options may be granted that vest upon achievement of performance
criteria. The Non-Officer Plan and options thereunder may be amended by the
Board at any time or from time to time. The Non-Officer Plan also contains the
adjustment and change of control provisions described above with respect to the
Equity Plan. The Non-Officer Plan will terminate on April 22, 2008.
1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. See "Directors' and
Executive Officers' Compensation--Compensation of Directors."
12
<PAGE>
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Price Waterhouse LLP as the Company's
independent accountants for the fiscal year ending January 31, 1999 and has
further directed that management submit the selection of independent accountants
for ratification by the stockholders at the Annual Meeting. Price Waterhouse LLP
has audited the Company's financial statements since 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 accountants 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 accountants at any time during the year
if they determine that such a change would be in the best interests of the
Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Price Waterhouse LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
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 May 4, 1998, by: (i) each
director and nominee for director as of May 4, 1998; (ii) each of the executive
officers named in the Summary Compensation below; (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:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
------------------------------------
BENEFICIAL OWNERS NUMBER OF SHARES PERCENT OF TOTAL
- ---------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Janus Capital Corporation ................................ 2,988,084 11.46%
100 Fillmore Street, Suite 300
Denver, CO 80206-4923
Jerry L. Fiddler(2) ...................................... 2,909,887 11.15%
1010 Atlantic Avenue
Alameda, CA 94501
David N. Wilner(3) ....................................... 1,698,764 6.51%
1010 Atlantic Avenue
Alameda, CA 94501
Pilgrim Baxter and Associates ............................ 1,621,070 6.22%
825 Duportail Road
Wayne, PA 19087
Ronald A. Abelmann(4)..................................... 424,817 1.60%
William B. Elmore(5)...................................... 65,370 *
David G. Fraser(6)........................................ 23,829 *
Richard W. Kraber(7)...................................... 50,155 *
David R. Larrimore(8)..................................... 61,826 *
David Pratt(9)............................................ 13,125 *
Robert L. Wheaton(10)..................................... 6,999 *
All executive officers and directors as a group (10
persons)(11)............................................ 5,454,722 20.29%
</TABLE>
- ------------------------
* Less than one per cent.
(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 26,074,460 shares outstanding on May 4, 1998,
adjusted as required by rules promulgated by the SEC.
(2) Includes 2,220,287 shares held by The Fiddler and Alden Family Trust, of
which Mr. Fiddler is a trustee; 370,000 shares held by Jazem II Family
Partners LP, of which Mr. Fiddler is a general partner; and 286,136 shares
held by Jazem III Family Partners LP, of which Mr. Fiddler also is a
partner. Also includes 33,464 shares subject to stock options exercisable
within 60 days of May 4, 1998.
14
<PAGE>
(3) Includes 258,750 shares held in trust for Mr. Wilner's minor child. Also
includes 33,464 shares subject to stock options exercisable within 60 days
of May 4, 1998.
(4) Includes 396,627 shares subject to stock options exercisable within 60 days
of May 4, 1998.
(5) Includes 24,375 shares subject to stock options exercisable within 60 days
of May 4, 1998.
(6) Includes 23,829 shares subject to stock options exercisable within 60 days
of May 4, 1998.
(7) Includes 50,155 shares subject to stock options exercisable within 60 days
of May 4, 1998.
(8) Includes 61,826 shares subject to stock options exercisable within 60 days
of May 4, 1998.
(9) Includes 13,125 shares subject to stock options exercisable within 60 days
of May 4, 1998.
(10) Includes 6,999 shares subject to stock options exercisable within 60 days
of May 4, 1998.
(11) Includes 805,215 shares subject to stock options held by officers and
directors exercisable within 60 days of May 4, 1998. See footnotes
(2)-(10).
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, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with, except that: 2
reports, covering an aggregate of 5 transactions, were filed late by Mr.
Abelmann; 1 report, covering 1 transaction, was filed late by Mr. Elmore; 1
report, covering 1 transaction, was filed late by Mr. Fiddler; 1 report,
covering 1 transaction, was filed late by Mr. Fraser; 1 report, covering 1
transaction, was filed late by Mr. Pratt; 1 initial report on Form 3 was filed
late by Mr. Schacker; and 2 reports, covering an aggregate of 2 transactions,
were filed late by Mr. Wilner.
