<PAGE>
AMERICAN POWER CONVERSION CORPORATION
P.O. Box 278
132 Fairgrounds Road
West Kingston, RI 02892
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders:
The Annual Meeting of Shareholders of American Power Conversion
Corporation, a Massachusetts corporation (the "Company"), will be held on
Friday, May 7, 1999 at 10:00 a.m., local time, in the University Ballroom of the
Radisson Airport Hotel located at 2081 Post Road, Warwick, Rhode Island 02886
for the following purposes:
1. To fix the number of directors at five.
2. To elect a Board of Directors for the ensuing year.
3. To consider and approve an amendment of the Company's Articles of
Organization to increase the number
of authorized shares of Common Stock from 200,000,000 shares to 450,000,000
shares.
4. To consider and approve an amendment of the Company's 1997 Stock Option
Plan to increase the
aggregate number of shares of Common Stock authorized for issuance under
the 1997 Stock Option Plan from 6,000,000 shares to 12,000,000 shares.
5. To transact such other business as may properly come before the meeting and
any adjournments thereof.
Shareholders of record at the close of business on March 12, 1999 will be
entitled to vote at the meeting or any adjournments thereof.
IF YOU PLAN TO ATTEND:
Please be aware that seating may be limited. Registration and seating will
begin at 9:00 a.m. Please bring valid picture identification, such as a driver's
license or passport. You may be required to provide this upon entry to the
meeting. Shareholders holding stock in brokerage accounts ("street name"
holders) will also need to bring a copy of a brokerage statement reflecting
stock ownership as of the record date. Cameras, recording devices and other
electronic devices will not be permitted at the meeting.
By Order of the Board of Directors,
Emanuel E. Landsman,
Clerk
March 25, 1999
SHAREHOLDERS ARE REQUESTED TO SIGN THE ENCLOSED PROXY CARD AND RETURN
IT IN THE ENCLOSED STAMPED ENVELOPE BY RETURN MAIL.
<PAGE>
AMERICAN POWER CONVERSION CORPORATION
P.O. Box 278
132 Fairgrounds Road
West Kingston, RI 02892
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
To Be Held on May 7, 1999
Proxies in the form enclosed with this proxy statement are solicited by the
Board of Directors of American Power Conversion Corporation, a Massachusetts
corporation (the "Company"), for use at the Annual Meeting of Shareholders to be
held on Friday, May 7, 1999 at 10:00 a.m., local time, in the University
Ballroom of the Radisson Airport Hotel located at 2081 Post Road, Warwick, Rhode
Island 02886 (the "Meeting").
Only shareholders of record as of the close of business on March 12, 1999
will be entitled to vote at the Meeting and any adjournments thereof. As of that
date, [__________] shares of Common Stock, par value $.01 per share, of the
Company were issued and outstanding. Each share of Common Stock outstanding as
of the record date will be entitled to one vote, and shareholders may vote in
person or by proxy. Execution of a proxy will not in any way affect a
shareholder's right to attend the Meeting and vote in person. Any shareholder
giving a proxy has the right to revoke it by delivering written notice to the
Clerk of the Company at any time before it is exercised or by delivering a later
executed proxy to the Clerk of the Company at any time before the original proxy
is exercised.
Each of the persons named as proxies in the proxy is a director and officer
of the Company. All properly
executed proxies returned in time to be cast at the Meeting will be voted. With
respect to the election of a Board of Directors, any shareholder submitting a
proxy has the right to withhold authority to vote for any individual nominee to
the Board of Directors by writing the name of such individual or group of
individuals in the space provided on the proxy. In addition to the election of
directors, the shareholders will consider and vote upon proposals to: (i) fix
the number of directors at five; (ii) amend the Company's Articles of
Organization to increase the number of authorized shares of Common Stock from
200,000,000 shares to 450,000,000 shares; and (iii) amend the Company's 1997
Stock Option Plan to increase the aggregate number of shares of Common Stock
authorized for issuance under the 1997 Stock Option Plan from 6,000,000 shares
to 12,000,000 shares. All proxies will be voted in accordance with shareholders'
instructions, and if no choice is specified, the shares represented by the
enclosed proxy will be voted FOR each of the matters set forth in the
accompanying Notice of Meeting.
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote at the Meeting is necessary
to establish a quorum for the transaction of business. Votes withheld from any
nominee, abstentions and broker non-votes are counted as present or represented
for purposes of determining the presence or absence of a quorum at the Meeting.
A "non-vote" occurs when a broker holding shares for a beneficial owner votes on
one proposal, but does not vote on another proposal because, with respect to
such other proposal, the broker does not have discretionary voting power and has
not received instructions from the beneficial owner. Directors are elected by a
plurality of the votes cast by shareholders entitled to vote at the Meeting.
Amendment of the Company's Articles of Organization requires the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock of
the Company entitled to vote at the Meeting. All other matters being submitted
to shareholders require the affirmative vote of a majority of the shares of
Common Stock of the Company present in person or represented by proxy and
entitled to vote at the Meeting. An automated system administered by the
Company's transfer agent tabulates the votes. The vote on each matter submitted
to shareholders is tabulated separately. Abstentions are included in the number
of shares present or represented and voting on each matter. Broker Onon-voteO
shares are not so included.
The Board of Directors knows of no other matter to be presented at the
Meeting. If any other matter should be presented at the Meeting upon which a
vote may be properly taken, shares represented by all proxies received by the
Board of Directors will be voted with respect thereto in accordance with the
judgment of the persons named as attorneys in the proxies.
An Annual Report to Shareholders, containing financial statements for the
fiscal year ended
December 31, 1998, is being mailed together with this proxy statement to all
shareholders entitled to vote. This proxy statement and the accompanying proxy
were first mailed to shareholders on or about March 25, 1999.
<PAGE>
MANAGEMENT AND PRINCIPAL HOLDERS OF VOTING SECURITIES
Unless otherwise noted, the following table sets forth as of February 22,
1999, certain information regarding beneficial ownership of the Company's Common
Stock (i) by each person who, to the knowledge of the Company, beneficially
owned more than 5% of the outstanding shares of Common Stock of the Company
outstanding at such date, (ii) by each director or nominee for director of the
Company, (iii) by each executive officer named in the Summary Compensation Table
in this proxy statement, and (iv) by all directors, nominees for director and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percentage of Common
of Beneficial Owner of Beneficial Ownership(1) Stock Outstanding(2)
<S> <C> <C> <C>
Putnam Investments, Inc. 6,446,760 (3) 6.7%
One Post Office Square
Boston, MA 02109
FMR Corp. 5,567,955 (4) 5.8%
82 Devonshire Street
Boston, MA 02109
American Power Conversion 4,731,788 (5) 4.9%
Corporation Employee Stock
Ownership Plan
P.O. Box 278
132 Fairgrounds Road
West Kingston, RI 02892
Rodger B. Dowdell, Jr. 9,406,299 (6) 9.8%
American Power Conversion
Corporation
P.O. Box 278
132 Fairgrounds Road
West Kingston, RI 02892
Neil E. Rasmussen 5,082,358 (7) 5.3%
APC America, Inc.
755 Middlesex Turnpike
Billerica, MA 01862
Emanuel E. Landsman 1,389,567 (8) 1.4%
APC America, Inc.
755 Middlesex Turnpike
Billerica, MA 01862
James D. Gerson 285,988 (9) *
c/o Hudson Capital
780 Third Avenue
New York, NY 10017
Ervin F. Lyon 613,890 (10) *
270 North Haverhill Road
Kensington, NH 03833-5503
Edward W. Machala 69,406 (11) *
APC America, Inc.
P.O. Box 278
132 Fairgrounds Road
West Kingston, RI 02892
<PAGE>
David P. Vieau 65,065 (12) *
American Power Conversion
Corporation
P.O. Box 278
132 Fairgrounds Road
West Kingston, RI 02892
Donald M. Muir 38,615 (13) *
APC America, Inc.
P.O. Box 278
132 Fairgrounds Road
West Kingston, RI 02892
All directors and 17,045,268 (14) 17.7%
executive officers as
a group (9 persons)
</TABLE>
*Less than 1.0%
(1) Unless otherwise indicated, the named person possesses sole voting and
investment power with respect to the shares listed.
(2) The number of shares of Common Stock deemed outstanding on February 22,
1999 includes (i) 96,004,779 shares outstanding on such date and (ii) all
options that are currently exercisable or will become exercisable within 60
days thereafter by the person or group in question.
(3) Represents shares deemed to be beneficially owned by Putnam Investments,
Inc., as the parent corporation to Putnam Investment Management, Inc., and
the Putnam Advisory Company, Inc. Putnam Investments, Inc. is itself a
wholly owned subsidiary of Marsh & McLennan Companies, Inc. The
information stated above was as of December 31, 1998 and was obtained by
the Company from a filing made with the Securities and Exchange Commission
pursuant to Section 13(g) of the Securities and Exchange Act of 1934, as
amended.
(4) Represents shares deemed to be beneficially owned by FMR Corp., as the
parent corporation to Fidelity Management & Research Company and Fidelity
Management Trust Company. The information stated above was as of December
31, 1998, and was obtained by the Company from a filing made with the
Securities and Exchange Commission pursuant to Section 13(g) of the
Securities and Exchange Act of 1934, as amended.
(5) As of December 31, 1998, the Company's Employee Stock Ownership Plan (the
"ESOP") held an aggregate of 4,731,788 shares, of which approximately
4,660,375 shares were allocated to participants' accounts and 71,413 shares
remained unallocated. Final allocations are not calculated until the
second quarter of each fiscal year for the applicable period. Under the
terms of the ESOP Trust, established pursuant to the terms of the ESOP, the
trustees must vote the allocated shares in accordance with the instructions
of the participant employees. Any shares with respect to which voting
instructions have been sought, but not timely received, are not voted by
the trustees.
(6) Includes 50,706 shares of Common Stock issuable to Mr. Dowdell pursuant to
options which may be exercised within the next 60 days and 375,826 shares
of Common Stock currently allocated to Mr. Dowdell under the Company's
ESOP. Does not include any shares held by the ESOP other than the shares
allocated to Mr. Dowdell's account. The ESOP currently holds an aggregate
of 4,731,788 shares. Mr. Dowdell is a trustee of the ESOP and, as such, may
be deemed to be a beneficial owner of the shares currently held by it. Mr.
Dowdell disclaims beneficial ownership of such shares, other than the
shares allocated to him. Also includes 255 shares currently held by Mr.
Dowdell under the Company's 401(k) Plan.
(7) Includes 17,625 shares of Common Stock issuable to Mr. Rasmussen pursuant
to options which may be exercised within the next 60 days and 303,762
shares of Common Stock currently allocated to Mr. Rasmussen under the
Company's ESOP. Does not include any shares held by the ESOP other than the
shares allocated to Mr. Rasmussen's account. The ESOP currently holds an
aggregate of 4,731,788 shares.
