<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
HARMONIC LIGHTWAVES, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 29, 1998
------------------------
TO THE STOCKHOLDERS OF HARMONIC LIGHTWAVES, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Harmonic
Lightwaves, Inc., a Delaware corporation (the "Company"), will be held on
Wednesday, April 29, 1998 at 8:00 A.M., local time, at The Westin Hotel, 5101
Great America Parkway, Santa Clara, California, 95054, for the following
purposes:
1. To elect six directors to serve for the ensuing year or until their
successors are elected and duly qualified.
2. To approve an amendment to the 1995 Stock Plan to increase the number of
shares of Common Stock reserved for issuance thereunder by 575,000
shares.
3. To approve an amendment to the 1995 Employee Stock Purchase Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 200,000 shares.
4. To ratify the appointment of Price Waterhouse LLP as independent
auditors of the Company for the fiscal year ending December 31, 1998.
5. To transact such other business as may properly come before the meeting
and any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 11, 1998 are
entitled to notice of and to vote at the meeting and any adjournment thereof.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if such stockholder has returned a proxy.
By Order of the Board of Directors
Jeffrey D. Saper,
Secretary
Sunnyvale, California
March 27, 1998
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN IT
IN THE ENCLOSED ENVELOPE.
<PAGE> 3
HARMONIC LIGHTWAVES, INC.
549 BALTIC WAY
SUNNYVALE, CALIFORNIA 94089
------------------------
PROXY STATEMENT
------------------------
INFORMATION CONCERNING SOLICITATION VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Harmonic Lightwaves, Inc., a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders (the "Annual Meeting") to be held April 29,
1998 at 8:00 A.M., local time, or at any adjournment thereof, for the purposes
set forth herein and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at The Westin Hotel, 5101 Great
America Parkway, Santa Clara, California, 95054. The telephone number of the
Company's principal offices is (408) 542-2500.
These proxy solicitation materials and the Company's Annual Report to
Stockholders for the year ended December 31, 1997, including financial
statements, were mailed on or about March 28, 1998 to all stockholders entitled
to vote at the meeting.
RECORD DATE AND VOTING SECURITIES
Stockholders of record at the close of business on March 11, 1998 (the
"Record Date") are entitled to notice of and to vote at the meeting. At the
Record Date, 11,503,212 shares of the Company's Common Stock, $0.001 par value
per share, were issued and outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each stockholder is entitled to one vote for each share of Common Stock on
all matters presented at the Annual Meeting. Stockholders do not have the right
to cumulate their votes in the election of directors.
The Company will bear the cost of soliciting proxies. In addition, the
Company may reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation material to such
beneficial owners. Solicitation of proxies by mail may be supplemented by
telephone, telegram, facsimile or personal solicitation by directors, officers
or employees of the Company. No additional compensation will be paid to such
persons for such services.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the votes eligible to be cast by holders of shares of Common
Stock issued and outstanding on the Record Date. Shares that are voted "FOR,"
"AGAINST," "WITHHELD" or "ABSTAIN" are treated as being present at the meeting
for purposes of establishing a quorum and are also treated as shares entitled to
vote at the Annual Meeting (the "Votes Cast") with respect to such matter.
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
<PAGE> 4
Cast with respect to a proposal (other than the election of directors). In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effect
as a vote against the proposal.
The Delaware Supreme Court has held that, while broker non-votes should be
counted for purposes of determining the presence or absence of a quorum for the
transaction of business, broker non-votes should not be counted for purposes of
determining the number of Votes Cast with respect to the particular proposal on
which the broker has expressly not voted. The Company intends to treat broker
non-votes in a similar manner. Thus, a broker non-vote will not affect the
outcome of the voting on a proposal.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's 1999 Annual Meeting must be received by
the Company no later than November 27, 1998 in order that they may be considered
for inclusion in the proxy statement and form of proxy relating to that meeting.
PROPOSAL ONE:
ELECTION OF DIRECTORS
NOMINEES
The Company has authorized a Board of six directors, and six directors are
to be elected at the Annual Meeting. Each of the directors elected at the Annual
Meeting will hold office until the Annual Meeting of Stockholders in 1999 or
until his successor has been duly elected and qualified.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the Company's six nominees named below, all of whom are
currently directors of the Company. In the event that any nominee of the Company
becomes unable or declines to serve as a director at the time of the Annual
Meeting, the proxy holders will vote the proxies for any substitute nominee who
is designated by the current Board of Directors to fill the vacancy. It is not
expected that any nominee listed below will be unable or will decline to serve
as a director.
The names of the nominees for director and certain information about each
of them are set forth below.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
---- --- --------------------
<S> <C> <C>
Anthony J. Ley...... 59 Chairman of the Board of Directors, President and Chief
Executive Officer, Harmonic Lightwaves, Inc.
Moshe Nazarathy..... 46 Senior Vice President, General Manager Israel R&D
Center, Harmonic Lightwaves, Inc.
E. Floyd Kvamme..... 60 General Partner, Kleiner Perkins Caufield & Byers
David A. Lane....... 39 General Partner, Alpine Technology Ventures
Barry D. Lemieux.... 58 Retired; former President of American Cablesystems
Corporation
Michel L. 66 Retired; former Chairman and CEO of Schlumberger,
Vaillaud.......... Limited
</TABLE>
Except as indicated below, each nominee or incumbent director has been
engaged in the principal occupation set forth above during the past five years.
There are no family relationships between any directors or executive officers of
the Company.
Anthony J. Ley has served as the Company's President and Chief Executive
Officer since November 1988. Mr. Ley was elected Chairman of the Board of
Directors in February 1995. From 1963 to 1987, Mr. Ley was employed at
Schlumberger, both in Europe and the United States, holding various senior
business management and research and development positions, most recently as
Vice President, Research and Engineering at Fairchild Semiconductor/Schlumberger
in Palo Alto, California. Mr. Ley holds an M.A. in mechanical sciences from the
University of Cambridge and an S.M.E.E. from the Massachusetts Institute of
2
<PAGE> 5
Technology, is named as an inventor on 29 patents and is a Fellow of the I.E.E.
(U.K.) and a senior member of the I.E.E.E.
Moshe Nazarathy, a founder of the Company, has served as Senior Vice
President, General Manager of Israel R&D Center, since December 1993 and as a
director of the Company since the Company's inception. Dr. Nazarathy served as
Vice President, Research, from the Company's inception through December 1993.
From 1985 to 1988, Dr. Nazarathy was employed in the Photonics and Instruments
Laboratory of Hewlett-Packard Company, most recently serving as Principal
Scientist from 1987 to 1988. From 1982 to 1984, Dr. Nazarathy held post-doctoral
and adjunct professor positions at Stanford University. Dr. Nazarathy holds a
B.S. and a Ph.D. in electrical engineering from Technion-Israel Institute of
Technology and is named as an inventor on 12 patents.