DIRECTORS' AND EXECUTIVE OFFICERS' COMPENSATION
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company (a "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 Non-Employee Directors. Stock options granted under the Director's
Plan have an exercise price equal to the fair market value of the common stock
on the date of grant, vest in four equal annual installments and expire ten
years from the date of grant. Under the Directors' Plan, each person who was a
Non-Employee Director on April 27, 1995 was granted, 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
15
<PAGE>
person who is then a Non-Employee Director automatically is 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 225,000.
During the last fiscal year, options were granted covering an aggregate of
3,000 shares to each of Messrs. Elmore and Pratt at an exercise price of $23.125
per share. Also during such fiscal year, Mr. Pratt exercised options to purchase
6,000 shares of Common Stock.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows for the fiscal year ended January 31, 1998,
compensation awarded or paid to, or earned by the Company's Chief Executive
Officer and its other five most highly compensated executive officers who earned
over $100,000 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
----------
SHARES
ANNUAL COMPENSATION UNDERLYING
-------------------------- OPTIONS
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($) BONUS($)(1) (#)(2)
- -------------------------------------------------------------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Ronald A. Abelmann ........................................... 1998 271,250 127,875 (3) 325,000
President and 1997 228,333(3) 161,000 (3) 60,000
Chief Executive Officer 1996 201,667(3) 100,000 135,000
David G. Fraser .............................................. 1998 153,417 73,147 100,000
Vice President of Engineering 1997 135,500 89,550 75,936
1996 123,750 58,256 54,000
Richard W. Kraber(4) ......................................... 1998 153,750 72,992 100,000
Vice President and 1997 139,583 97,900 42,750
Chief Financial Officer 1996 56,769 28,574 182,250
Robert L. Wheaton ............................................ 1998 154,083 99,423 100,000
Senior Vice President of Sales 1997 143,605 117,202 30,000
1996 135,000 83,115 54,000
David N. Wilner .............................................. 1998 147,708 70,592 100,000
Chief Technical Officer 1997 145,000 101,500 --
1996 140,833 64,398 47,250
David R. Larrimore(5) ........................................ 1998 166,667 54,043 30,000
Vice President of Marketing 1997 141,417 98,850 42,750
1996 96,144 47,331 182,250
</TABLE>
- ------------------------
(1) Includes bonuses and sales commissions earned in respective fiscal year and
paid the following fiscal year pursuant to the Company's fiscal management
incentive arrangements.
(2) Options have exercise prices ranging from 85% to 100% of the fair market
value of the Common Stock at the time of the grant. All options granted in
fiscal year 1998 have exercise prices equal to 100% of the fair market value
of the Common Stock at the time of the grant.
(3) Payment of portions of Mr. Abelmann's salary for fiscal years 1996 and 1997,
and all of his bonus for fiscal years 1997 and 1998, has been deferred.
(4) Mr. Kraber joined the Company in August 1995.
(5) Mr. Larrimore resigned as an officer of the Company on December 31, 1997 and
currently serves as a consultant. Compensation for fiscal year 1998 includes
consulting payments made to Mr. Larrimore following his resignation.