<PAGE>
Mr. Rasmussen is a trustee of the ESOP and, as such, may be deemed to be a
beneficial owner of the shares currently held by it. Mr. Rasmussen
disclaims beneficial ownership of such shares, other than the shares
allocated to him. Also includes 99 shares currently held by Mr. Rasmussen
under the Company's 401(k) Plan. Does not include 69,212 shares held by the
Neil and Anna Rasmussen Foundation, a charitable trust. Mr. Rasmussen
disclaims beneficial ownership of the shares held by such trust.
(8) Includes 1,875 shares of Common Stock issuable to Dr. Landsman pursuant to
options which may be exercised within the next 60 days; 126,430 shares of
Common Stock currently allocated to Dr. Landsman under the Company's ESOP;
and 213 shares currently held by Dr. Landsman under the Company's 401(k)
Plan. Does not include 10,000 shares held by a trust for the benefit of
certain family members or 70,000 shares held by the Landsman Charitable
Trust. Dr. Landsman disclaims beneficial ownership of the shares held by
such trusts.
(9) Includes 20,000 shares of Common Stock issuable to Mr. Gerson pursuant to
options which may be exercised within the next 60 days. Does not include
4,000 shares held by Mr. Gerson's wife for the benefit of his children. Mr.
Gerson disclaims beneficial ownership of the shares held by his wife for
the benefit of his children.
(10) Includes 20,000 shares of Common Stock issuable to Dr. Lyon pursuant to
options which may be exercised within the next 60 days. Does not include
49,742 shares held by a trust for the benefit of Dr. Lyon's daughter. Dr.
Lyon disclaims beneficial ownership of the shares held by such trust.
(11) Includes 22,441 shares of Common Stock issuable to Mr. Machala pursuant to
options which may be exercised within the next 60 days and 46,666 shares of
Common Stock currently allocated to Mr. Machala under the Company's ESOP.
Does not include any shares held by the ESOP other than the shares
allocated to Mr. Machala's account. The ESOP currently holds an aggregate
of 4,731,788 shares. Mr. Machala is a trustee of the ESOP and, as such, may
be deemed to be a beneficial owner of the shares currently held by it. Mr.
Machala disclaims beneficial ownership of such shares, other than the
shares allocated to him. Also includes 99 shares currently held by Mr.
Machala under the Company's 401(k) Plan.
(12) Includes 18,353 shares of Common Stock issuable to Mr. Vieau pursuant to
options which may be exercised within the next 60 days; 8,457 shares of
Common Stock currently allocated to Mr. Vieau under the Company's ESOP; and
294 shares currently held by Mr. Vieau under the Company's 401(k) Plan.
(13) Includes 18,499 shares of Common Stock issuable to Mr. Muir pursuant to
options which may be exercised within the next 60 days; 1,336 shares of
Common Stock currently allocated to Mr. Muir under the Company's ESOP; and
425 shares currently held by Mr. Muir under the Company's 401(k) Plan.
(14) Includes 188,919 shares issuable to certain officers and directors of the
Company pursuant to options which may be exercised within the next 60 days;
877,945 shares allocated to the accounts of the officers of the Company
under the Company's ESOP; and 1,666 shares held by the accounts of the
officers of the Company under the Company's 401(k) Plan. Also see footnotes
(6) through (13).
PROPOSALS NOs. 1 & 2: NUMBER AND ELECTION OF DIRECTORS
At the Meeting, the shareholders will vote on fixing the number of
directors at five and electing the entire Board of Directors. The directors of
the Company are elected annually and hold office until the next annual meeting
of shareholders and until their successors shall have been elected and
qualified.
Shares represented by all proxies received by the Board of Directors and
not so marked as to oppose or abstain from voting on fixing the number of
directors will be voted for fixing the number of directors for the ensuing year
at five.
Shares represented by all proxies received by the Board of Directors and
not so marked as to withhold authority to vote for any individual director or
for all directors will be voted (unless one or more nominees is unable or
unwilling to serve) for the election of the nominees named in the table below.
The Board of Directors knows of no reason why any such nominee should be unable
or unwilling to serve, but if such should be the case, proxies will be voted for
the election of some other person or for fixing the number of directors at a
lesser number.
All of the nominees are currently directors of the Company and were elected at
the Annual Meeting of Shareholders held on May 1, 1998. The following table sets
forth the year each nominee first became a director of the Company, each
nominee's age, and the positions each nominee currently holds with the Company.
<PAGE>
<TABLE>
<CAPTION>
Nominee Director Since Age Position(s) Held withCompany
<S> <C> <C> <S>
Rodger B. Dowdell, Jr. 1985 49 Chairman of the Board of Directors,
President and
Chief Executive Officer
Emanuel E. Landsman 1981 62 Director, Vice President and Clerk
Neil E. Rasmussen 1981 44 Director, Vice President and Chief
Technical Officer
Ervin F. Lyon (1)(2) 1981 63 Director
James D. Gerson (1)(2) 1988 55 Director
</TABLE>
_______________________________________
(1) Member, Compensation and Stock Option Committee
(2) Member, Audit Committee
The By-laws of the Company provide that each director is elected to hold
office until the next annual meeting of shareholders, and until his successor is
chosen and qualified. The officers of the Company are elected annually at the
first meeting of the Board of Directors following the annual meeting of
shareholders, and hold office until their respective successors are chosen and
qualified.
Rodger B. Dowdell, Jr. joined the Company in August 1985 and has been
President and a Director since that time. From January to August 1985, Mr.
Dowdell worked for the Company as a consultant, developing a marketing and
production strategy for uninterruptible power supply products. From 1978 to
December 1984 he was President of Independent Energy, Inc., a manufacturer of
electronic temperature controls.
Emanuel E. Landsman has been Vice President, Clerk and a Director of the
Company since its inception. From 1966 to 1981, Dr. Landsman worked at
Massachusetts Institute of Technology's Lincoln Laboratory ("M.I.T."), where he
was in the Space Communications Group from 1966 to 1977 and the Energy Systems
Engineering Group from 1977 to 1981.
Neil E. Rasmussen became Chief Technical Officer of the Company in 1997,
and has been Vice President and a Director of the Company since its inception.
From 1979 to 1981, Mr. Rasmussen worked in the Energy Systems Engineering Group
at M.I.T.'s Lincoln Laboratory.
Ervin F. Lyon has been a Director of the Company since its inception. From
September 1986 to March 1993, Dr. Lyon worked for M.I.T's Lincoln Laboratory,
from which he retired in March 1993. From the inception of the Company through
August 1985, Dr. Lyon was President and Chairman of the Company. From 1977 to
1981, Dr. Lyon was a member of the technical staff at M.I.T's Lincoln
Laboratory.
James D. Gerson has been a Director of the Company since August 1988. Mr.
Gerson has been Senior Vice President of Fahnestock & Co. for more than five
years and is currently the Portfolio Manager of the Hudson Capital Appreciation
Fund, a mutual fund. Mr. Gerson is also a member of the Board of Directors of Ag
Services of America, Inc., Arguss Holdings Inc. (formerly known as Conceptronic,
Inc.), Energy Research Corporation, and Hilite Industries, Inc.
There are no family relationships between directors and executive officers
of the Company, except that Mr. Dowdell is the uncle of Aaron L. Davis, Vice
President of Marketing and Communications.
THE BOARD OF DIRECTORS BELIEVES THAT FIXING THE NUMBER OF DIRECTORS
AT FIVE AND ELECTING ALL OF THE NOMINEES AS DIRECTORS IS IN THE BEST
INTEREST OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE
FOR THESE PROPOSALS.
Meetings of the Board of Directors and Committees
The Board of Directors met 5 times and took action by unanimous written
consent 2 times during the fiscal year ended December 31, 1998.
<PAGE>
The Company's Compensation and Stock Option Committee, comprised of Messrs.
Gerson and Lyon, met 4 times and took action by unanimous written consent 1 time
during the fiscal year ended December 31, 1998. The Compensation and Stock
Option Committee makes recommendations to the Board of Directors regarding
compensation and benefits for employees, consultants and directors of the
Company, determines the compensation of executive officers and is responsible
for the administration of the Company's 1987 Stock Option Plan, 1993 Non-
Employee Director Stock Option Plan, 1997 Stock Option Plan, 1997 Non-Employee
Director Stock Option Plan and 1997 Employee Stock Purchase Plan.
The Company's Audit Committee, comprised of Messrs. Gerson and Lyon, met 1
time during the fiscal year ended December 31, 1998. The Audit Committee
oversees the accounting, tax and financial functions of the Company, including
matters relating to the appointment and activities of the Company's auditors.
The Company does not currently have a standing Nominating Committee.
During the fiscal year ended December 31, 1998, all of the directors
attended all of the meetings held by the Board of Directors, and all of the
members of the Compensation and Stock Option Committee and the Audit Committee
attended all of the meetings of such committees.
Compensation of Directors
As compensation for serving on the Board of Directors, each non-employee
director is paid $20,000 per year and $1,500 for each meeting attended. Non-
employee directors are also reimbursed for reasonable expenses incurred while
attending meetings.
On February 25, 1993, the Board of Directors of the Company adopted the
1993 Non-Employee Director Stock Option Plan (the "1993 Director Plan"), subject
to approval by the Company's shareholders, which approval was granted on May 20,
1993. The 1993 Director Plan provides for a one-time grant of a stock option to
purchase 20,000 shares of Common Stock to each member of the Company's Board of
Directors who is neither an employee nor officer of the Company. An option was
granted to each of Messrs. Gerson and Lyon, the two members of the Board of
Directors entitled to participate in the 1993 Director Plan. Such options have
an exercise price of $12.00 per share, the "fair market value" which is
determined as of the last business day for which prices were available prior to
the date of the option grant and is the last reported sale price (on that date)
of the Common Stock on the NASDAQ Stock Market. Each director can currently
exercise an option to purchase up to 20,000 shares of Common Stock under the
1993 Director Plan.
On February 12, 1997, the Board of Directors of the Company adopted the
1997 Non-Employee Director Stock Option Plan (the "1997 Director Plan"), subject
to approval by the Company's shareholders, which approval
was granted on April 21, 1997. The 1997 Director Plan authorized the grant on
April 21, 1997 and each February 12th thereafter, of an option to purchase
10,000 shares of Common Stock to each member of the Company's Board
of Directors who is neither an employee nor officer of the Company.