E. Floyd Kvamme has been a director of the Company since January 1990.
Since 1984, Mr. Kvamme has been a general partner of Kleiner Perkins Caufield &
Byers, a venture capital firm. Mr. Kvamme is also a director of Prism Solutions,
Inc., Photon Dynamics, Inc., Power Integrations, Inc., TriQuint Semiconductor,
Inc., and several private companies. Mr. Kvamme holds a B.S.E.E. from the
University of California, Berkeley and an M.S.E.E. from Syracuse University.
David A. Lane has been a director of the Company since June 1992. Since
December 1994, Mr. Lane has been a general partner and co-founder of Alpine
Technology Ventures, a venture capital firm. From August 1987 to December 1994,
he was a Vice President at the Harvard Private Capital Group, the investment
affiliate through which the Harvard Management Company makes private and direct
investments. Mr. Lane is also a director of several private companies. Mr. Lane
holds a B.S.E.E. from the University of Southern California and an M.B.A. from
Harvard University.
Barry D. Lemieux has been a director of the Company since January 1996. Now
retired, from 1978 to 1988 Mr. Lemieux was with American Cablesystems
Corporation, most recently as President and Chief Operating Officer. In addition
to marketing and general management positions with the New York Telephone
Company and Continental Cablevision, Mr. Lemieux has served on numerous cable
television industry committees, is a former director of the Cable Advertising
Bureau (CAB) and past Chairman of the Cable Television Administration and
Marketing Society (CTAM). Mr. Lemieux holds a B.A. in history from Hofstra
University and an M.A.T. from Harvard University.
Michel L. Vaillaud has been a director of the Company since March 1997. Now
retired, from 1973 to 1986 Mr. Vaillaud was with Schlumberger, Limited, most
recently as Chairman and Chief Executive Officer. He is a graduate of Ecole
Polytechnique in Paris and Ecole Nationale Superieure des Mines in Paris. He
serves as a Trustee of the Institute of Advanced Studies in Princeton, New
Jersey.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of 7 meetings during the
fiscal year ended December 31, 1997. No incumbent director attended fewer than
75% of the meetings of the Board of Directors or the committees upon which such
director served during 1997, except for Mr. Vaillaud who attended 3 of the 5
meetings held subsequent to his appointment as a director.
The Board of Directors has an Audit Committee and a Compensation Committee.
The Board of Directors has no nominating committee or any committee performing
similar functions.
The Audit Committee currently consists of Messrs. Kvamme and Vaillaud. The
Audit Committee principally reviews the scope and results of the annual audit of
the financial statements and other services provided by the Company's
independent auditors. In addition, the Audit Committee reviews the information
provided to stockholders and the Company's systems of internal controls. The
Audit Committee held 4 meetings during 1997.
The Compensation Committee currently consists of Messrs. Kvamme and
Lemieux. The Compensation Committee is responsible for reviewing and approving
the Company's compensation policies and the compensation paid to executive
officers. This committee held 2 meetings during 1997.
3
<PAGE> 6
COMPENSATION OF DIRECTORS
During 1997, each non-employee director was paid a retainer of $6,000 and a
fee of $1,000 for attendance at each Board meeting, plus reasonable expenses.
The 1995 Director Option Plan provides for the grant of nonstatutory stock
options to certain non-employee directors of the Company who are not
representatives or beneficial owners of certain affiliated investment funds, by
means of an automatic, non-discretionary grant mechanism. Each eligible outside
director is granted an option to purchase 2,000 shares of Common Stock upon
election to the Board of Directors and a further option to purchase 2,000 shares
on the date of re-election to the Board if on such date, he shall have served on
the Board for at least six months.
VOTE REQUIRED AND RECOMMENDATION
The six nominees receiving the highest number of affirmative votes of the
shares entitled to vote on this matter shall be elected as directors. Votes
withheld from any director will be counted for purposes of determining the
presence or absence of a quorum but are not counted as affirmative votes. A
broker non-vote will be counted for purposes of determining the presence or
absence of a quorum, but, under Delaware law, it will have no other legal effect
upon the election of directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE NOMINEES SET
FORTH ABOVE.
PROPOSAL TWO:
AMENDMENT OF 1995 STOCK PLAN
At the Annual Meeting, the stockholders are being asked to approve an
amendment of the Company's 1995 Stock Plan (the "Option Plan") to increase the
number of shares of Common Stock reserved for issuance thereunder by 575,000
shares to a total of 1,620,000 shares. The adoption of the Plan was approved by
the Board of Directors in March 1995 and became effective upon the Company's
initial public offering in May 1995. As of March 11, 1998, options to purchase
an aggregate of 905,072 shares of the Company's Common Stock were outstanding
under the Option Plan, with a weighted average exercise price of $15.28 per
share, and 32,179 shares have been issued upon exercise of stock options granted
under the Option Plan. Accordingly, as of March 11, 1998, only 107,749 shares
were available for future grant under the Option Plan (excluding the 575,000
shares subject to approval at the Annual Meeting). A copy of the Option Plan is
attached to this Proxy Statement as Appendix A.
The Option Plan authorizes the Board of Directors to grant stock options to
eligible employees and consultants of the Company. The Option Plan is structured
to allow the Board of Directors to create equity incentives in order to assist
the Company in attracting, retaining and motivating the best available personnel
for the successful conduct and growth of the Company's business. The Committee
believes that the Option Plan is an essential tool to link the long-term
interests of stockholders and employees and serves to motivate executives to
make decisions that will, in the long run, give the best returns to
stockholders. The Company has, therefore, consistently included equity
incentives as a significant component of compensation for a broad range of the
Company's employees. This practice has enabled the Company to attract and retain
the employees that it continues to require in an increasingly competitive market
for managerial and technical talent.
The Board of Directors believe that the remaining shares available for
grant under the Option Plan are insufficient to accomplish the purposes of the
Option Plan described above. In order to support its continued growth, the
Company currently intends to hire additional employees at all levels during
fiscal 1998 and will be required to offer equity incentives to attract and
motivate these individuals. Additionally, in order to retain the services of
valuable employees as the Company matures and its employee base grows larger, it
will be necessary to grant additional options to current employees as older
options become fully vested.
4
<PAGE> 7
SUMMARY OF THE PLAN
General. The Option Plan authorizes the Board of Directors (the "Board"),
or one or more committees which the Board may appoint from among its members
(the "Committee"), to grant options and rights to purchase Common Stock. Options
granted under the Option Plan may be either "incentive stock options" as defined
in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
nonstatutory stock options, as determined by the Board or the Committee.
Administration. The Option Plan may be administered by the Board or the
Committee. Subject to the other provisions of the Option Plan, the Board has the
authority to: (i) interpret the plan and apply its provisions; (ii) prescribe,
amend or rescind rules and regulations relating to the Option Plan; (iii) select
the persons to whom options and rights are to be granted; (iv) determine the
number of shares to be made subject to each option and right; (v) determine
whether and to what extent options and rights are to be granted; (vi) prescribe
the terms and conditions of each option and right (including the exercise price,
whether an option will be classified as an incentive stock option or a
nonstatutory option and the provisions of the stock option or stock purchase
agreement to be entered into between the Company and the grantee); (vii) amend
any outstanding option or right subject to applicable legal restrictions; (viii)
authorize any person to execute, on behalf of the Company, any instrument
required to effect the grant of an option or right; and (ix) subject to certain
limitations take any other actions deemed necessary or advisable for the
administration of the Option Plan. All decisions, interpretations and other
actions of the Committee shall be final and binding on all holders of options or
rights and on all persons deriving their rights therefrom.