16
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The following tables show for the fiscal year ended January 31, 1998,
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>
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SHARES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES IN PER SHARE FOR OPTION TERM (5)
OPTIONS FISCAL EXERCISE EXPIRATION --------------------------
NAME GRANTED(#)(1) YEAR(3) PRICE(4) DATE 5%($) 10%($)
- ------------------------------- ------------- ------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ronald A. Abelmann............. 75,000 3.77% $ 38.0625 07/23/2007 1,795,298 4,549,637
175,000(2) 8.79% $ 41.0000 09/07/2007 4,512,319 11,435,102
75,000 3.77% $ 38.3750 09/25/2007 1,810,037 4,586,990
David G. Fraser................ 30,000 1.51% $ 38.0625 07/23/2007 718,119 1,819,855
70,000(2) 3.52% $ 41.0000 09/07/2007 1,804,928 4,574,041
Richard W. Kraber.............. 30,000 1.51% $ 38.0625 07/23/2007 718,119 1,819,855
70,000(2) 3.52% $ 41.0000 09/07/2007 1,804,928 4,574,041
Robert L. Wheaton.............. 30,000 1.51% $ 38.0625 07/23/2007 718,119 1,819,855
70,000(2) 3.52% $ 41.0000 09/07/2007 1,804,928 4,574,041
David N. Wilner................ 30,000 1.51% $ 38.0625 07/23/2007 718,119 1,819,855
70,000(2) 3.52% $ 41.0000 09/07/2007 1,804,928 4,574,041
David R. Larrimore............. 30,000 1.51% $ 38.0625 07/23/2007 718,119 1,819,855
</TABLE>
- ------------------------
(1) Except as set forth in Note (2), options 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.
(2) Options vest seven years from the date of grant, subject to acceleration in
installments based upon the achievement of certain performance criteria.
(3) Based on options to purchase an aggregate of 991,000 shares of Common Stock
granted in the fiscal year.
(4) For all options granted in fiscal year 1998, the exercise price is equal to
the fair market value of the Company's Common Stock at the time of the
grant.
(5) The potential realizable value is based on the term of the option at its
time of grant. In accordance with rules promulgated by the SEC, it is
calculated by assuming that the stock price at the time 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. There can be no assurance that the values
shown in this table will be achieved.
17
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
AND VALUE OF OPTIONS AT END OF FISCAL YEAR 1998
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT END OF THE-MONEY OPTIONS AT END
NUMBER OF FISCAL 1998(#) OF FISCAL 1998($)(2)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE
- ----------------------------------- --------------- -------------- ----------------- ------------------------
<S> <C> <C> <C> <C>
Ronald A. Abelmann................. 105,000 $ 3,747,041 392,230/448,395 $ 12,633,952/3,542,812
David G. Fraser.................... 24,000 $ 778,605 29,319/130,432 $ 817,877/$775,292
Richard W. Kraber.................. 20,000 $ 550,176 56,722/200,278 $ 1,499,769/$2,686,490
Robert L. Wheaton.................. 53,484 $ 965,529 34,229/140,833 $ 946,481/$1,017,539
David N. Wilner.................... -- -- 28,543/118,707 $ 819,812/$519,095
David R. Larrimore................. 50,000 $ 1,691,827 68,393/121,607 $ 1,909,607/$2,520,121
</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 on January 31, 1998
($36.625) minus the exercise price of the options.
EMPLOYMENT AGREEMENT
In March 1994, the Company and Mr. Abelmann entered into an employment
agreement providing for the employment of Mr. Abelmann as President and Chief
Executive Officer. The agreement provided for Mr. Abelmann's base salary and
bonuses of up to 50% of base salary determined upon the achievement of worldwide
goals related to revenue and net income. In fiscal year 1998, the Compensation
Committee approved a 47% bonus for Mr. Abelmann.
Under the agreement, Mr. Abelmann was granted an option to purchase 815,625
shares of the Company's Common Stock under the 1987 Plan with an exercise price
equal to the then fair market value of the Common Stock. In addition, 112,500
shares of the Company's Common Stock were purchased with cash and a full
recourse promissory note (the "Note"), also under the 1987 Plan. The Note in the
amount of $182,812.50 accrued interest at 5.36% per annum and was secured by a
pledge of shares of Common Stock of the Company. On September 24, 1996, Mr.
Abelmann paid all of the outstanding principal and interest due under the Note.
The agreement also provides that, in the event Mr. Abelmann's employment is
terminated without cause, he will receive, as severance, continued payment of
his then base salary for six months following such termination.
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, except to the extent that the option
acceleration would create adverse
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tax consequences for the Chief Executive Officer and the Company under the
golden parachute provisions of sections 280G and 49999 of the Internal Revenue
Code ("Code"), in which case the Chief Executive Officer will have accelerated
the maximum number of shares allowed under the golden parachute provisions.