Accordingly, options were granted on April 21, 1997, February 12, 1998 and
February 12, 1999 to each of Messrs. Gerson and Lyon, the two members of the
Board of Directors entitled to participate in the 1997 Director Plan. Such
options have exercise prices of $21.75, $28.50, and $39.875 per share,
respectively, the "fair market value" which is determined as of the last
business day for which prices were available prior to the date of the option
grant and is the last reported sale price (on that date) of the Common Stock on
the NASDAQ Stock Market. None of the options granted to each of the two
participants under the 1997 Director Plan are currently exercisable.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
services in all capacities to the Company for the fiscal years ended December
31, 1998, 1997 and 1996, of those persons who were at
December 31, 1998 (i) the chief executive officer and (ii) the other four most
highly compensated executive officers of the Company (the "Named Officers").
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Annual Compensation(1) Award(2)
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus(3) Options/SARs Comp
<S> <C> <C> <C> <C> <C>
Rodger B. Dowdell, Jr. 1998 $499,000 $443,112 0 $8,523(4)
Chairman of the Board of 1997 499,000 443,112 0 4,872(4)
Directors, President and 1996 398,000 398,000 0 24,980(4)
Chief Executive Officer
Neil E. Rasmussen 1998 289,000 256,632 0 5,360(5)
Director, Vice President and 1997 289,000 256,632 0 2,000(5)
Chief Technical Officer 1996 259,000 259,000 0 24,350(5)
Edward W. Machala 1998 289,000 256,632 0 5,030(6)
Director, Vice President, 1997 289,000 256,632 0 1,660(6)
Operations and Treasurer 1996 259,000 259,000 0 24,030(6)
David P. Vieau 1998 289,000 256,632 0 8,755(7)
Vice President, Worldwide 1997 289,000 256,632 0 2,033(7)
Business Development 1996 145,000 181,250 0 23,440(7)
Donald M. Muir 1998 240,000 213,120 0 8,377(8)
Vice President, Finance and 1997 240,000 213,120 0 24,248(8)
Administration, and Chief 1996 165,000 165,000 0 47,852(8)
Financial Officer
</TABLE>
______________________________________
(1) Excludes perquisites and other personal benefits, the aggregate annual
amount of which for each officer was less than the lesser of $50,000 or
10% of the total salary and bonus reported.
(2) The Company did not grant any restricted stock awards or stock
appreciation rights ("SARs") or make any long term incentive plan payouts
during the fiscal years ended December 31, 1998, 1997 and 1996.
(3) Includes bonus payments earned by the Named Officers in the year
indicated, for services rendered in such year, which were paid in the
subsequent year.
(4) Includes $22,500, the market value of the shares of Common Stock
contributed to the ESOP on behalf of Mr. Dowdell for fiscal year ended
December 31, 1996; $3,020, $2,720 and $2,480, respectively, in premiums on
a term life insurance policy for Mr. Dowdell's benefit for fiscal years
ended
December 31, 1998, 1997 and 1996; and $5,503 contributed to Mr. Dowdell's
account by the Company pursuant to the 401(k) Plan for fiscal year ending
December 31, 1998.
(5) Includes $22,500, the market value of the shares of Common Stock
contributed to the ESOP on behalf of Mr. Rasmussen for fiscal year ended
December 31, 1996; $2,160, $2,000 and $1,850, respectively, in premiums on
a term life insurance policy for Mr. Rasmussen's benefit for fiscal years
ended
December 31, 1998, 1997 and 1996; and $3,200 contributed to Mr. Rasmussen's
account by the Company pursuant to the 401(k) Plan for the fiscal year
ending December 31, 1998.
(6) Includes $22,500, the market value of the shares of Common Stock
contributed to the ESOP on behalf of Mr. Machala for fiscal year ended
December 31, 1996; $1,830, $1,660 and $1,530, respectively, in premiums on
a term life insurance policy for Mr. for Machala's benefit fiscal years
ended
December 31, 1998, 1997 and 1996; and $3,200 contributed to Mr. Machala's
account by the Company pursuant to the 401(k) Plan for the fiscal year
ending December 31, 1998.
(7) Includes $22,500, the market value of the shares of Common Stock
contributed to the ESOP on behalf of Mr. Vieau for fiscal year ended
December 31, 1996; $755, $695 and $940, respectively, in premiums on a
term life insurance policy for Mr. Vieau's benefit for fiscal years ended
December 31, 1998, 1997 and 1996; and $8,000 contributed to Mr. Vieau's
account by the Company pursuant to the Company's 401(k) Plan for fiscal
year ending December 31, 1998.
<PAGE>
(8) Includes $22,500, the market value of the shares contributed to the ESOP
on behalf of Mr. Muir for fiscal year ending December 31, 1996; $377,
$1,353 and $1,352, respectively, in premiums on a term life insurance
policy for Mr. Muir's benefit for fiscal years ended December 31, 1998,
1997 and 1996; $5,550 and $8,750 of relocation assistance for fiscal years
ending December 31, 1997 and 1996; and $8,000 contributed to Mr. Muir's
account by the Company pursuant to the Company's 401(k) Plan for fiscal
year ending December 31, 1998.
Option Grants in the Last Fiscal Year
The following table sets forth grants of stock options pursuant to the
Company's 1997 Stock Option Plan granted during the fiscal year ended December
31, 1998 to the Named Officers. The Company did not grant any
stock appreciation rights to the Named Officers during the fiscal year ended
December 31, 1998.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants(1) for Option Term(2)
Number Percent of Total Exercise
of Options Granted or Base
Options to Employees in Price Expiration
Name Granted Fiscal Year Per Share Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Rodger B.
Dowdell, Jr. 105,176 4.38% 32.19 5/1/2008 $2,032,662 $5,241,930
2,824 0.12% 35.41 5/1/2003 45,488 131,657
Neil E.
Rasmussen 43,000 1.79% 32.19 5/1/2008 831,031 2,143,103
Edward W.
Machala 43,000 1.79% 32.19 5/1/2008 831,031 2,143,103
David P. Vieau 43,000 1.79% 32.19 5/1/2008 831,031 2,143,103
Donald M. Muir 36,000 1.50% 32.19 5/1/2008 695,747 1,794,226
</TABLE>
_______________________________________
(1) All options were granted by the Compensation and Stock Option Committee at
"fair market value," which is determined as of the last business day for which
prices were available prior to the date of the option grant and is the last
reported sale price (on that date) of the Common Stock on the NASDAQ Stock
Market; however, pursuant to the 1997 Stock Option Plan, certain options
granted to Mr. Dowdell as a greater than 10% shareholder were granted at 110%
of the "fair market value" on the date of grant.
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their term
assuming the specified compounded rates of appreciation (5% and 10%) on the
market value of the Companys Common Stock on the date of option grant over the
term of the options. These number are calculated based on rules promulgated by
the Securities and Exchange Commission and do not reflect the Company estimate
of future stock price growth. Actual gains, if any, on stock option exercises
and Common Stock holdings are dependent on the timing of such exercise and the
future performance of the Company Common Stock. There can be no assurance that
the rates of appreciation assumed in this table can be achieved or that the
amounts reflected will be received by the individuals.
Option Exercises and Fiscal Year-End Values
The following table sets forth information with respect to options to
purchase the Company's Common Stock granted under the 1987 Stock Option Plan and
the 1997 Stock Option Plan including (i) the number of shares purchased upon
exercise of options in 1998, (ii) the net value realized upon such exercise,
(iii) the number of unexercised options outstanding at December 31, 1998 and
(iv) the value of such unexercised options at December 31, 1998:
<PAGE>
<TABLE>
<CAPTION>
Number of Number of Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired on Value December 31, 1998 December 31, 1998(1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Rodger B.
Dowdell, Jr. - - 32,250 204,750 $924,143 $4,518,341
Neil E.
Rasmussen - - 11,750 78,250 340,016 1,718,797
Edward W.
Machala - - 19,067 95,023 623,298 2,440,053
David P.
Vieau - - 15,228 82,792 486,002 1,988,847
Donald M.
Muir 18,415 $313,801 15,374 82,161 491,039 2,123,134
</TABLE>
________________________________________
(1) Value is based on the difference between option exercise price and the
fair market value at
December 31, 1998 ($48.438 per share closing price as quoted on The NASDAQ
Stock Market) multiplied by the number of shares underlying the option.
<PAGE>
AMERICAN POWER CONVERSION CORPORATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive officer compensation policy is administered by the
Compensation and Stock Option Committee of the Board of Directors (the
"Compensation Committee"). The Compensation Committee is comprised of the
Company's two non-employee directors. Pursuant to the authority delegated by the
Board of Directors, the Compensation Committee establishes each year the
compensation of senior management.
General Compensation Philosophy
The Company's executive compensation philosophy is based on the belief that
competitive compensation is essential to attract, motivate and retain highly
qualified and effective leaders. The Company's philosophy is to provide a total
compensation opportunity that matches competitive standards for commensurate
performance. The compensation policy includes various components of compensation
that are intended to align management behaviors and priorities directly with the
Company's strategic objectives and to encourage management to act in the best
long-term interest of the Company and its shareholders. Annual cash bonuses are
included to encourage effective performance relative to the Company's current
plans and objectives. Stock options are included to promote longer-term focus,
to help retain key contributors, and to more closely align the executives'
interests with those of shareholders.
The Compensation Committee's executive compensation policy is designed to
achieve the following objectives: (i) enhance profitability of the Company and
shareholder value, (ii) align compensation with the Company's annual and long-
term performance goals, (iii) reward above-average long-term corporate
performance, (iv) structure executive performance measures to emphasize team
achievement, (v) reinforce individual growth in leadership capabilities and
contribution over an individual's career, and (vi) encourage long-term
retention.
Executive Officer Compensation Policy
The Company's executive officer compensation policy generally consists of
three elements: base salary, annual cash bonus and long-term incentive
compensation in the form of stock options.
Cash Compensation
Annual cash compensation consists of two elements: base salary and annual
cash bonus. Each officer is offered a base salary that is commensurate for the
role that he or she is performing. In setting the annual cash compensation for
Company executive officers (other than the Chief Executive Officer), the
Compensation Committee reviews compensation for comparable positions in a group
of companies selected by the Compensation Committee for comparison purposes.
Most of these companies are engaged in the manufacture and sale of computer
hardware, peripherals and components, and are industry peers, competitors, and
those successful organizations that the Company wishes to emulate. The Company
also regularly compares its compensation practices with other leading companies
through reviews of benchmark surveys and proxy data.
Increases in annual base salary are based on a periodic review and
evaluation of the performance of the operation or function for which the
executive has responsibility, and is measured against defined performance
criteria. The executive is also reviewed according to his or her competence as
an effective leader in the Company, which includes an evaluation of the skills
and experience required for the job, coupled with a comparison of these elements
with similar elements for other executives both within and outside of the
Company.