Eligibility. The Option Plan provides that options and rights may be
granted to the Company's employees and independent consultants. Incentive stock
options may be granted only to employees. Any optionee who owns more than 10% of
the combined voting power of all classes of outstanding stock of the Company (a
"10% Stockholder") is not eligible for the grant of an incentive stock option
unless the exercise price of the option is at least 110% of the fair market
value of the Common Stock on the date of grant.
Terms and Conditions of Options. Each option granted under the Option Plan
is evidenced by a written stock option agreement between the optionee and the
Company and is subject to the following terms and conditions:
(a) Exercise Price. The Board or the Committee determines the exercise
price of options at the time the options are granted. However, excluding
options issued to 10% Stockholders, the exercise price of an incentive
stock option must not be less than 100% of the fair market value of the
Common Stock on the date the option is granted, and the exercise price
under a nonstatutory option shall be determined by the administrator of the
Option Plan, but may not be less than 85% of the fair market value of the
Common Stock on the date the option is granted. As the Company's Common
Stock is listed on the Nasdaq, the fair market value is the closing sale
price for the Common Stock (or the closing bid if no sales were reported)
on the date the option is granted.
(b) Form of Consideration. The means of payment for shares issued upon
exercise of an option is specified in each option agreement and generally
may be made by cash, check, a full-recourse promissory note, other shares
of Common Stock of the Company owned by the optionee, delivery of an
exercise notice together with irrevocable instructions to a broker to
deliver the exercise price to the Company from sale or loan proceeds, or by
a combination thereof.
(c) Exercise of the Option. Each stock option agreement will specify
the term of the option and the date when the option is to become
exercisable. However, in no event shall an option granted under the Option
Plan be exercised more than 10 years after the date of grant. Moreover, in
the case of an incentive stock option granted to a 10% Stockholder, the
term of the option shall be for no more than five years from the date of
grant. To date, all options granted under the Option Plan have vested 25%
on the first anniversary from the date of grant and 1/48 per month
thereafter.
(d) Termination of Employment. If an optionee's employment terminates
for any reason (other than death or permanent disability), then all options
held by such optionee under the Option Plan expire upon the earlier of (i)
such period of time as is set forth in his or her option agreement (but not
to exceed three months after the termination of his or her employment in
the event of an incentive stock option) or
5
<PAGE> 8
(ii) the expiration date of the option. The optionee may exercise all or
part of his or her option at any time before such expiration to the extent
that such option was exercisable at the time of termination of employment.
(e) Permanent Disability. If an employee is unable to continue
employment with the Company as a result of permanent and total disability
(as defined in the Code), then all options held by such optionee under the
Option Plan shall expire upon the earlier of (i) 12 months after the date
of termination of the optionee's employment or (ii) the expiration date of
the option. The optionee may exercise all or part of his or her option at
any time before such expiration to the extent that such option was
exercisable at the time of termination of employment.
(f) Death. If an optionee dies while employed by the Company, his or
her option shall expire upon the earlier of (i) 12 months after the
optionee's death or (ii) the expiration date of the option. The executors
or other legal representative or the optionee may exercise all or part of
the optionee's option at any time before such expiration to the extent that
such option was exercisable at the time of death.
(g) Termination of Options. Each stock option agreement will specify
the term of the option and the date when all or any installment of the
option is to become exercisable. Notwithstanding the foregoing, however,
the term of any incentive stock option shall not exceed 10 years from the
date of grant. No options may be exercised by any person after the
expiration of its term.
(h) Nontransferability of Options. During an optionee's lifetime, his
or her option(s) shall be exercisable only by the optionee and shall not be
transferable other than by will or laws of descent and distribution.
(i) Limitations. If the aggregate fair market value of all shares of
Common Stock subject to an optionee's incentive stock option which are
exercisable for the first time during any calendar year exceeds $100,000,
the excess options shall be treated as nonstatutory options. In addition,
no employee shall be granted in any fiscal year of the Company options and
rights to purchase more than 300,000 shares.
(j) Other Provisions. The stock option agreement may contain such
terms, provisions and conditions that are inconsistent with the Option Plan
as may be determined by the Board or the Committee.
Stock Purchase Rights. The Option Plan permits the Company to grant rights
to purchase Common Stock either alone or in tandem with other awards granted
under the Option Plan and/or cash awards made outside of the Option Plan. Rights
may be granted to purchase up to an aggregate of 165,249 shares of Common Stock
(which is equal to the sum of the 107,749 shares available for future grant as
of the Record Date plus 57,500 shares or 10% of the 575,000 share increase which
is the subject of this Proposal Two). The offer of a right must be accepted
within six months of its grant by the execution of a restricted stock purchase
agreement between the Company and the offeree and the payment of the purchase
price of the shares. Unless the Board or the Committee determines otherwise, the
restricted stock purchase agreement shall grant the Company a repurchase option
exercisable upon termination of the purchaser's employment or consulting
relationship with the Company. The purchase price for any shares repurchased by
the Company shall be the original price paid by the purchaser. The repurchase
option shall lapse at such rate as the Board or the Committee may determine.
Adjustment Upon Changes in Capitalization, Corporate Transactions. In the
event that the stock of the Company is changed by reason of any stock split,
reverse stock split, stock dividend, recapitalization or other change in the
capital structure of the Company, appropriate proportional adjustments shall be
made in the number and class of shares of stock subject to the Option Plan, the
number and class of shares of stock subject to any option or right outstanding
under the Option Plan, and the exercise price of any such outstanding option or
right. Any such adjustment shall be made upon approval of the Board and, if
required, the stockholders of the Company, whose determination shall be
conclusive. Notwithstanding the above, in connection with any merger,
consolidation, acquisition of assets or like occurrence involving the Company,
each outstanding option and right may be assumed or an equivalent option or
right may be substituted by a successor corporation. The Administrator may, in
lieu of such assumption or substitution, provide (i) for the Optionee to have
the right to exercise the Option or Stock Purchase Right as to all or a portion
of the Optioned Stock, including Shares as to which it would not otherwise be
exercisable, and (ii) for any Restricted Stock held by an Optionee to become
fully vested.
6
<PAGE> 9
Amendment, Suspensions and Termination of the Plan. The Board may amend,
suspend or terminate the Option Plan at any time; provided, however, that
stockholder approval is required for any amendment to the extent necessary to
comply with Rule 16b-3 promulgated under the Securities Exchange Act of 1934
("Rule 16b-3") or Section 422 of the Code, or any similar rule or statute. In
any event, the Option Plan will terminate automatically in 2005.