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 compensation for 12 months (including an
estimated bonus amount), continued health insurance for the same period, and
accelerated vesting of stock options that would otherwise vest within one year
of the date of termination. In addition, for the Chief Executive Officer, any
shares which would have received acceleration of 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 on the termination
date. 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.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION(1)
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 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 stockholder 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.
An executive officer's base salary is supplemented by two additional
compensation components: awards under the Management Incentive Plan ("MIP"),
designed to reward participants for individual and Company-wide performance; and
stock options, designed to provide long-term incentives to all employees of the
Company. Each of these components is discussed in turn below:
BASE SALARY
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. 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
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(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 any filing.
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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.
MANAGEMENT INCENTIVE PLAN
The MIP has been established to provide cash bonuses to reward executives
for their contributions to the achievement of Company-wide performance goals.
The MIP provides for the yearly establishment 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, some of which may
be determined subjectively.
STOCK OPTION PLANS
The 1987 Plan, Equity Plan and Non-Officer Plan were 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 generally are 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 generally have a four-year
vesting schedule and generally expire ten years from the date of grant. Certain
stock options vest in accordance with corporate performance criteria established
from time to time by the Committee. The exercise price of stock options is
typically 100% 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.
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million paid to certain Named Executive
Officers in a taxable year. Compensation above $1 million may be deducted if it
is "performance-based compensation" within the meaning of the Code. The
Compensation Committee has determined that stock options granted under the 1987
Plan and the Equity Plan with exercise prices at least equal to the fair market
value of the Company's Common Stock on the date of grant shall be treated as
"performance-based compensation."
CHIEF EXECUTIVE OFFICER COMPENSATION
The base salary established for Mr. Abelmann for fiscal 1998 was determined
based upon reference to external competitive pay practices, the above described
compensation approach to executive officers and a subjective assessment by this
Committee of Mr. Abelmann's performance. In addition, as a result of both the
Company's and his individual performance during fiscal 1998, Mr. Abelmann was
awarded a cash bonus of $127,875 and granted options to purchase 325,000 shares
of Common Stock.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
William B. Elmore
David Pratt
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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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL SHAREHOLDER RETURN
<S> <C> <C>
YEAR ENDS
WIND RIVER SYSTEMS INC NASDAQ US INDEX COMPOSITE
15-Apr-93 $100.00 $100.00
Jan-94 $60.49 $119.67
Jan-95 $87.65 $114.17
Jan-96 $280.25 $161.40
Jan-97 $753.72 $211.51
Jan-98 $813.90 $250.34
<CAPTION>
TOTAL SHAREHOLDER RETURN
<S> <C>
YEAR ENDS
NASDAQ COMPUTER & DATA PROCESSING
15-Apr-93 $100.00
Jan-94 $113.23
Jan-95 $127.33
Jan-96 $197.06
Jan-97 $267.51
Jan-98 $324.22
</TABLE>
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(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.
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.
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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
May 22, 1998
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WIND RIVER SYSTEMS, INC.
1998 EQUITY INCENTIVE PLAN
ADOPTED APRIL 23, 1998
APPROVED BY STOCKHOLDERS _______________, 1998
TERMINATION DATE: APRIL 22, 2008
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an
opportunity to benefit from increases in value of the Common Stock through
the granting of the following Stock Awards: (i) Incentive Stock Options,
(ii) Nonstatutory Stock Options, (iii) stock appreciation rights, (iv) stock
bonuses and (v) rights to acquire restricted stock.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to
retain the services of the group of persons eligible to receive Stock Awards,
to secure and retain the services of new members of this group and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, 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).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means Wind River Systems, Inc., a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, (1) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (2) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated
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by the Company for their services as Directors or Directors of the Company
who are merely paid a director's fee by the Company for their services as
Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is
not interrupted or terminated. The Participant's Continuous Service shall
not be deemed to have terminated merely because of a change in the capacity
in which the Participant renders service to the Company or an Affiliate as an
Employee, Consultant or Director or a change in the entity for which the
Participant renders such service, provided that there is no interruption or
termination of the Participant's Continuous Service. For example, a change
in status from an Employee of the Company to a Consultant of an Affiliate or
a Director of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange
Act, as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value of a share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the
greatest volume of trading in the Common Stock) on the last market trading
day prior to the day of determination, as reported in The Wall Street Journal
or such other source as the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
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(o) "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.