The annual cash bonus is tied directly to the attainment of financial
performance targets approved by the Compensation Committee. The bonus is
designed to promote world class performance by setting incentive thresholds at
aggressive levels and by providing highly leveraged award funding on the upside.
The ratio of bonus ("variable" pay) to base salary ("fixed" pay) varies
significantly across the levels in the organization and reflects the ability of
the individual to impact the performance of the Company and to absorb the risk
of variable pay. At the executive officer level, the cash bonus is dependent
solely on corporate performance.
The purpose of the cash bonus is to recognize and reward the contribution
of all executives in achieving or exceeding the Company's established goals and
objectives. In fiscal 1998 the cash bonus provided for an annual payment based
on the weighted average of the Company's annual revenue and net income growth
rates over the prior year. The annual cash incentive is set currently at a
target of 60% of executive base salary. Corresponding to the level of actual
total company revenue and net income growth rate achieved, the cash bonus is
calculated as a multiple of base salary, ranging from zero to a maximum of 150%.
<PAGE>
The Chief Executive Officer's employment agreement provides that his cash
compensation shall be in accordance with standards for chief executive officers
of similar size companies. After determining appropriate salary and bonus, then
reviewing it against data from peer comparison companies (defined as those with
sustained high growth in sales, net income and EPS, with a range of one-half to
two times the Company's annual revenues), the Compensation Committee believes
the Chief Executive Officer's cash compensation is commensurate with his
individual and organizational performance.
Long-term Incentive Compensation
Incentive compensation in the form of stock options is designed to provide
long-term incentives to executive officers (including the Chief Executive
Officer) and other employees, to encourage the executive officers and other
employees to remain with the Company and to enable optionees to develop and
maintain a significant, long-term stock ownership position in the Company's
Common Stock. The Company's 1997 Stock Option Plan, administered by the
Compensation Committee, is the vehicle for the granting of stock options.
The 1997 Stock Option Plan permits the Compensation Committee to grant
stock options to eligible employees, including executive officers. During 1998,
the Compensation Committee granted stock options to various employees. Options
become exercisable based upon a vesting schedule tied to years of service. The
value realizable from exercisable options is dependent upon the extent to which
the Company's performance is reflected in the market price of the Company's
Common Stock at any particular point in time.
During 1998, the Compensation Committee granted options potentially
exercisable for a combined total of 318,000 shares of Common Stock to seven
executive officers (including the Chief Executive Officer). The exercise price
is equal to the "fair market value," which is determined as of the last business
day for which prices were available prior to the date of the option grant and is
the last reported sale price (on that date) of the Common Stock on the NASDAQ
Stock Market. The options granted to each executive officer become exercisable
ratably over the next four years subject to his or her continued employment with
the Company.
The Company also maintains an ESOP in which all executives participate on
the same terms as eligible non-executive employees, subject to any legal
limitations on the amounts that may be contributed or the benefits that may be
payable under the ESOP. The ESOP's assets are invested exclusively in the
Company's Common Stock so as to further align employees' and shareholders' long-
term financial interests. The Board of Directors approves the contributions to
the ESOP. The Company did not make any contribution to the ESOP for fiscal 1998.
In 1997 the Company developed a similar vehicle for employees in Ireland, and
for fiscal year 1997 made a locally competitive contribution. The Company did
not make any contribution to the Irish ESOP for fiscal 1998.
In 1997, the Company developed and implemented a 401(k) savings program, in
which all executive and non-executive U.S.-based employees who meet applicable
criteria are eligible to participate, subject to any legal limitations on the
amounts that may be contributed. The Company provides a matching benefit in an
amount equal to 100% on the first 3% of employee contributions. Employees vest
in their employer matching contribution according to a schedule that is tied to
service. During fiscal 1998, the Board of Directors elected to make an
additional profit sharing contribution in the amount of 2% of base compensation
for all eligible employees. In 1998 the Compensation Committee also approved
the implementation of a defined contribution program for employees of Ireland,
that is operationally similar to the U.S. plan, and is consistent with local
statutes and practices. The Company also has various defined benefit pension and
other retirement plans for certain foreign employees that are consistent with
local statutes and practices.
The 1997 Employee Stock Purchase Plan is administered by the Compensation
Committee and is intended to encourage ownership by all eligible employees of
the Company and participating subsidiaries so that they may share in the growth
of the Company. Eligible employees are those whose customary employment is more
than 20 hours per week for more than five months in any calendar year. Eligible
employees who elect to participate may purchase through payroll deduction shares
of the Company's Common Stock at 85% of the fair market value at specified
dates, subject to certain limitations. In 1998, US employees purchased 36,629
shares through this program. It is the intent of the Company to extend this
program to employees in foreign locations where local tax and legal rules and
regulations permit.
The Compensation Committee is satisfied that the executive officers of the
Company are dedicated to achieving significant improvements in the long-term
financial performance of the Company and that the compensation policy
implemented has contributed, and will continue to contribute, towards achieving
this goal.
<PAGE>
Tax Considerations
In general, under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), the Company cannot deduct, for federal income tax
purposes, compensation in excess of $1,000,000 paid to certain executive
officers. This deduction limitation does not apply, however, to compensation
that constitutes "qualified performance-based compensation" within the meaning
of Section 162(m) of the Code and the regulations promulgated thereunder. The
Company has considered the limitations on deductions imposed by Section 162(m)
of the Code, and it is the Company's present intention that, so long as it is
consistent with its overall compensation objective, substantially all tax
deductions attributable to executive compensation will not be subject to the
deduction limitations of Section 162(m) of the Code.
This report has been submitted by the members of the Compensation
Committee.
James D. Gerson
Ervin F. Lyon
<PAGE>
PERFORMANCE GRAPH
The following graph illustrates a five year comparison of cumulative total
shareholder return among the Company, the University of Chicago's Center for
Research in Security Prices ("CRSP") Index for the NASDAQ Stock Market and the
CRSP Index for NASDAQ Electronic Components Stocks (SIC 367, a peer group index
which includes electronic components companies). The comparison assumes $100 was
invested on December 31, 1993 in the Company's Common Stock and in each of the
foregoing indices and assumes reinvestment of dividends, if any.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG THE
COMPANY, THE NASDAQ STOCK MARKET AND NASDAQ ELECTRONIC COMPONENTS STOCKS
[INSERT GRAPH HERE]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Broad Market Index(1) $100.00 $97.80 $138.30 $170.00 $208.60 $293.20
Peer Group Index(2) 100.00 110.50 183.00 316.50 331.70 512.90
APCC 100.00 68.90 40.00 114.70 99.50 203.90
</TABLE>
Assumes $100 invested on 12/31/93.
(1) CRSP Index for NASDAQ Stock Market
(2) SRSP Index for NASDAQ Electronic Components Stocks
<PAGE>
EMPLOYMENT CONTRACT
The Company has entered into an employment agreement with its Chief
Executive Officer. The agreement is automatically renewed annually unless either
party notifies the other 60 days prior to the renewal date. Pursuant to the
agreement, the Company pays the Chief Executive Officer an annual salary and a
bonus which are based on the salaries and bonuses paid to Chief Executive
Officers of electronics companies having approximately the same
revenues as the Company. The Chief Executive Officer is obligated under the
agreement not to compete with the Company while he is employed by the Company
and for a period of one year thereafter. The Company does not
have employment agreements with any other executive officers.
PROPOSAL NO. 3: INCREASE OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has voted to recommend to the shareholders that the
Company amend its Articles of Organization (the "Articles") to increase the
number of authorized shares of Common stock from 200,000,000 to 450,000,000
shares (the "Amendment"). Shares of the Company's Common Stock, including the
additional shares proposed for authorization, do not have preemptive or similar
rights.
Subject to the approval of the Amendment by the shareholders at the
Meeting, the Board also declared a 2-for-1 stock split to be effected in the
form of a 100% stock dividend distribution (the "Dividend") for each share of
Common Stock issued and outstanding as of the close of business on May 7, 1999
(the "Record Date"). The holders of Common Stock entitled to receive the
Dividend will be determined as of the close of business on the Record Date. If
adopted by the shareholders, the proposed Amendment will be accomplished by the
filing of Articles of Amendment which will be filed as soon as practicable
after the Meeting. Certificates for the additional shares of Common Stock to be
issued pursuant to the Dividend will be mailed to shareholders on or about May
28, 1999.
The Board of Directors recommends adoption of the Amendment to the
shareholders because it believes the resulting capital structure of the Company
will facilitate broader ownership of the Company's Common Stock and enhance its
marketability. While the impact on the market price of the shares of Common
Stock of the Company after the Record Date cannot be predicted with certainty,
it is anticipated that the approval of the Amendment and resulting distribution
of the Dividend will initially result in the market price of each share being
approximately one half of that previously prevailing, although the market value
of all shares held by a particular shareholder should remain approximately the
same. The Board believes that the increase in the number of shares of Common
Stock outstanding and the lower market price per share resulting from the
adoption of the Amendment and the declaration of the Dividend is beneficial in
that, among other things, it could cause a broader market for, increased
liquidity of, and a greater investor interest in, shares of the Common Stock for
the Company.
In addition to providing sufficient shares of Common Stock in order to
effect the Dividend, and as set forth in Proposal No. 4 below, the Board of
Directors intends to reserve an additional 6,000,000 shares in order to effect
the increase in the number of shares of Common Stock available for issuance
under the 1997 Stock Option Plan (the "1997 Stock Option Plan Increase") upon
exercise of stock options to be granted to officers, directors, and employees of
the Company. Other than with respect to the Dividend and the 1997 Stock Option
Plan Increase, the Amendment will make a greater number of authorized but
unissued shares available for issuance from time to time as determined by the
Board of Directors. If this Proposal No. 3 is approved and after giving effect
to the Dividend and to shares reserved for issuance under the Company's
incentive, compensation and employee purchase plans
(and assuming shareholder approval of Proposal No. 4), under Massachusetts law
the Board of Directors will have the authority to issue approximately
230,151,000 shares of Common Stock of the Company without further shareholder
action or approval. The Board of Directors does not currently intend to seek
shareholder approval for any future issuance of additional shares of Common
Stock, unless shareholder action is required in a specific case by applicable
law, by the rules of any applicable stock exchange, or by the Articles or By-
Laws of the Company then in effect. Frequently, opportunities arise that require
prompt action and the Company believes that the delay necessary for shareholder
approval of a specific issuance could be detrimental to the Company and its
shareholders.
The Board may choose to use the additional shares proposed for authorization
pursuant to this Proposal No. 3 for acquisitions of other companies, the
declaration of future stock dividends, future financings, employee benefit plans
and for other corporate purposes. Although the Company has no present intention,
other than with respect to the Dividend and the 1997 Stock Option Plan Increase,
of issuing any unreserved shares of Common Stock and there are no commitments,
arrangements, or undertakings obligating the Company to issue additional shares,
the Board of Directors believes that the increase in the number of authorized
shares of Common Stock will give the Company flexibility in meeting possible
future needs of the Company's business and ensure prompt availability of shares
for issuance should the occasion arise.