Federal Tax Information. Options granted under the Option Plan may be
either "incentive stock options," as defined in Section 422 of the Code, or
nonstatutory options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to alternative minimum tax. Upon
the sale or exchange of the shares more than two years after grant of the option
and one year after exercising the option, any gain or loss will be treated as
long-term capital gain or loss. Net capital gains on shares held between 12 and
18 months are currently taxed at a maximum federal rate of 28%. Net capital
gains on shares held for more than 18 months are capped at 20%. Capital losses
may be deducted in full against capital gains and may be deducted from other
income up to a maximum of $3,000. If these holding periods are not satisfied,
the optionee will recognize ordinary income at the time of sale or exchange
equal to the difference between the exercise price and the lower of (i) the fair
market value of the shares at the date of the option exercise or (ii) the sale
price of the shares. A different rule for measuring ordinary income upon such a
premature disposition may apply if the optionee is also an officer, director, or
10% stockholder of the Company. The Company will be entitled to a deduction in
the same amount as the ordinary income recognized by the optionee. Any gain or
loss recognized on such a premature disposition of the shares in excess of the
amount treated as ordinary income will be characterized as long-term or
short-term capital gain or loss, depending on the holding period.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time he is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize taxable income generally measured as the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by an
optionee who is also an employee of the Company will be subject to tax
withholding by the Company. Upon resale of such shares by the optionee, any
difference between the sale price and the optionee's purchase price, to the
extent not recognized as taxable income as described above, will be treated as
long-term or short-term capital gain or loss, depending on the holding period.
Unless limited by Section 162 (M) of the Code, the Company will be entitled
to a tax deduction in the same amount as the ordinary income recognized by the
optionee with respect to shares acquired upon exercise of a nonstatutory option.
A recipient of restricted stock will have ordinary income equal to the fair
market value of the shares at the time if and when the share restrictions lapse.
Under current federal tax law, however, the employee may elect to include as
ordinary income for the year of the award the fair market value of the shares on
the grant date. The restrictions on the shares will not affect fair market value
for purposes of such an election. If the election is made, the recipient will
not incur additional tax liability until the sale or disposition of the shares.
Unless limited by Section 162 (M) of the Code, the Company is entitled to a
federal tax deduction in the same amount and at the same time as the employee
realizes ordinary income.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Option Plan, does not purport to be complete, and does not
discuss the tax consequences of the optionee's death or the income tax laws of
any municipality, state or foreign country in which an optionee may reside.
VOTE REQUIRED AND RECOMMENDATION
The affirmative vote of a majority of the Votes Cast will be required to
approve the amendment to the Option Plan.
7
<PAGE> 10
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE APPROVAL OF
THE AMENDMENT TO THE STOCK PLAN.
PROPOSAL THREE:
AMENDMENT OF EMPLOYEE STOCK PURCHASE PLAN
The Company's stockholders are being asked to approve an amendment to the
Company's Employee Stock Purchase Plan (the "Purchase Plan") which will increase
the maximum number of shares of Common Stock authorized for issuance over the
term of the Purchase Plan by an additional 200,000 shares to 400,000 shares.
The Purchase Plan was adopted in March 1995. The Purchase Plan became
effective in May 1995 in connection with the initial public offering of the
Company's Common Stock. In January 1998, the Board of Directors adopted the
amendment to the Purchase Plan which is the subject of this Proposal Three.
The purpose of the share increase is to ensure that the Company will
continue to have a sufficient reserve of Common Stock available under the
Purchase Plan to provide eligible employees of the Company with the opportunity
to acquire a proprietary interest in the Company through participation in a
payroll-deduction based employee stock purchase plan under Section 423 of the
Internal Revenue Code.
As of March 11, 1998, 160,633 shares of Common Stock had been issued under
the Purchase Plan, and 39,367 shares were available for future issuance,
assuming approval of this Proposal Three. As of March 11, 1998, the Company
estimates that approximately 249 employees, including 5 executive officers, were
eligible to participate in the Purchase Plan.
The following is a summary of the principal features of the Purchase Plan,
as amended. The summary, however, does not purport to be a complete description
of all the provisions of the Purchase Plan. A copy of the Plan is attached to
this Proxy Statement as Appendix B.
Administration. The Purchase Plan is currently administered by the
Compensation Committee of the Board of Directors. Such committee, as Plan
Administrator, has full authority to adopt administrative rules and procedures
and to interpret the provisions of the Purchase Plan. All costs and expenses
incurred in plan administration are paid by the Company without charge to
participants.
Securities Subject to the Purchase Plan. 400,000 shares of Common Stock
have been reserved for issuance over the ten year term of the Purchase Plan,
including the 200,000 share increase for which stockholder approval is sought
under this Proposal Three.
In the event that any change is made to the Company's outstanding Common
Stock (whether by reason of any recapitalization, stock dividend, stock split,
exchange or combination of shares or other change in corporate structure
effected without the Company's receipt of consideration), appropriate
adjustments will be made to (i) the class and maximum number of securities
issuable over the term of the Purchase Plan, (ii) the class and maximum number
of securities purchasable per participant on any one semi-annual purchase date
and (iii) the class and number of securities and the price per share in effect
under each outstanding purchase right.
Offering Periods and Purchase Rights. Shares of Common Stock are offered
under the Purchase Plan through a series of successive offering periods, each
with a maximum duration of twenty-four (24) months. The first offering period
began on May 22, 1995, in connection with the initial public offering of the
Company's Common Stock.
At the time the participant joins the offering period, he or she is granted
a purchase right to acquire shares of Common Stock at semi-annual intervals over
the remainder of that offering period. The purchase of
8
<PAGE> 11
stock will occur on the last business day of June and December each year, and
all payroll deductions collected from the participant for the period ending with
each such semi-annual purchase date will automatically be applied to the
purchase of Common Stock.
Eligibility and Participation. Any individual who is employed on a basis
under which he or she is expected to work for more than 20 hours per week for
more than five (5) months per calendar year in the employ of the Company or any
participating subsidiary corporation (including any corporation which
subsequently becomes such at any time during the term of the Purchase Plan) is
eligible to participate in the Purchase Plan.
An individual who is an eligible employee on the start date of any offering
period may join that offering period at that time or on any subsequent
semi-annual entry date (the first business day in January or July each year)
within that offering period. An individual who first becomes an eligible
employee after such start date may join the offering period on any semi-annual
entry date within that offering period on which he or she is an eligible
employee.
Purchase Price. The purchase price of the Common Stock acquired on each
semi-annual purchase date will be equal to 85% of the lower of (i) the fair
market value per share of Common Stock on the participant's entry date into the
offering period or (ii) the fair market value on the semi-annual purchase date.
However, the clause (i) amount for any participant whose entry date is other
than the start date of the offering period will not be less than the fair market
value per share of Common Stock on that start date.
The fair market value of the Common Stock on any relevant date under the
Purchase Plan will be deemed to be equal to the closing price per share on such
date on the Nasdaq National Market. On December 31, 1997, the fair market value
per share of Common Stock determined on such basis was $10.88 per share.