(p) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who either
(i) is not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a consultant
or in any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K of the
Securities and Exchange Commission ("Regulation S-K")), does not possess an
interest in any other transaction as to which disclosure would be required
under Item 404(a) of Regulation S-K and is not engaged in a business
relationship as to which disclosure would be required under Item 404(b) of
Regulation S-K; or (ii) is otherwise considered a "non-employee director" for
purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(r) "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.
(s) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(u) "OPTIONEE" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(v) "OUTSIDE DIRECTOR" means a Director of the Company who either (i) is
not a current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for 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.
(w) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(x) "PLAN" means this Wind River Systems, Inc. 1998 Equity Incentive Plan.
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<PAGE>
(y) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(z) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(aa) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock appreciation right, a stock bonus and a right to acquire
restricted stock.
(bb) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.
(cc) "TEN PERCENT STOCKHOLDER" means a person who 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.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board will administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; and the number of shares with respect
to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or expedient
to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of
the Company which are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one or more members of the Board, and the term
"Committee"
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<PAGE>
shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(ii) COMMITTEE COMPOSITION. As long as the Common Stock is
publicly traded, in the discretion of the Board, a Committee may consist
solely of two or more Outside Directors, in accordance with Section 162(m) of
the Code, and/or solely of two or more Non-Employee Directors, in accordance
with Rule 16b-3. Within the scope of such authority, the Board or the
Committee may (i) delegate to a committee of one or more members of the Board
who are not Outside Directors, the authority to grant Stock Awards to
eligible persons who are either (a) not then Covered Employees and are not
expected to be Covered Employees at the time of recognition of income
resulting from such Stock Award or (b) not persons with respect to whom the
Company wishes to comply with Section 162(m) of the Code and/or (ii) delegate
to a committee of one or more members of the Board who are not Non-Employee
Directors the authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate one million (1,000,000) shares of
Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full (or vested in the case of Restricted Stock), the
stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan. Shares subject to stock appreciation
rights exercised in accordance with the Plan shall not be available for
subsequent issuance under the Plan. If any Common Stock acquired pursuant to
the exercise of an Option shall for any reason be repurchased by the Company
under an unvested share repurchase option provided under the Plan, the stock
repurchased by the Company under such repurchase option shall not revert to and
again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may be
granted only to Employees. Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.
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(b) TEN PERCENT STOCKHOLDERS. No Ten Percent Stockholder shall be
eligible for the grant of an Incentive Stock Option unless the exercise price
of such Option is at least one hundred ten percent (110%) of the Fair Market
Value of the Common Stock at the date of grant and the Option is not
exercisable after the expiration of five (5) years from the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in stock, no employee shall be eligible
to be granted Options covering more than seven hundred fifty thousand
(750,000) shares of the Common Stock during any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option. 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. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after
the expiration of ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, 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. Notwithstanding the foregoing, an
Incentive Stock Option may be granted with an exercise price lower than that
set forth in the preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of
Section 424(a) of the Code.
(d) 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 at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) by delivery to the
Company of other Common Stock, according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with
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the Participant or in any other form of legal consideration that may be
acceptable to the Board; provided, however, that at any time that the Company
is incorporated in Delaware, payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by
deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionee
only by the Optionee. Notwithstanding the foregoing provisions of this
subsection 6(e), the Optionee may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who,
in the event of the death of the Optionee, shall thereafter be entitled to
exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option shall be transferable to the extent provided in the Option
Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionee only by the Optionee.
Notwithstanding the foregoing provisions of this subsection 6(f), the
Optionee may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionee, shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments which may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionee's
Continuous Service terminates (other than upon the Optionee's death or
Disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination) but only
within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionee's Continuous Service (or such
longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionee does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Service (other than upon the Optionee's death or
Disability) would be prohibited at any time
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solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in
subsection 6(a) or (ii) the expiration of a period of three (3) months after
the termination of the Optionee's Continuous Service during which the
exercise of the Option would not be in violation of such registration
requirements.