<PAGE>
The additional shares of Common Stock authorized for issuance pursuant to
this Proposal No. 3, if and when issued, will have all of the rights and
privileges which the presently outstanding shares of Common Stock possess under
the Company's Articles. The increase in authorized shares would not affect the
terms or rights of holders of existing shares of Common Stock. All outstanding
shares of Common Stock would continue to have one vote per share on all matters
to be voted on by the shareholders, including the election of directors.
The issuance of any additional shares of Common Stock by the Company may,
depending on the circumstances under which those shares are issued, reduce
shareholders' equity per share and may reduce the percentage ownership of Common
Stock of existing shareholders. Other than with respect to the Dividend, the
Company will receive consideration for any additional shares of Common Stock
issued, thereby reducing or eliminating the economic effect to each shareholder
of such dilution. Although not intended to, the proposed increase in the
authorized but unissued number of shares of Common Stock could be used to make
more difficult a change in control of the Company. For example, the issuance of
shares of Common Stock in a public or private sale, merger, or similar
transaction would increase the number of outstanding shares, and possibly dilute
the interest of a party attempting to obtain control of the Company. The
Company is not aware, however, of any pending or threatened efforts to obtain
control of the Company and the Board of Directors has no current intention to
use the additional shares of Common Stock in order to impede a takeover attempt.
Approval of the Amendment will require the affirmative vote of the holders
of a majority of the outstanding shares of Common Stock of the Company entitled
to vote at the Meeting.
THE BOARD OF DIRECTORS BELIEVES THAT AMENDING THE COMPANY'S ARTICLES
TO INCREASE THE NUMBER OF AUTHORIZED SHARES FROM 200,000,000 TO
450,000,000 IS IN THE BEST INTEREST OF THE COMPANY AND ITS
SHAREHOLDERS AND RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL NO. 4: AMEND THE 1997 STOCK OPTION PLAN
The 1997 Stock Option Plan was adopted by the Board of Directors in
February 1997 and was approved by the Company's shareholders in April 1997. A
maximum of 6,000,000 shares of Common Stock were originally reserved for
issuance under the 1997 Stock Option Plan upon the exercise of options. The
Board of Directors has voted to recommend to the shareholders that they approve
an increase in the number of shares of Common Stock authorized for issuance
pursuant to the 1997 Stock Option Plan by 6,000,000 shares to 12,000,000 shares.
The Company relies on stock options as an essential part of the
compensation packages necessary for the Company to attract and retain
experienced officers and employees. The Board believes that the proposed
increase in the number of shares available under the 1997 Stock Option Plan is
essential to permit the Company to continue to provide long-term, equity-based
incentives to present and future key employees. A copy of the 1997 Stock Option
Plan as proposed to be amended may be obtained upon written request to the
Company's Investor Relations Department. The following paragraphs provide a
description of the 1997 Stock Option Plan.
Summary of the 1997 Stock Option Plan
Purpose. The purpose of the 1997 Stock Option Plan is to encourage
employees of the Company and other individuals who render services to the
Company by providing opportunities to purchase stock of the Company pursuant to
options granted under the 1997 Stock Option Plan.
Shares Subject to the 1997 Stock Option Plan. The Board of Directors
originally reserved a maximum of 6,000,000 shares of Common Stock for issuance
under the 1997 Stock Option Plan and is recommending under this Proposal No. 4
that the shareholders approve an amendment to increase the number of shares
authorized for issuance to 12,000,000 shares.
Eligibility. The 1997 Stock Option Plan provides for the grant of
incentive stock options ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") to employees of the
Company and the grant of non-qualified stock options ("NQSOs") to employees,
consultants, directors and officers of the Company. Currently, approximately
1,750 employees (including directors who are also employees and officers of the
Company) of the Company are eligible to participate in the 1997 Stock Option
Plan.
<PAGE>
Administration. The 1997 Stock Option Plan is administered by the
Compensation Committee of the Board of Directors, which currently consists of
Messrs. Gerson and Lyon, two non-employee directors of the Company. Subject to
the provisions of the 1997 Stock Option Plan, the Compensation Committee has the
authority to (i) determine to whom options shall be granted, (ii) determine the
time at which options shall be granted, (iii) determine the purchase price of
shares subject to each option, (iv) determine whether each option granted shall
be an ISO or an NQSO, (v) determine when each option shall become exercisable
and the duration of the exercise period, (vi) extend the period during which
outstanding options may be exercised and (vii) interpret the 1997 Stock Option
Plan and prescribe and rescind rules and regulations relating to it.
Option Price and Duration. The Compensation Committee determines the
exercise price per share for NQSOs under the 1997 Stock Option Plan, so long as
such exercise price is no less than the minimum legal consideration required
therefor under the laws of any jurisdiction in which the Company may be
organized. The exercise price per share for each ISO granted under the 1997
Stock Option Plan may not be less than the "fair market value," which is
determined as of the last business day for which prices were available prior to
the date of the option grant and is the last reported sale price (on that date)
of the Common Stock on the NASDAQ Stock Market. In the case of an ISO to be
granted to an employee owning stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company, the
exercise price per share for such ISO shall not be less than one hundred ten
percent (110%) of the fair market value per share of Common Stock on the date of
grant. The aggregate fair market value (determined at the time of grant) of the
shares of Common Stock subject to ISOs granted to an employee and which first
become exercisable during any calendar year cannot exceed $100,000; any portion
of an ISO grant that exceeds such $100,000 limit will be treated for tax
purposes as a NQSO. ISOs are not transferable by the optionholder except by will
or by the laws of descent and distribution. NQSOs are transferable to the extent
determined by the Compensation Committee and as set forth in the agreement
relating to the grant of any such NQSOs. Each option expires on the date
specified by the Compensation Committee, but not more than (i) ten years from
the date of grant in the case of options generally and (ii) five years from the
date of grant in the case of ISOs granted to an employee owning stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company.
Exercisability of Shares. Options granted under the 1997 Stock Option
Plan shall become exercisable over four years in eight semi-annual
installments beginning one year from the date such options are granted. An
option shall be exercisable in whole or in part by giving written notice to
the Company, stating the number of shares with respect to which the option is
being exercised, accompanied by payment in full for such shares.
Amendment and Termination. The Board of Directors may from time to time
adopt amendments, certain of which are subject to shareholder approval, and may
terminate the 1997 Stock Option Plan at any time (although such action shall not
affect options previously granted). Generally, no ISO may be exercised more than
three months following termination of employment. However, in the event that
termination is due to death or disability, the option is exercisable for a
maximum of 180 days after such termination. Any shares subject to an option
which for any reason expires or terminates unexercised may again be available
for future grants under the 1997 Stock Option Plan. No options may be granted
under the 1997 Stock Option Plan after February 11, 2007.
Federal Income Tax Consequences. The following discussion summarizes
certain U.S. federal income tax considerations for persons receiving options
under the 1997 Stock Option Plan and certain tax effects on the Company, based
upon the provisions of the Code as in effect on the date of this Proxy
Statement, current regulations and existing administrative rulings of the IRS.
However, the summary is not intended to be a complete discussion of all the
federal income tax consequences of these plans:
Incentive Stock Options:
1.In general, no taxable income results to the optionee upon the grant of
an ISO or upon the issuance of shares to him or her upon the exercise
of the ISO, and the Company is not entitled to a federal income tax
deduction upon either grant or exercise of an ISO.
2.If shares acquired upon exercise of an ISO are not disposed of within
(i) two years from the date the ISO was granted or (ii) one year from
the date the shares are issued to the optionee pursuant to the ISO
exercise (the "Holding Periods"), the difference between the amount
realized on any subsequent disposition of the shares and the exercise
price will generally be treated as capital gain or loss to the
optionee.
3.If shares acquired upon exercise of an ISO are disposed of and the
optionee does not satisfy the Holding Periods (a "Disqualifying
Disposition"), then in most cases the lesser of (i) any excess of the
fair market value of the shares at the time of exercise of the ISO over
the exercise price or (ii) the actual gain on disposition will be
treated as compensation to the optionee and will be taxed as ordinary
income in the year of such disposition.
<PAGE>
4.In any year that an optionee recognizes ordinary income on a
Disqualifying Disposition of stock acquired by exercising an ISO, the
Company generally will be entitled to a corresponding federal income
tax deduction.
5.The difference between the amount realized by the optionee as the
result of a Disqualifying Disposition and the sum of (i) the exercise
price and (ii) the amount of ordinary income recognized under the above
rules generally will be treated as capital gain or loss.
6.Capital gain or loss recognized by an optionee on a disposition of
shares will be long-term capital gain or loss if the optionee's holding
period for the shares exceeds one year.
7.An optionee may be entitled to exercise an ISO by delivering shares of
the Company's Common Stock to the Company in payment of the exercise
price if the optionee's ISO agreement so provides. If an optionee
exercises an ISO in such fashion, special rules will apply.
8.In addition to the tax consequences described above, the exercise of
ISOs may result in an "alternative minimum tax" under the Code. The
Code provides that an "alternative minimum tax" (at a rate of 26% or
28%) will be applied against a taxable base which is equal to
"alternative minimum taxable income," generally reduced by a statutory
exemption. In general, the amount by which the value of the shares
received upon exercise of the ISO exceeds the exercise price is
included in the optionee's alternative minimum taxable income. A
taxpayer is required to pay the higher of his or her regular tax
liability or the alternative minimum tax. A taxpayer who pays
alternative minimum tax attributable to the exercise of an ISO may be
entitled to a tax credit against his or her regular tax liability in
later years.
9.Special rules apply if the shares acquired upon the exercise of an ISO
are subject to vesting, or are subject to certain restrictions on
resale under federal securities laws applicable to directors, officers
or 10% shareholders.
Non-Qualified Options:
1.The optionee generally does not recognize any taxable income upon the
grant of a NQSO, and the Company is not entitled to a federal income
tax deduction by reason of such grant.
2.The optionee generally will recognize ordinary income at the time of
exercise of a NQSO in an amount equal to the excess, if any, of the
fair market value of the shares on the date of exercise over the
exercise price. The Company may be required to withhold income tax on
this amount.
3.When the optionee sells the shares acquired upon exercise of a NQSO, he
or she generally will recognize a capital gain or loss in an amount
equal to the difference between the amount realized upon the sale of
the shares and his or her basis in the shares (generally, the exercise
price plus the amount taxed to the optionee as ordinary income). If the
optionee's holding period for the shares exceeds one year, such gain or
loss will be a long-term capital gain or loss.