Payroll Deductions and Stock Purchases. Each participant may authorize
periodic payroll deductions in any multiple of 1% (up to a maximum of 10%) of
his or her base salary each offering period to be applied to the acquisition of
Common Stock on each semi-annual purchase date. The payroll deductions of each
participant will automatically be applied on each semi-annual purchase date (the
last business day in June and December of each year) to the purchase of whole
shares of Common Stock at the purchase price in effect for the participant for
that purchase date.
Special Limitations. The Purchase Plan imposes certain limitations upon a
participant's right to acquire Common Stock, including the following:
- Purchase rights may not be granted to any individual who owns stock
(including stock purchasable under any outstanding purchase rights)
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company or any of its affiliates.
- Purchase rights granted to a participant may not permit such individual
to purchase more than $25,000 worth of Common Stock (valued at the time
each purchase right is granted) for each calendar year those purchase
rights are outstanding at any time.
- No participant may purchase more than a number of shares of Common Stock
determined by dividing $12,500 by the Fair Market Value of a share of
Common Stock on the Enrollment Date on any semi-annual purchase date.
Termination of Purchase Rights. The participant may withdraw from the
Purchase Plan at any time, and his or her accumulated payroll deductions will be
refunded promptly.
The participant's purchase right will immediately terminate upon his or her
cessation of employment or loss of eligible employee status. Any payroll
deductions which the participant may have made for the semi-annual period in
which such cessation of employment or loss of eligibility occurs will be
refunded and will not be applied to the purchase of Common Stock.
Stockholder Rights. No participant will have any stockholder rights with
respect to the shares covered by his or her purchase rights until the shares are
actually purchased on the participant's behalf. No adjustment
9
<PAGE> 12
will be made for dividends, distributions or other rights for which the record
date is prior to the date of such purchase.
Assignability. No purchase rights will be assignable or transferable by the
participant, and the purchase rights will be exercisable only by the
participant.
Change in Control. In the event of a proposed sale of all or substantially
all of the assets of the Company, or the merger of the Company with or into
another corporation, each option under the Plan shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Board determines, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
to shorten the Offering Periods then in progress by setting a new Exercise Date
(the "New Exercise Date"). If the Board shortens the Offering Periods then in
progress in lieu of assumption or substitution in the event of a merger or sale
of assets, the Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for his
option has been changed to the New Exercise Date and that his option will be
exercised automatically on the New Exercise Date, unless prior to such date he
has withdrawn from the Offering Period as provided in Section 10 hereof. For
purposes of this paragraph, an option granted under the Plan shall be deemed to
be assumed if, following the sale of assets or merger, the option confers the
right to purchase, for each share of option stock subject to the option
immediately prior to the sale of assets or merger, the consideration (whether
stock, cash or other securities or property) received in the sale of assets or
merger by holders of Common Stock for each share of Common Stock held on the
effective date of the transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if such
consideration received in the sale of assets or merger was not solely common
stock of the successor corporation or its parent (as defined in Section 424(e)of
the Code), the Board may, with the consent of the successor corporation, provide
for the consideration to be received upon exercise of the option to be solely
common stock of the successor corporation or its parent equal in fair market
value to the per share consideration received by holders of Common Stock and the
sale of assets or merger.
Share Pro-Ration. Should the total number of shares of Common Stock to be
purchased pursuant to outstanding purchase rights on any particular date exceed
the number of shares at the time available for issuance under the Purchase Plan,
then the Plan Administrator will make a pro-rata allocation of the available
shares on a uniform and nondiscriminatory basis, and the payroll deductions of
each participant, to the extent in excess of the aggregate purchase price
payable for the Common Stock allocated to such individual, will be refunded.
Amendment and Termination. The Purchase Plan will terminate after ten years
unless terminated earlier by the Board of Directors.
The Board may at any time alter, suspend or discontinue the Purchase Plan.
However, the Board may not, without stockholder approval, (i) increase the
number of shares issuable under the Purchase Plan or the maximum number of
shares purchasable per participant on any one semi-annual purchase date, except
in connection with certain changes in the Company's capital structure, (ii)
alter the purchase price formula so as to reduce the purchase price or (iii)
modify the requirements for eligibility to participate in the Purchase Plan.
Federal Tax Consequences. The Purchase Plan is intended to be an "employee
stock purchase plan" within the meaning of Section 423 of the Internal Revenue
Code. Under a plan which so qualifies, no taxable income will be recognized by a
participant, and no deductions will be allowable to the Company, upon either the
grant or the exercise of the purchase rights. Taxable income will not be
recognized until there is a sale or other disposition of the shares acquired
under the Purchase Plan or in the event the participant should die while still
owning the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after his or her entry date into the offering period in
which such shares were acquired or within one (1) year after the semi-annual
purchase date on which those shares were actually acquired, then the participant
will recognize ordinary income in the year of sale or disposition equal to the
amount by which the fair market value of the
10
<PAGE> 13
shares on the purchase date exceeded the purchase price paid for those shares,
and, unless limited by Section 162 (M) of the Code, the Company will be entitled
to an income tax deduction, for the taxable year in which such disposition
occurs, equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than two
(2) years after his or her entry date into the offering period in which the
shares were acquired and more than one (1) year after the semi-annual purchase
date of those shares, then the participant will recognize ordinary income in the
year of sale or disposition equal to the lower of (i) the amount by which the
fair market value of the shares on the sale or disposition date exceeded the
purchase price paid for those shares or (ii) fifteen percent (15%) of the fair
market value of the shares on the participant's entry date into that offering
period. Any additional gain upon the disposition will be taxed as a long-term
capital gain. Net capital gains on shares held between 12 and 18 months are
currently taxed at a maximum federal rate of 28%. Net capital gains on shares
held for more than 18 months are capped at 20%. Capital losses may be deducted
in full against capital gains and may be deducted from other income up to a
maximum of $3,000. The Company will not be entitled to an income tax deduction
with respect to such disposition.
If the participant still owns the purchased shares at the time of death,
his or her estate will recognize ordinary income in the year of death equal to
the lower of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) fifteen percent (15%) of the
fair market value of the shares on his or her entry date into the offering
period in which those shares were acquired.
Accounting Treatment. The issuance of Common Stock under the Purchase Plan
will not result in a direct compensation expense chargeable against the
Company's reported earnings. However, the Company must disclose, in pro-forma
statements to the Company's financial statements, the impact the purchase rights
granted under the Purchase Plan would have upon the Company's reported earnings
were the value of those purchase rights treated as compensation expense.
Stock Issuances. The table that follows shows, as to each of the Company's
executive officers named in the Summary Compensation Table of the Executive
Compensation and Additional Information section of this Proxy Statement and the
various indicated groups, the number of shares of Common Stock purchased under
the Purchase Plan between the May 22, 1995 effective date of the Purchase Plan
and the December 31, 1997 purchase date, together with the weighted average
purchase price paid per share.