(j) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Service terminates as a result of the Optionee's Disability, the Optionee may
exercise his or her Option (to the extent that the Optionee was entitled to
exercise it as of the date of termination), but only within such period of
time ending on the earlier of (i) the date twelve (12) months following such
termination (or such longer or shorter period specified in the Option
Agreement) or (ii) the expiration of the term of the Option as set forth in
the Option Agreement. If, after termination, the Optionee does not exercise
his or her Option within the time specified herein, the Option shall
terminate.
(k) DEATH OF OPTIONEE. In the event (i) an Optionee's Continuous
Service terminates as a result of the Optionee's death or (ii) the Optionee
dies within the period (if any) specified in the Option Agreement after the
termination of the Optionee's Continuous Service for a reason other than
death, then the Option may be exercised (to the extent the Optionee was
entitled to exercise the Option as of the date of death) by the Optionee's
estate, by a person who acquired the right to exercise the Option by bequest
or inheritance or by a person designated to exercise the option upon the
Optionee's death pursuant to subsection 6(e) or 6(f), but only within the
period ending on the earlier of (1) the date eighteen (18) months following
the date of death (or such longer or shorter period specified in the Option
Agreement) or (2) the expiration of the term of such Option as set forth in
the Option Agreement. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate.
(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time before the Optionee's Continuous
Service terminates 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 an unvested share repurchase option in
favor of the Company or to any other restriction the Board determines to be
appropriate.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change
from time to time, and the terms and conditions of separate stock bonus
agreements need not be identical, but each stock bonus agreement shall
include (through incorporation of provisions hereof by reference in the
agreement or otherwise) the substance of each of the following provisions:
(i) CONSIDERATION. A stock bonus shall be awarded in
consideration for past services actually rendered to the Company or for its
benefit.
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(ii) VESTING. Shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may
reacquire any or all of the shares of Common Stock held by the Participant
which have not vested as of the date of termination under the terms of the
stock bonus agreement.
(iv) TRANSFERABILITY. Rights to acquire shares under the stock bonus
agreement shall be transferable by the Participant only upon such terms and
conditions as are set forth in the stock bonus agreement, as the Board shall
determine in its discretion, so long as stock awarded under the stock bonus
agreement remains subject to the terms of the stock bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
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:
(i) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. The purchase price shall
not be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made or at the time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of stock acquired pursuant to
the restricted stock purchase agreement shall 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 Participant; or (iii) in any
other form of legal consideration that may be acceptable to the Board in its
discretion; provided, however, that at any time that the Company is incorporated
in Delaware, payment of the Common Stock's "par value," as defined in the
Delaware General Corporation Law, shall not be made by deferred payment.
(iii) VESTING. Shares of Common Stock acquired under the
restricted stock purchase agreement may, but need not, be subject to a share
repurchase option in favor of the Company in accordance with a vesting schedule
to be determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.
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(v) TRANSFERABILITY. Rights to acquire shares under the
restricted stock purchase agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the restricted stock
purchase agreement, as the Board shall determine in its discretion, so long
as stock awarded under the restricted stock purchase agreement remains
subject to the terms of the restricted stock purchase agreement.
(c) STOCK APPRECIATION RIGHTS.
(i) AUTHORIZED RIGHTS. The following three types of stock
appreciation rights shall be authorized for issuance under the Plan:
(1) TANDEM RIGHTS. A "Tandem Right" means a stock appreciation
right granted appurtenant to an Option which is subject to the same terms and
conditions applicable to the particular Option grant to which it pertains with
the following exceptions: The Tandem Right shall require the holder to elect
between the exercise of the underlying Option for shares of Common Stock and the
surrender, in whole or in part, of such Option for an appreciation distribution.
The appreciation distribution payable on the exercised the Tandem Right shall be
in cash (or, if so provided, in an equivalent number of shares of Common Stock
based on Fair Market Value on the date of the Option surrender) in an amount up
to the excess of (A) the Fair Market Value (on the date of the Option surrender)
of the number of shares of Common Stock covered by that portion of the
surrendered Option in which the Optionee is vested over (B) the aggregate
exercise price payable for such vested shares.