4.The Company generally should be entitled to a federal income tax
deduction when ordinary income is recognized by the optionee.
5.An optionee may be entitled to exercise a NQSO by delivering shares of
the Company's Common Stock to the Company in payment of the exercise
price. If an optionee exercises a NQSO in such fashion, special rules
will apply.
6.Special rules apply if the shares acquired upon the exercise of an NQSO
are subject to vesting, or are subject to certain restrictions on
resale under federal securities laws applicable to directors, officers
or 10% shareholders.
Option Information
As of February 22, 1999 the Company had approximately 1,752 employees with
outstanding option grants under the 1997 Stock Option Plan.
The following table sets forth as of February 22, 1999, options granted in
the aggregate under the 1997 Stock Option Plan to: (i) the Named Officers, (ii)
each other person who received five percent of such options, (iii) all executive
officers of the Company as a group, (iv) all current directors of the Company
who are not executive officers as a group and (v) all employees, including all
current officers who are not executive officers, as a group:
<PAGE>
<TABLE>
<CAPTION>
Name Title No. of Options Granted(1)
<S> <S> <C>
Rodger B.
Dowdell, Jr.(2) Chairman of the Board of Directors, President and 237,000
Chief Executive Officer
Neil E.
Rasmussen Director, Vice President and Chief Technical Officer 90,000
Emanuel E.
Landsman Director, Vice President and Clerk 20,000
Edward W.
Machala Vice President, Operations and Treasurer 90,000
Donald M. Muir Vice President, Finance and Administration
and Chief Financial Officer 77,000
David P. Vieau Vice President, Worldwide Business Development 85,000
James D. Gerson Director 0
Ervin F. Lyon Director 0
</TABLE>
All executive officers as a group (7 persons) 662,000
All current directors who are not executive officers as a group 0
All employees who are not executive officers as a group 3,499,000
_______________________________________
(1) Represents the total number of options granted to the person or group in
question under the 1997
Stock Option Plan, without taking into account those options which have
been exercised, terminated or expired.
(2) Mr. Dowdell has received five percent or greater of the options granted
under the 1997 Stock Option Plan.
As of December 31, 1998, of the 6,000,000 shares originally reserved for
issuance under the 1997 Stock Option Plan, only 2,017,178 shares were available
for new stock option grants. If the increase in the number of shares authorized
for issuance under the 1997 Stock Option Plan is not approved, the Company may
be unable to continue to provide suitable long-term equity based incentives to
present and future employees. If the proposed amendment to the 1997 Stock Option
Plan to increase the number of shares of Common Stock authorized for issuance
thereunder from 6,000,000 to 12,000,000 is not approved by the shareholders, the
Corporation will not grant stock options, awards or rights to make direct
purchases of stock under the 1997 Stock Option Plan in excess of that number of
shares of Common Stock remaining available under the existing 1997 Stock Option
Plan. The Corporation has not at the present time determined who will receive
the remaining shares of Common Stock that will be authorized for issuance under
the 1997 Stock Option Plan if the proposed amendment to the 1997 Stock Option
Plan is approved.
Approval of the amendment will require the affirmative vote of the holders
of a majority of the shares of Common Stock of the Company present in person or
represented by proxy and entitled to vote at the Meeting.
THE BOARD OF DIRECTORS BELIEVES THAT AMENDING THE 1997 STOCK OPTION
PLAN TO INCREASE THE AGGREGATE NUMBER OF SHARES OF COMMON STOCK
AUTHORIZED FOR ISSUANCE FROM 6,000,000 SHARES TO 12,000,000 SHARES IS
IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS AND
RECOMMENDS A VOTE FOR THIS PROPOSAL.
<PAGE>
INDEPENDENT ACCOUNTANTS
The Company has retained KPMG Peat Marwick, LLP as its independent auditors
for the fiscal year ending December 31, 1999. A representative of KPMG Peat
Marwick, LLP will be at the Meeting and will be given the opportunity to make a
statement if so desired and will be available to respond to appropriate
questions from
the shareholders.
SECTION 16 REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission (the "SEC"). Such persons are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it with
respect to fiscal 1998, or written representations from certain reporting
persons, the Company believes that all of its directors, officers and persons
who own more than 10% of a registered class of the Company's equity securities
complied with all filing requirements applicable to them with respect to
transactions during 1998, except that: Mr. Muir failed to file one Form 4 in
connection with a single exercise of stock options, however, such exercise was
subsequently reported by Mr. Muir on his Form 5.
RECENT BY-LAW AMENDMENTS
The Board of Directors of the Company has voted to amend and restate the
Company's By-Laws to include provisions regarding the presentation of matters by
shareholders at any annual or special meeting of the shareholders of the Company
(as amended and restated, the "Amended and Restated By-Laws"). The Amended and
Restated
By-Laws generally require that a shareholder seeking to have any business
conducted at a meeting of shareholders (without seeking to have a proposal
relating to such business included in the Company's proxy statement pursuant to
Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), give notice to the Company not less than 90 and not more than 120 days
prior to the corresponding month and day of the previous year's annual meeting,
or the 10th day after the Company's public announcement of a proposed special
meeting date. The notice from the shareholder must describe the proposed
business to be brought before the meeting and include information about the
shareholder making the proposal, any beneficial owner on whose behalf the
proposal is made, and any other shareholder known to be supporting the proposal.
The Amended and Restated By-Laws require that a shareholder seeking to present a
proposal at any meeting of shareholders (other than those submitted for
inclusion in the proxy statement in accordance with Rule 14a-8 of the Exchange
Act) must comply with the rules set forth in the Amended and Restated By-Laws
and with all applicable requirements of the Exchange Act.
SHAREHOLDER PROPOSALS
The deadline for submission of proposals by shareholders pursuant to Rule
14a-8 issued under the Exchange Act, which are intended for inclusion in the
proxy statement to be furnished to all shareholders entitled to vote at the next
annual meeting of shareholders of the Company, is November 25, 1999. The
deadline for submission of proposals of shareholders intended to be presented at
the next annual meeting of shareholders of the Company (which are not otherwise
submitted for inclusion in the proxy statement in accordance with the preceding
sentence) is February 6, 2000. In submitting such proposals, shareholders must
comply with the requirements set forth in both the Amended and Restated By-Laws
of the Company and in Rule 14a-4(c)(2)(i)-(iii) under the Exchange Act. In order
to curtail any controversy as to the date on which a proposal was received by
the Company, it is suggested that proponents submit their proposals by Certified
Mail, Return Receipt Requested.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Company. In
addition to soliciting shareholders by mail or by its regular employees, the
Company may request banks and brokers to solicit their customers who have stock
of the Company registered in the name of a nominee and, if so, will reimburse
such banks and brokers for their reasonable out-of-pocket costs. Solicitation by
officers and employees of the Company, none of whom will receive additional
compensation therefor, may also be made of some shareholders in person or by
mail, telephone or telegram, following the original solicitation. The Company
has retained Morrow & Co. Incorporated to assist in the solicitation of proxies,
and will pay this company a fee of approximately $7,500 plus expenses.
<PAGE>
DIRECTIONS TO APC'S ANNUAL SHAREHOLDER MEETING
The meeting will take place on Friday, May 7, at 10:00 a.m. in the University
Ballroom of the Radisson Airport Hotel, 2081 Post Road, in Warwick, Rhode
Island. (Tel. 401-739-3000)
FROM I-95 NORTH OR SOUTH:
+ Take Exit 13 (towards T.F. Green Airport)
+ Take the Post Road Exit - at the end of the exit, turn left onto Post
Road (heading north)
+ The hotel will be on the left after about 1/4 mile
Parking is available in the rear of the hotel
IF TRAVELING BY AIR:
The Radisson is conveniently located near T.F. Green Airport in Providence,
Rhode Island. A Hotel Shuttle is available for your convenience - just make a
call from the Radisson's courtesy phone in the airport lobby. Taxis and rental
cars are also available at the airport.
________________________________
The University Ballroom is located on the second floor of the Radisson
Airport Hotel - turn right after exiting the elevator.
The University Ballroom will open to shareholders at 9:00 a.m. Please allow
adequate time to find parking, complete any check-in and to be seated prior to
the 10:00 a.m. starting time.
_______________________________
Please be aware that seating may be limited. Please bring valid picture
identification, such as a driver's license or passport. You may be required to
provide this upon entry to the meeting. Shareholders holding stock in brokerage
accounts ("street name" holders) will also need to bring a copy of a brokerage
statement reflecting stock ownership as of the record date. Cameras, recording
devices and other electronic devices will not be permitted at the meeting.
_____________________________
Thank you. We hope to see you there!
<PAGE>
APPENDIX
<PAGE>
AMERICAN POWER CONVERSION CORPORATION
1997 STOCK OPTION PLAN
1. Purpose. The purpose of this 1997 Stock Option
Plan (the "Plan") is to encourage employees of American
Power Conversion Corporation (the "Company") and of any
present or future parent or subsidiary of the Company
(collectively, "Related Corporations"), and other
individuals who render services to the Company or a Related
Corporation, by providing opportunities to purchase stock in
the Company pursuant to options granted hereunder which
qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code") and options which do not qualify as
ISOs ("Non-Qualified Options"). Both ISOs and Non-Qualified
Options are referred to hereafter individually as an
"Option" and collectively as "Options." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation"
and "subsidiary corporation," respectively, as those terms
are defined in Section 424 of the Code.
2. Administration of the Plan.
A. Board or Committee Administration. The Plan
shall be administered by the Board of Directors of the
Company (the "Board") or, subject to paragraph 2(D)
(relating to compliance with Section 162(m) of the
Code), by a committee appointed by the Board (the
"Committee"). Hereinafter, all references in this Plan
to the "Committee" shall mean the Board if no Committee
has been appointed. Subject to ratification of the
grant or authorization of each Option by the Board (if
so required by applicable state law), and subject to
the terms of the Plan, the Committee shall have the
authority to (i) determine to whom (from among the
class of employees eligible under paragraph 3 to
receive ISOs) ISOs shall be granted, and to whom (from
among the class of individuals and entities eligible
under paragraph 3 to receive Non-Qualified Options) Non-
Qualified Options may be granted; (ii) determine the
time or times at which Options shall be granted;
(iii) determine the exercise price of shares subject to
each Option, which price shall not be less than the
minimum price specified in paragraph 6; (iv) determine
whether each Option granted shall be an ISO or a Non-
Qualified Option; (v) determine (subject to
paragraph 7) the time or times when each Option shall
become exercisable and the duration of the exercise
period; (vi) extend the period during which outstanding
Options may be exercised; (vii) determine whether
restrictions such as repurchase options are to be
imposed on shares subject to Options and the nature of
such restrictions, if any; and (viii) interpret the
Plan and prescribe and rescind rules and regulations
relating to it. If the Committee determines to issue a
Non-Qualified Option, it shall take whatever actions it
deems necessary, under Section 422 of the Code and the
regulations promulgated thereunder, to ensure that such
Option is not treated as an ISO. The interpretation
and construction by the Committee of any provisions of
the Plan or of any Option granted under it shall be
final unless otherwise determined by the Board. The
Committee may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem
advisable. No member of the Board or the Committee
shall be liable for any action or determination made in
good faith with respect to the Plan or any Option
granted under it.