PURCHASE PLAN TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER
OF WEIGHTED
PURCHASED AVERAGE
NAME SHARES PURCHASE PRICE
---- --------- --------------
<S> <C> <C>
Anthony J. Ley.............................................. 3,213 $ 9.69
Moshe Nazarathy............................................. 3,670 9.69
Michael Yost................................................ -- --
Robin N. Dickson............................................ 3,491 9.69
John E. Dahlquist........................................... 1,029 11.59
All current executive officers as a group (5 persons)....... 11,403 10.17
All current non-employee directors as a group (4 persons)... -- --
All employees, including current officers who are not
executive officers, as a group (203 persons).............. 149,230 9.96
</TABLE>
New Plan Benefits. No purchase rights have been granted, and no shares of
Common Stock have been issued, under the Purchase Plan on the basis of the
200,000 share increase for which stockholder approval is sought under this
Proposal Three.
11
<PAGE> 14
VOTE REQUIRED AND RECOMMENDATION
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the 1998 Annual Meeting
is required for approval of the amendment to the Purchase Plan. Should such
stockholder approval not be obtained, then the amendment will not be
implemented. No additional purchase rights will be granted on the basis of such
share increase, and the Purchase Plan will terminate once the existing share
reserve has been issued.
The amendment to the Purchase Plan is necessary in order to continue to
provide equity incentives to attract and retain the services of high quality
employees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE APPROVAL OF
THE AMENDMENT TO THE PURCHASE PLAN.
PROPOSAL FOUR:
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Price Waterhouse LLP, independent
accountants, to audit the financial statements of the Company for the year
ending December 31, 1998. Price Waterhouse LLP has served as the Company's
independent accountants since 1989. In the event of a negative vote on the
ratification of Price Waterhouse LLP, the Board of Directors will reconsider its
selection. Representatives of Price Waterhouse LLP are expected to be present at
the Annual Meeting and will have the opportunity to make a statement if they so
desire. The representatives also are expected to be available to respond to
appropriate questions from stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE RATIFICATION
OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1998.
12
<PAGE> 15
ADDITIONAL INFORMATION
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information
regarding the compensation of the Chief Executive Officer of the Company and the
other four most highly compensated executive officers of the Company whose
salary plus bonus exceeded $100,000 in the last fiscal year (collectively, the
"Named Executive Officers") for services rendered in all capacities to the
Company during the fiscal years ended December 31, 1995, December 31, 1996 and
December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(1) ---------------------
---------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
--------------------------- ---- --------- --------- ---------------------
<S> <C> <C> <C> <C>
Anthony J. Ley...................... 1997 $275,000 $ 0 25,000
Chairman of the Board, President 1996 230,000 100,000 25,000 45,000
and Chief Executive Officer 1995 205,000 53,198
Moshe Nazarathy..................... 1997 157,909 0 13,000
Senior Vice President, General 1996 149,141 49,000 12,000 25,000
Manager of Israel R&D Center 1995 131,594 35,465
Michael Yost........................ 1997 160,000 0 13,000
Vice President, Operations 1996 143,000 45,000 11,450 --
1995 130,000 37,435
Robin N. Dickson.................... 1997 145,000 0 13,000
Chief Financial Officer 1996 127,000 46,000 10,200 --
1995 115,000 37,435
John E. Dahlquist................... 1997 135,000 0 --
Vice President, Marketing 1996 128,000 35,000 10,250 --
1995 120,000 33,495
</TABLE>
- ---------------
(1) Other than compensation described above, the Company did not pay any Named
Executive Officer any compensation, including incidental personal benefits,
in excess of 10% of such executive officer's salary.
OPTION GRANTS AND EXERCISES
The following table sets forth certain information with respect to stock
option grants during the fiscal year ended December 31, 1997 to the Named
Executive Officers.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
----------------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OPTION TERM(2)
OPTIONS TO EMPLOYEES IN EXERCISE OR EXPIRATION --------------------------
NAME GRANTED(1) FISCAL YEAR BASE PRICE DATE 5% 10%
---- ---------- ----------------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Ley 25,000 5.2% $20.88 7/14/07 $328,200 $831,725
Moshe Nazarathy 13,000 2.7% 20.88 7/14/07 170,664 432,497
Michael Yost 13,000 2.7% 20.88 7/14/07 170,664 432,497
Robin N. Dickson 13,000 2.7% 20.88 7/14/07 170,664 432,497
John E. Dahlquist -- -- -- -- -- --
</TABLE>
- ---------------
(1) The options were granted pursuant to the Company's 1995 Stock Plan, and
become exercisable at a rate of 1/4 of the shares subject to the option one
year after the date of grant and an additional 1/48 of the shares
13
<PAGE> 16
at the end of each month thereafter, subject to continued service as an
employee. The term of each option is ten years.
(2) Potential gains are net of the exercise price but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future Common Stock price. Actual gains, if any, on stock option exercises
will depend on the future financial performance of the Company, overall
market conditions and the option holders' continued employment through the
vesting period.
AGGREGATE OPTION EXERCISES IN FISCAL 1997 AND YEAR-END VALUES
The following table provides information with respect to the exercise of
stock options during 1997 and the value of stock options held as of December 31,
1997 by each of the Named Executive Officers under the 1988 Stock Option Plan
and the 1995 Stock Plan.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT 12/31/97 OPTIONS AT 12/31/97(2)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Ley -- $ -- 183,541 53,126 $1,465,404 $20,850
Moshe Nazarathy -- -- 55,056 28,105 318,780 14,934
Michael Yost 15,833 250,661 41,736 20,214 383,768 16,562
Robin N. Dickson -- -- 45,720 19,147 415,587 12,217
John E. Dahlquist -- -- 51,911 5,339 487,222 4,672
</TABLE>
- ---------------
(1) Value realized represents the difference between the exercise price of the
options and the fair market value of the underlying securities on the date
of exercise.
(2) Calculated by determining the difference between the fair market value of
the Common Stock as of December 31, 1997 and the exercise price of the
underlying options.
EMPLOYMENT AGREEMENTS
The Company has entered into agreements with each of Mr. Ley, Dr.
Nazarathy, Mr. Yost and Mr. Dickson which provide that in the event of
termination within eighteen months of a change in control of the Company, Mr.
Ley will receive a lump-sum payment of eighteen months' salary and benefits, and
Dr. Nazarathy, Mr. Yost and Mr. Dickson will each receive a lump-sum payment of
one year's salary and benefits. These agreements also provide for the
acceleration of unvested stock options held by the Named Executive Officer,
subject to certain conditions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
Messrs. Kvamme and Lemieux. No member of the Compensation Committee or executive
officer of the Company has a relationship that would constitute an interlocking
relationship with executive officers or directors of another entity.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The members of the Compensation Committee of the Board of Directors are
Messrs. Kvamme and Lemieux, neither of whom is an employee of the Company.
The Compensation Committee is responsible for the approval of the Company's
executive compensation policies. The Committee reviews and approves the base
salary and incentive compensation paid to executive officers and administers the
Company's Stock Option and Stock Purchase Plans. The Company's Board of
Directors reviews and approves all stock option grants.