(2) CONCURRENT RIGHTS. A "Concurrent Right" means a stock
appreciation right granted appurtenant to an Option which applies to all or a
portion of the shares of Common Stock subject to the underlying Option and which
is subject to the same terms and conditions applicable to the particular Option
grant to which it pertains with the following exceptions: A Concurrent Right
shall be exercised automatically at the same time the underlying Option is
exercised with respect to the particular shares of Common Stock to which the
Concurrent Right pertains. The appreciation distribution payable on an
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of Common Stock based on Fair Market Value on the
date of the exercise of the Concurrent Right) in an amount equal to such portion
as determined by the Board at the time of the grant of the excess of (A) the
aggregate Fair Market Value (on the date of the exercise of the Concurrent
Right) of the vested shares of Common Stock purchased -under the underlying
Option which have Concurrent Rights appurtenant to them over (B) the aggregate
exercise price paid for such shares.
(3) INDEPENDENT RIGHTS. An "Independent Right" means a stock
appreciation right granted independently of any Option but which is subject to
the same terms and conditions applicable to a Nonstatutory Stock Option with the
following exceptions: An Independent Right shall be denominated in share
equivalents. The appreciation distribution payable on the exercised Independent
Right shall be not greater than an amount equal to the excess of (a) 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 (b) the aggregate Fair Market Value (on the
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date of the grant of the Independent Right) of such number of shares of
Company stock. The appreciation distribution payable on the exercised
Independent Right shall be in cash or, if so provided, in an equivalent
number of shares of Common Stock based on Fair Market Value on the date of
the exercise of the Independent Right.
(ii) RELATIONSHIP TO OPTIONS. Stock appreciation rights appurtenant
to Incentive Stock Options may be granted only to Employees. The "Section
162(m) Limitation" provided in subsection 5(c) and any authority to reprice
Options shall apply as well to the grant of stock appreciation rights.
(iii) EXERCISE. To exercise any outstanding stock appreciation
right, the holder shall provide written notice of exercise to the Company in
compliance with the provisions of the Stock Award Agreement evidencing such
right. Except as provided in subsection 5(c) regarding the "Section 162(m)
Limitation," no limitation shall exist on the aggregate amount of cash
payments that the Company may make under the Plan in connection with the
exercise of a stock appreciation right.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock Awards and to issue and sell shares of Common
Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any stock issued or issuable pursuant to any such
Stock Award. If, after reasonable efforts, the Company is unable to obtain from
any such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Stock Awards unless and until such authority is
obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. 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 in accordance
with the Plan, 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.
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(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Stock Award unless and until such Participant has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant or other holder of Stock Awards any right to continue to serve
the Company or an Affiliate in the capacity in effect at the time the Stock
Award was granted or shall affect the right of the Company or an Affiliate to
terminate (i) the employment of an Employee with or without notice and with or
without cause, (ii) the service of a Consultant pursuant to the terms of such
Consultant's agreement with the Company or an Affiliate or (iii) the service of
a Director pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionee during any calendar year (under all plans of the Company and its
Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring stock under any Stock Award, (i) to give
written assurances satisfactory to the Company as to the Participant's knowledge
and experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award; and (ii) to give written assurances
satisfactory to the Company stating that the Participant is acquiring the stock
subject to the Stock Award for the Participant's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (iii) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or (iv) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following
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means (in addition to the Company's right to withhold from any compensation
paid to the Participant by the Company) or by a combination of such means:
(i) tendering a cash payment; (ii) authorizing the Company to withhold shares
from the shares of the Common Stock otherwise issuable to the participant as
a result of the exercise or acquisition of stock under the Stock Award; or
(iii) delivering to the Company owned and unencumbered shares of the Common
Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Option, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation,
stock dividend, dividend in property other than cash, stock split,
liquidating dividend, combination of shares, exchange of shares, change in
corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan and the outstanding Options will be
appropriately adjusted in the class(es) and number of securities and price
per share of stock subject to such outstanding Options. Such adjustments
shall be made by the Board, the determination of which shall be final,
binding and conclusive. (The conversion of convertible securities, cashless
exercise of options and net exercise of warrants shall not be treated as
transactions "without receipt of consideration" by the Company.)