B. Committee Actions. The Committee may select
one of its members as its chairman, and shall hold
meetings at such time and places as it may determine.
A majority of the Committee shall constitute a quorum
and acts by a majority of the members of the Committee
at a meeting at which a quorum is present, or acts
reduced to or approved in writing by a majority of the
members of the Committee (if consistent with applicable
state law), shall constitute the valid acts of the
Committee. From time to time the Board may increase
the size of the Committee and appoint additional
members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the
Committee and thereafter directly administer the Plan.
C. Grant of Options to Board Members. Options
may be granted to members of the Board. All grants of
Options to members of the Board shall in all respects
be made in accordance with the provisions of this Plan
applicable to other eligible persons. Members of the
Board who either (i) are eligible to receive grants of
Options pursuant to the Plan or (ii) have been granted
Options may vote on any matters affecting the
administration of the Plan or the grant of any Options
pursuant to the Plan, except that no such member shall
act upon the granting to himself or herself of Options,
but any such member may be counted in determining the
existence of a quorum at any meeting of the Board
during which action is taken with respect to the
granting to such member of Options.
D. Performance-Based Compensation. The Board,
in its discretion, may take such action as may be
necessary to ensure that Options granted under the Plan
qualify as "qualified performance-based compensation"
within the meaning of Section 162(m) of the Code and
applicable regulations promulgated thereunder
("Performance-Based Compensation"). Such action may
include, in the Board's discretion, some or all of the
following (i) if the Board determines that Options
granted under the Plan generally shall constitute
Performance-Based Compensation, the Plan shall be
administered, to the extent required for such Options
to constitute Performance-Based Compensation, by a
Committee consisting solely of two or more "outside
directors" (as defined in applicable regulations
promulgated under Section 162(m) of the Code), (ii) if
any Non-Qualified Options with an exercise price less
than the fair market value per share of Common Stock
are granted under the Plan and the Board determines
that such Options should constitute Performance-Based
Compensation, such options shall be made exercisable
only upon the attainment of a pre-established,
objective performance goal established by the
Committee, and such grant shall be submitted for, and
shall be contingent upon shareholder approval and (iii)
Options granted under the Plan may be subject to such
other terms and conditions as are necessary for
compensation recognized in connection with the exercise
or disposition of such Option or the disposition of
Common Stock acquired pursuant to such Option, to
constitute Performance-Based Compensation.
3. Eligible Employees and Others. ISOs may be granted
only to employees of the Company or any Related Corporation.
Non-Qualified Options may be granted to any employee,
officer or director (whether or not also an employee) or
consultant of the Company or any Related Corporation. The
Committee may take into consideration a recipient's
individual circumstances in determining whether to grant an
ISO or a Non-Qualified Option. The granting of any Option
to any individual or entity shall neither entitle that
individual or entity to, nor disqualify such individual or
entity from, participation in any other grant of Options.
4. Stock. The stock subject to Options shall be
authorized but unissued shares of Common Stock of the
Company, par value $.01 per share (the "Common Stock"), or
shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued
pursuant to the Plan is 6,000,000, subject to adjustment as
provided in paragraph 13. If any Option granted under the
Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be
exercisable in whole or in part or shall be repurchased by
the Company, the shares subject to such Option shall again
be available for grants of Options under the Plan.
No employee of the Company or any Related
Corporation may be granted Options to acquire, in the
aggregate, more than 4,200,000 of the shares of Common Stock
under the Plan during any fiscal year of the Company. If
any Option granted under the Plan shall expire or terminate
for any reason without having been exercised in full or
shall cease for any reason to be exercisable in whole or in
part or shall be repurchased by the Company, the shares
subject to such Option shall be included in the
determination of the aggregate number of shares of Common
Stock deemed to have been granted to such employee under the
Plan.
5. Granting of Options. Options may be granted under
the Plan at any time after February 12, 1997 and prior to
February 12, 2007. The date of grant of an Option under the
Plan will be the date specified by the Committee at the time
it grants the Option; provided, however, that such date
shall not be prior to the date on which the Committee acts
to approve the grant.
6. Minimum Option Price; ISO Limitations.
A. Price for Non-Qualified Options. Subject to
Paragraph 2(D) (relating to compliance with Section
162(m) of the Code), the exercise price per share
specified in the agreement relating to each Non-
Qualified Option granted under the Plan may be less
than the fair market value of the Common Stock of the
Company on the date of grant; provided that in no event
shall such exercise price be less than the minimum
legal consideration required therefor under the laws of
any jurisdiction in which the Company or its successors
in interest may be organized.
B. Price for ISOs. The exercise price per share
specified in the agreement relating to each ISO granted
under the Plan shall not be less than the fair market
value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an
employee owning stock possessing more than ten percent
(10%) of the total combined voting power of all classes
of stock of the Company or any Related Corporation, the
price per share specified in the agreement relating to
such ISO shall not be less than one hundred ten percent
(110%) of the fair market value per share of Common
Stock on the date of grant. For purposes of
determining stock ownership under this paragraph, the
rules of Section 424(d) of the Code shall apply.
C. $100,000 Annual Limitation on ISO Vesting.
Each eligible employee may be granted Options treated
as ISOs only to the extent that, in the aggregate under
this Plan and all incentive stock option plans of the
Company and any Related Corporation, ISOs do not become
exercisable for the first time by such employee during
any calendar year with respect to stock having a fair
market value (determined at the time the ISOs were
granted) in excess of $100,000. The Company intends to
designate any Options granted in excess of such
limitation as Non-Qualified Options, and the Company
shall issue separate certificates to the optionee with
respect to Options that are Non-Qualified Options and
Option that are ISOs.
D. Determination of Fair Market Value. If, at
the time an Option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market
value" shall be determined as of the date of grant or,
if the prices or quotes discussed in this sentence are
unavailable for such date, the last business day for
which such prices or quotes are available prior to the
date of grant and shall mean (i) the average (on that
date) of the high and low prices of the Common Stock on
the principal national securities exchange on which the
Common Stock is traded, if the Common Stock is then
traded on a national securities exchange; or (ii) the
last reported sale price (on that date) of the Common
Stock on the Nasdaq National Market, if the Common
Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of
bid prices) last quoted (on that date) by an
established quotation service for over-the-counter
securities, if the Common Stock is not reported on the
Nasdaq National Market. If the Common Stock is not
publicly traded at the time an Option is granted under
the Plan, "fair market value" shall be deemed to be the
fair value of the Common Stock as determined by the
Committee after taking into consideration all factors
which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common
Stock in private transactions negotiated at arm's
length.
7. Option Duration. Subject to earlier termination as
provided in paragraphs 9 and 10 or in the agreement relating
to such Option, each Option shall expire on the date
specified by the Committee, but not more than (i) ten years
from the date of grant in the case of Options generally and
(ii) five years from the date of grant in the case of ISOs
granted to an employee owning stock possessing more than
ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Related Corporation,
as determined under paragraph 6(B). Subject to earlier
termination as provided in paragraphs 9 and 10, the term of
each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any
part of such ISO that is converted into a Non-Qualified
Option pursuant to paragraph 16.
8. Exercise of Option. Subject to the provisions of
paragraphs 9 through 12, each Option granted under the Plan
shall be exercisable as follows:
A. Vesting. The Option shall either be fully
exercisable on the date of grant or shall become
exercisable thereafter in such installments as the
Committee may specify.
B. Full Vesting of Installments. Once an
installment becomes exercisable it shall remain
exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.
C. Partial Exercise. Each Option or installment
may be exercised at any time or from time to time, in
whole or in part, for up to the total number of shares
with respect to which it is then exercisable.
D. Acceleration of Vesting. The Committee shall
have the right to accelerate the date on which any
installment of any Option becomes exercisable; provided
that the Committee shall not, without the consent of an
optionee, accelerate the permitted exercise date of any
installment of any Option granted to any employee as an
ISO (and not previously converted into a Non-Qualified
Option pursuant to paragraph 16) if such acceleration
would violate the annual vesting limitation contained
in Section 422(d) of the Code, as described in
paragraph 6(C).
9. Termination of Employment. Unless otherwise
specified in the agreement relating to such ISO, if an ISO
optionee ceases to be employed by the Company and all
Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further
installments of his or her ISOs shall become exercisable,
and his or her ISOs shall terminate on the earlier of (a)
the passage of three months after the date of termination of
his or her employment, or (b) expiration dates, except to
the extent that such ISOs (or unexercised installments
thereof) have been converted into Non-Qualified Options
pursuant to paragraph 16. For purposes of this paragraph 9,
employment shall be considered as continuing uninterrupted
during any bona fide leave of absence (such as those
attributable to illness, military obligations or
governmental service) provided that the period of such leave
does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by
statute or by contract. A bona fide leave of absence with
the written approval of the Committee shall not be
considered an interruption of employment under this
paragraph 9, provided that such written approval
contractually obligates the Company or any Related
Corporation to continue the employment of the optionee after
the approved period of absence. ISOs granted under the Plan
shall not be affected by any change of employment within or
among the Company and Related Corporations, so long as the
optionee continues to be an employee of the Company or any
Related Corporation. Nothing in the Plan shall be deemed to
give any optionee the right to be retained in employment or
other service by the Company or any Related Corporation for
any period of time.
10. Death; Disability.
A. Death. If an ISO optionee ceases to be
employed by the Company and all Related Corporations by
reason of his or her death, any ISO owned by such
optionee may be exercised, to the extent otherwise
exercisable on the date of death, by the estate,
personal representative or beneficiary who has acquired
the ISO by will or by the laws of descent and
distribution, until the earlier of (i) the specified
expiration date of the ISO or (ii) 180 days from the
date of the optionee's death.
B. Disability. If an ISO optionee ceases to be
employed by the Company and all Related Corporations by
reason of his or her disability, such optionee shall
have the right to exercise any ISO held by him or her
on the date of termination of employment, to the extent
of the number of shares with respect to which he or she
could have exercised it on that date, until the earlier
of (i) the specified expiration date of the ISO or
(ii) 180 days from the date of the termination of the
optionee's employment. For the purposes of the Plan,
the term "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code
or any successor statute.