14
<PAGE> 17
Compensation Philosophy
The Company's executive compensation programs are designed to attract,
motivate and retain executives who will contribute significantly to the
long-term success of the Company and the enhancement of stockholder value. In
addition to base salary, certain elements of total compensation are payable in
the form of variable incentive plans tied to the performance of the Company and
the individual, and in equity-based plans designed to closely align executive
and stockholder interests.
The three key components of executive compensation in 1997 were:
- Base Salary
- Incentive Bonus Plan
- Stock Option Plan
Base Salary
Base salary for executives, including that of the chief executive officer,
is set according to the responsibilities of the position, the specific skills
and experience of the individual and the competitive market for executive
talent. In order to evaluate the competitive position of the Company's salary
structure, the Committee makes reference to compensation surveys of comparable
companies in the high-technology sector, the Company's industry and the
Company's geographic location. Executive salary levels are set to approximate
average rates, with the intent that superior performance under incentive bonus
plans will enable the executive to elevate his total cash compensation to levels
that are above the average of comparable companies. The Committee reviews
salaries annually and adjusts them as appropriate to reflect changes in market
conditions and individual performance and responsibilities.
Incentive Bonus Plan
The Company's annual incentive bonus plan reflects the Committee's belief
that a meaningful component of executive compensation should be contingent on
the performance of the Company and the individual executive officer. In 1997,
the Company's incentive bonus plan was based upon the attainment of certain
revenue and profit goals. Target bonuses of approximately 40% -- 45% of base
salary were established for each individual. The Committee retained the
discretion to adjust a portion of the actual bonus according to the Committee's
evaluation of each individual's performance. The Company's financial performance
for 1997, in which net sales grew 22% over the previous year and net income was
$4.9 million, compared to $5.9 million in 1996, generated no bonus payments for
executives, including the Chief Executive Officer.
Stock Option Plan
The Committee believes that the Company's 1995 Stock Plan (the "Option
Plan") is an essential tool to link the long-term interests of stockholders and
employees, especially executive management, and serves to motivate executives to
make decisions that will, in the long run, give the best returns to
stockholders. Stock options are generally granted when an executive joins the
Company, and on at least a bi-annual basis thereafter. These options typically
vest over a four year period and are granted at an exercise price equal to the
fair market value of the Company's Common Stock at the date of grant. The size
of initial option grants is based upon the position, responsibilities and
expected contribution of the individual, with subsequent grants also taking into
account the individual's performance and the vesting status of previously
granted options. This approach is designed to maximize stockholder value over a
long term, as no benefit is realized from the option grant unless the price of
the Company's Common Stock has increased over a number of years.
In addition to the Option Plan, executive officers are eligible to
participate in the Company's 1995 Employee Stock Purchase Plan. This Plan allows
eligible employees to purchase the Company's Common Stock at a price equal to
85% of the lower of the fair market value at the beginning of the offering
period or the fair market value at the end of the purchase period, with the
amount of discount limited to 10% of base salary.
Other elements of executive compensation include life and long-term
disability insurance, medical benefits and a 401(k) deferred compensation plan.
The Company makes matching contributions to the
15
<PAGE> 18
401(k) plan up to $750 per annum per participant. All such benefits are
available to all regular, full-time U.S. employees of the Company.
The compensation of the Chief Executive Officer in 1997 was determined in a
manner substantially consistent with that of other executive officers.
COMPENSATION COMMITTEE
E. Floyd Kvamme
Barry D. Lemieux
16
<PAGE> 19
PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change in
the cumulative return to the stockholders of the Company's Common Stock with the
cumulative return of the Standard & Poor's 500 Index and of a peer group of
cable television industry equipment suppliers for the period commencing May 22,
1995 (the date of the Company's initial public offering) and ending on December
31, 1997. The graph assumes that $100 was invested in the Company's Common Stock
on May 22, 1995 at the initial public offering price and in the S&P 500 and a
peer group index on May 22, 1995. Historic stock price performance is not
necessarily indicative of future stock price performance.
<TABLE>
<CAPTION>
HARMONIC
Measurement Period LIGHTWAVES PEER GROUP
(Fiscal Year Covered) INC. INDEX S&P 500 INDEX
<S> <C> <C> <C>
5/22/94 100.00 100.00 100.00
12/13/95 81.48 75.80 117.11
12/31/96 113.93 71.59 144.00
12/31/97 80.59 95.29 192.04
</TABLE>
The information contained above under the captions "Report of the Board of
Directors on Executive Compensation" and "Performance Graph" shall not be deemed
to be "soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates it by reference into such filing.
17
<PAGE> 20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of the
Record Date by (i) each beneficial owner of more than 5% of the Company's Common
Stock, (ii) each director and each nominee, (iii) each Named Executive Officer
and (iv) all directors and executive officers as a group. Except as otherwise
indicated, each person has sole voting and investment power with respect to all
shares shown as beneficially owned, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES TOTAL
------------------------------------ --------- ----------
<S> <C> <C>
Franklin Resources, Inc.(1)................................. 1,088,390 9.5
777 Mariners Island Blvd.
P. O. Box 7777
San Mateo, CA 94403
Putnam Investments, Inc.(1)................................. 1,072,844 9.3
One Post Office Square
Boston, MA 02109
New Media Entertainment Ltd.(2)............................. 646,585 5.6
10 Beit Shamai Street
Tel Aviv, Israel 67018
Anthony J. Ley(3)........................................... 315,552 2.7
Moshe Nazarathy(4).......................................... 155,357 1.3
E. Floyd Kvamme(5).......................................... 130,732 1.1
David A. Lane(6)............................................ 9,000 *
Barry Lemieux(7)............................................ 16,000 *
Michel L. Vaillaud(8)....................................... 12,000 *
Michael Yost(9)............................................. 43,941 *
Robin N. Dickson(10)........................................ 58,645 *
John E. Dahlquist(11)....................................... 53,794 *
All directors and executive officers as a group (9 6.7
persons)(12).............................................. 795,021
</TABLE>
- ---------------
* Percentage of shares beneficially owned is less than one percent of total.
(1) Based solely on a review of Schedule 13D and 13G filings with the
Securities & Exchange Commission.
(2) Includes 6,216 shares which may be acquired upon exercise of options
exercisable within 60 days of March 11, 1998 held by Effi Atad, an officer
and principal shareholder of New Media Entertainment Ltd.
(3) Includes 190,415 shares which may be acquired upon exercise of options
exercisable within 60 days of March 11, 1998.
(4) Includes 59,180 shares which may be acquired upon exercise of options
exercisable within 60 days of March 11, 1998.
(5) Includes shares beneficially owned or held of record by entities associated
with Kleiner Perkins Caufield & Byers. Mr. Kvamme, a director of the
Company, is a general partner of Kleiner Perkins Caufield & Byers V and
KPCB Zaibatsu Fund I and, as such, may be deemed to own beneficially shares
owned by Kleiner Perkins Caufield & Byers V and KPCB Zaibatsu Fund I.