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; 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 11, at the sole discretion of the
Board and to the extent permitted by applicable law: (i) any surviving
corporation shall assume any Options outstanding under the Plan or shall
substitute similar Options 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. In the event any surviving
corporation or acquiring corporation refuses to assume such Options or to
substitute similar Options for those outstanding under the Plan, then with
respect to Options held by Optionees whose Continuous Service has not
terminated, the vesting shall be accelerated in full, and the Options shall
terminate if not exercised at or prior to such event. With respect to any
other Options outstanding under the Plan, such Options shall terminate 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
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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.
12. TIME OF GRANTING OPTIONS.
The date of grant of an Option shall, for all purposes, be the date on
which the Board makes the determination granting such Option. Notice of the
determination shall be given to each Employee or Consultant to whom an Option is
so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable.
(b) EFFECT OF AMENDMENT OR TERMINATION. Options granted before amendment
of the Plan shall not be impaired any amendment unless mutually agreed otherwise
between the Optionee and the Company, which agreement must be in writing and
signed by the Optionee and the Company.
14. SECURITIES LAW COMPLIANCE.
Notwithstanding any provisions relating to vesting contained herein or
in an Option, no Option granted hereunder may be exercised unless the shares
issuable upon exercise of such option are then registered under the
Securities Act of 1933, as amended.
15. RESERVATION OF SHARES.
The Company, during the term of this Plan, will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
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16. OPTION AGREEMENT.
Options shall be evidenced by written Option Agreements in such form
or forms as the Board or the Committee shall approve.
17. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder
approval is necessary to satisfy the requirements of Section 422 of the Code,
Rule 16b-3 or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. 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 thereunder
regarding the exclusion of performance-based compensation from the limit on
corporate deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
18. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Rights and obligations under any Stock
Award granted while the Plan is in effect shall not be impaired by suspension or
termination of the Plan, except with the written consent of the Participant.
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19. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been approved by the stockholders of the Company,
which approval shall be within twelve (12) months before or after the date the
Plan is adopted by the Board.
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WIND RIVER SYSTEMS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 25, 1998
The undersigned hereby appoints Ronald A. Abelmann and Richard W.
Kraber, and each of them, as attorneys and proxies of the undersigned, with
full power of substitution, to vote all of the shares of stock of Wind River
Systems, Inc. which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of Wind River Systems, Inc. to be held at 980
Atlantic Avenue, Alameda, California on June 25, 1998 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.
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.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect directors to hold office until the next Annual Meeting of
Stockholders and until their successors are elected.
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees
below). listed below.
NOMINEES: Jerry L. Fiddler, Ronald A. Abelmann, 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2, 3 AND 4.
PROPOSAL 2: To approve an amendment to the Company's Restated Certificate of
Incorporation, as amended, to increase the authorized number of
shares of Common Stock from 75,000,000 to 125,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED ON OTHER SIDE)
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PROPOSAL 3: To approve the Company's 1998 Equity Incentive Plan and the issuance
of 1,000,0000 shares of Common Stock thereunder.
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 4: To ratify selection of Price Waterhouse LLP as independent
accountants of the Company for its fiscal year ending January 31,
1999.
/ / FOR / / AGAINST / / ABSTAIN
DATED _________________ ________________________________________________
________________________________________________
SIGNATURE(S)
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON.
IF THE STOCK IS REGISTERED IN THE NAMES OF TWO
OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS,
ADMINISTRATORS, TRUSTEES, GUARDIANS AND
ATTORNEYS-IN-FACT SHOULD ADD THEIR TITLES. IF
SIGNER IS A CORPORATION, PLEASE GIVE FULL
CORPORATE NAME AND HAVE A DULY AUTHORIZED
OFFICER SIGN, STATING TITLE. IF SIGNER IS A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
2