11. Assignability. No ISO shall be assignable or
transferable by the optionee except by will or by the laws
of descent and distribution, and during the lifetime of an
optionee each Option shall be exercisable only by such
optionee. Non-Qualified Options shall be transferable to
the extent set forth in the agreement relating thereto.
12. Terms and Conditions of Options. Options shall be
evidenced by instruments (which need not be identical) in
such forms as the Committee may from time to time approve.
Such instruments shall conform to the terms and conditions
set forth in paragraphs 6 through 11 hereof and may contain
such other provisions as the Committee deems advisable which
are not inconsistent with the Plan, including restrictions
applicable to shares of Common Stock issuable upon exercise
of Options. The Committee may specify that any Non-
Qualified Option shall be subject to the restrictions set
forth herein with respect to ISOs, or to such other
termination and cancellation provisions as the Committee may
determine. The Committee may from time to time confer
authority and responsibility on one or more of its own
members and/or one or more officers of the Company to
execute and deliver such instruments. The proper officers
of the Company are authorized and directed to take any and
all action necessary or advisable from time to time to carry
out the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the
following events, an optionee's rights with respect to
Options granted to such optionee hereunder shall be adjusted
as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and
the Company relating to such Option:
A. Stock Dividends and Stock Splits. If the
shares of Common Stock shall be subdivided or combined
into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a
stock dividend on its outstanding Common Stock, the
number of shares of Common Stock deliverable upon the
exercise of Options shall be appropriately increased or
decreased proportionately, and appropriate adjustments
shall be made in the purchase price per share to
reflect such subdivision, combination or stock
dividend.
B. Consolidations or Mergers. If the Company is
to be consolidated with or acquired by another entity
in a merger or other reorganization in which the
holders of the outstanding voting stock of the Company
immediately preceding the consummation of such event,
shall, immediately following such event, hold, as a
group, less than a majority of the voting securities of
the surviving or successor entity, or in the event of a
sale of all or substantially all of the Company's
assets or otherwise (each, an "Acquisition"), the
Committee or the board of directors of any entity
assuming the obligations of the Company hereunder (the
"Successor Board"), shall, as to outstanding Options,
either (i) make appropriate provision for the
continuation of such Options by substituting on an
equitable basis for the shares then subject to such
Options either (a) the consideration payable with
respect to the outstanding shares of Common Stock in
connection with the Acquisition, (b) shares of stock of
the surviving or successor corporation or (c) such
other securities as the Successor Board deems
appropriate, the fair market value of which shall not
materially exceed the fair market value of the shares
of Common Stock subject to such Options immediately
preceding the Acquisition; or (ii) upon written notice
to the optionees, provide that all Options must be
exercised, to the extent then exercisable or to be
exercisable as a result of the Acquisition, within a
specified number of days of the date of such notice, at
the end of which period the Options shall terminate; or
(iii) terminate all Options in exchange for a cash
payment equal to the excess of the fair market value of
the shares subject to such Options (to the extent then
exercisable or to be exercisable as a result of the
Acquisition) over the exercise price thereof.
C. Recapitalization or Reorganization. In the
event of a recapitalization or reorganization of the
Company (other than a transaction described in
subparagraph B above) pursuant to which securities of
the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, an
optionee upon exercising an Option shall be entitled to
receive for the purchase price paid upon such exercise
the securities he or she would have received if he or
she had exercised such Option prior to such
recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the
foregoing, any adjustments made pursuant to
subparagraphs A, B or C with respect to ISOs shall be
made only after the Committee, after consulting with
counsel for the Company, determines whether such
adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424 of the
Code) or would cause any adverse tax consequences for
the holders of such ISOs. If the Committee determines
that such adjustments made with respect to ISOs would
constitute a modification of such ISOs or would cause
adverse tax consequences to the holders, it may refrain
from making such adjustments.
E. Dissolution or Liquidation. In the event of
the proposed dissolution or liquidation of the Company,
each Option will terminate immediately prior to the
consummation of such proposed action or at such other
time and subject to such other conditions as shall be
determined by the Committee.
F. Issuances of Securities. Except as expressly
provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect
to, the number or price of shares subject to Options.
No adjustments shall be made for dividends paid in cash
or in property other than securities of the Company.
G. Fractional Shares. No fractional shares
shall be issued under the Plan and the optionee shall
receive from the Company cash in lieu of such
fractional shares.
H. Adjustments. Upon the happening of any of
the events described in subparagraphs A, B or C above,
the class and aggregate number of shares set forth in
paragraph 4 hereof that are subject to Options which
previously have been or subsequently may be granted
under the Plan shall also be appropriately adjusted to
reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine
the specific adjustments to be made under this
paragraph 13 and, subject to paragraph 2, its
determination shall be conclusive.
14. Means of Exercising Options. An Option (or any
part or installment thereof) shall be exercised by giving
written notice to the Company at its principal office
address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being
exercised and specify the number of shares as to which such
Option is being exercised, accompanied by full payment of
the purchase price therefor either (a) in United States
dollars in cash or by check, (b) at the discretion of the
Committee, through delivery of shares of Common Stock having
a fair market value equal as of the date of the exercise to
the cash exercise price of the Option, (c) at the discretion
of the Committee, by delivery of the optionee's personal
recourse note bearing interest payable not less than
annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code,
(d) at the discretion of the Committee and consistent with
applicable law, through the delivery of an assignment to the
Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and
an authorization to the broker or selling agent to pay that
amount to the Company, which sale shall be at the
participant's direction at the time of exercise, or (e) at
the discretion of the Committee, by any combination of (a),
(b), (c) and (d) above. If the Committee exercises its
discretion to permit payment of the exercise price of an ISO
by means of the methods set forth in clauses (b), (c), (d)
or (e) of the preceding sentence, such discretion shall be
exercised in writing at the time of the grant of the ISO in
question. The holder of an Option shall not have the rights
of a shareholder with respect to the shares covered by his
Option until the date of issuance of a stock certificate to
such holder for such shares. Except as expressly provided
above in paragraph 13 with respect to changes in
capitalization and stock dividends, no adjustment shall be
made for dividends or similar rights for which the record
date is before the date such stock certificate is issued.
15. Term and Amendment of Plan. This Plan was adopted
by the Board on February 12, 1997, subject, with respect to
the validation of ISOs granted under the Plan, to approval
of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written
consent. If the approval of stockholders is not obtained
prior to February 11, 1998, any grants of ISOs under the
Plan made prior to that date will be rescinded. The Plan
shall expire at the end of the day on February 12, 2007
(except as to Options outstanding on that date). Subject to
the provisions of paragraph 5 above, Options may be granted
under the Plan prior to the date of stockholder approval of
the Plan. The Board may terminate or amend the Plan in any
respect at any time, except that, without the approval of
the stockholders obtained within 12 months before or after
the Board adopts a resolution authorizing any of the
following actions: (a) the total number of shares that may
be issued under the Plan may not be increased (except by
adjustment pursuant to paragraph 13); (b) the provisions of
paragraph 3 regarding eligibility for grants of ISOs may not
be modified; (c) the provisions of paragraph 6(B) regarding
the exercise price at which shares may be offered pursuant
to ISOs may not be modified (except by adjustment pursuant
to paragraph 13) and (d) the expiration date of the Plan may
not be extended. Except as otherwise provided in this
paragraph 15, in no event may action of the Board or
stockholders alter or impair the rights of an optionee,
without such optionee's consent, under any Option previously
granted to such optionee.
16. Conversion of ISOs into Non-Qualified Options.
Subject to paragraph 13(D), without the prior written
consent of the holder of an ISO, the Committee shall not
alter the terms of such ISO (including the means of
exercising such ISO) if such alteration would constitute a
modification (within the meaning of Section 424(h)(3) of the
Code). The Committee, at the written request or with the
written consent of any optionee, may in its discretion take
such actions as may be necessary to convert such optionee's
ISOs (or any installments or portions of installments
thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to
the expiration of such ISOs, regardless of whether the
optionee is an employee of the Company or a Related
Corporation at the time of such conversion. Such actions
may include, but shall not be limited to, extending the
exercise period or reducing the exercise price of the
appropriate installments of such ISOs. At the time of such
conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting
Non-Qualified Options as the Committee in its discretion may
determine, provided that such conditions shall not be
inconsistent with this Plan. Nothing in the Plan shall be
deemed to give any optionee the right to have such
optionee's ISOs converted into Non-Qualified Options, and no
such conversion shall occur until and unless the Committee
takes appropriate action. Upon the taking of such action
the Company shall issue separate certificates to the
optionee with respect to Options that are Non-Qualified
Options and Options that are ISOs.
17. Application Of Funds. The proceeds received by the
Company from the sale of shares pursuant to Options granted
under the Plan shall be used for general corporate purposes.
18. Notice to Company of Disqualifying Disposition. By
accepting an ISO granted under the Plan, each optionee
agrees to notify the Company in writing immediately after
such optionee makes a Disqualifying Disposition (as
described in Sections 421, 422 and 424 of the Code and
regulations thereunder) of any stock acquired pursuant to
the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition
occurring on or before the later of (a) the date two years
following the date the ISO was granted or (b) the date
one year following the date the ISO was exercised.
19. Withholding of Additional Income Taxes. Upon the
exercise of a Non-Qualified Option, the transfer of a Non-
Qualified Stock Option pursuant to an arm's length
transaction, the making of a Disqualifying Disposition (as
defined in paragraph 18), the vesting or transfer of
restricted stock or securities acquired on the exercise of a
Option hereunder, or the making of a distribution or other
payment with respect to such stock or securities, the
Company may withhold taxes in respect of amounts that
constitute compensation includible in gross income. The
Committee in its discretion may condition (i) the exercise
of an Option (ii) the transfer of a Non-Qualified Stock
Option, or (iii) the vesting or transferability of
restricted stock or securities acquired by exercising an
Option, on the optionee's making satisfactory arrangement
for such withholding. Such arrangement may include payment
by the optionee in cash or by check of the amount of the
withholding taxes or, at the discretion of the Committee, by
the optionee's delivery of previously held shares of Common
Stock or the withholding from the shares of Common Stock
otherwise deliverable upon exercise of a Option shares
having an aggregate fair market value equal to the amount of
such withholding taxes.
20. Governmental Regulation. The Company's obligation
to sell and deliver shares of the Common Stock under this
Plan is subject to the approval of any governmental
authority required in connection with the authorization,
issuance or sale of such shares.
Government regulations may impose reporting or other
obligations on the Company with respect to the Plan. For
example, the Company may be required to send tax information
statements to employees and former employees that exercise
ISOs under the Plan, and the Company may be required to file
tax information returns reporting the income received by
optionees in connection with the Plan.
21. Governing Law. The validity and construction of
the Plan and the instruments evidencing Options shall be
governed by the laws of The Commonwealth of Massachusetts,
or the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