(6) Includes 6,000 shares which may be acquired upon exercise of options
exercisable within 60 days of March 11, 1998.
(7) Includes 4,000 shares which may be acquired upon exercise of options
exercisable within 60 days of March 11, 1998.
(8) Mr. Vaillaud has been granted options to purchase 2,000 shares of Common
Stock, all of which may be acquired upon exercise of options exercisable
within 60 days of March 11, 1998.
18
<PAGE> 21
(9) Includes 43,940 shares which may be acquired upon exercise of options
exercisable within 60 days of March 11, 1998.
(10) Includes 47,404 shares which may be acquired upon exercise of options
exercisable within 60 days of March 11, 1998.
(11) Includes 52,765 shares which may be acquired upon exercise of options
exercisable within 60 days of March 11, 1998.
(12) Includes 405,704 shares which may be acquired upon exercise of options
exercisable within 60 days of March 11, 1998.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's executive officers and directors and
persons who own more than ten percent of a registered class of the Company's
equity securities to file an initial report of ownership on Form 3 and changes
in ownership on Form 4 or Form 5 with the Securities and Exchange Commission
(the "SEC") and the National Association of Securities Dealers, Inc. Executive
officers, directors and greater than ten percent stockholders are also required
by SEC rules 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 or
written representations from certain reporting persons, the Company believes
that, with respect to 1997, all filing requirements applicable to its officers,
directors and ten percent stockholders were complied with, except that Moshe
Nazarathy, an executive officer and director of the Company did not file a Form
4 on a timely basis with respect to his purchase of 2,500 shares of Common Stock
in October 1997 and that Michel Vaillaud, a director of the Company, did not
file a Form 3 on a timely basis upon his appointment as a director of the
Company in March 1997.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If
any other matters properly come before the meeting or any adjournment or
postponement thereof, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend.
Dated: March 27, 1998 By Order of the Board of Directors
Jeffrey D. Saper,
Secretary
19
<PAGE> 22
APPENDIX A
HARMONIC LIGHTWAVES, INC.
1995 STOCK PLAN
1. PURPOSES OF THE PLAN
The purposes of this Stock Plan are:
- to attract and retain the best available personnel for positions of
substantial responsibility,
- to provide additional incentive to Employees and Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. DEFINITIONS
As used herein, the following definitions shall apply:
"Administrator" means the Board or any of its Committees as shall be
administering the Plan, in accordance with Section 4 of the Plan.
"Applicable Laws" means the legal requirements relating to the
administration of stock option plans under state corporate and securities
laws and the Code.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a Committee appointed by the Board in accordance
with Section 4 of the Plan.
"Common Stock" means the Common Stock of the Company.
"Company" means Harmonic Lightwaves, Inc., a Delaware corporation.
"Consultant" means any person, including an advisor, engaged by the
Company or a Parent or Subsidiary to render services and who is compensated
for such services. The term "Consultant" shall not include Directors who
are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
"Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an
Employee or Consultant shall not be considered interrupted in the case of
(i) any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor. A leave of absence approved by the Company
shall include sick leave, military leave, or any other personal leave
approved by an authorized representative of the Company. For purposes of
Incentive Stock Options, no such leave may exceed 90 days, unless
reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by
the Company is not so guaranteed, on the 91st day of such leave any
Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.
"Director" means a member of the Board.
"Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
A-1
<PAGE> 23
"Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall
be sufficient to constitute "employment" by the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
i. If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, the Fair Market Value of a Share
of Common Stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such system or
exchange (or the exchange with the greatest volume of trading in Common
Stock) on the day of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
ii. If the Common Stock is quoted on the Nasdaq System (but not on
the Nasdaq National Market thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the
Fair Market Value of a Share of Common Stock shall be the mean between
the high bid and low asked prices for the Common Stock on the last
market trading day prior to the day of determination, as reported in The
Wall Street Journal or such other source as the Administrator deems
reliable;
iii. In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the
Administrator.
"Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
"Non-statutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.
"Notice of Grant" means a written notice evidencing certain terms and
conditions of an individual Option or Stock Purchase Right grant. The
Notice of Grant is part of the Option Agreement.
"Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
"Option" means a stock option granted pursuant to the Plan.
"Option Agreement" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the
Plan.
"Option Exchange Program" means a program whereby outstanding options
are surrendered in exchange for options with a lower exercise price.
"Optioned Stock" means the Common Stock subject to an Option or Stock
Purchase Right.
"Optionee" means an Employee or Consultant who holds an outstanding
Option or Stock Purchase Right.
"Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
"Plan" means this Harmonic Lightwaves, Inc. 1995 Stock Plan.
"Restricted Stock" means shares of Common Stock acquired pursuant to a
grant of Stock Purchase Rights under Section 11 below.
"Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase
A-2
<PAGE> 24
Right. The Restricted Stock Purchase Agreement is subject to the terms and
conditions of the Plan and the Notice of Grant.
"Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
"Section 16(b)" means Section 16(b) of the Securities Exchange Act of
1934, as amended.
"Share" means a share of the Common Stock, as adjusted in accordance
with Section 13 of the Plan.
"Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
"Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN
Subject to the provisions of Section 13 of the Plan, the maximum aggregate
number of Shares which may be optioned and sold under the Plan is 1,620,000
Shares. The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.
4. ADMINISTRATION OF THE PLAN
(a) PROCEDURE
i. Multiple Administrative Bodies. If permitted by Rule 16b-3, the
Plan may be administered by different bodies with respect to Directors,
Officers who are not Directors, and Employees who are neither Directors nor
Officers.
ii. Administration With Respect to Directors and Officers Subject to
Section 16(b). With respect to Option or Stock Purchase Right grants made
to Employees who are also Officers or Directors subject to Section 16(b) of
the Exchange Act, the Plan shall be administered by (A) the Board, if the
Board may administer the Plan in a manner complying with the rules under
Rule 16b-3 relating to the disinterested administration of employee benefit
plans under which Section 16(b) exempt discretionary grants and awards of
equity securities are to be made, or (B) a committee designated by the
Board to administer the Plan, which committee shall be constituted to
comply with the rules under Rule 16b-3 relating to the disinterested
administration of employee benefit plans under which Section 16(b) exempt
discretionary grants and awards of equity securities are to be made. Once
appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board
may increase the size of the Committee and appoint additional members,
remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
rules under Rule 16b-3 relating to the disinterested administration of
employee benefit plans under which Section 16(b) exempt discretionary
grants and awards of equity securities are to be made.
A-3
<PAGE> 25
iii. Administration With Respect to Other Persons. With respect to
Option or Stock Purchase Right grants made to Employees or Consultants who
are neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board,
which committee shall be constituted to satisfy Applicable Laws. Once
appointed, such Committee shall serve in its designated capacity until
otherwise directed by the Board. The Board may increase the size of the
Committee and appoint additional members, remove members (with or without
cause) and substitute new members, fill vacancies (however caused), and
remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan, and
in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
i. to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n) of the Plan;
ii. to select the Consultants and Employees to whom Options and Stock
Purchase Rights may be granted hereunder;
iii. to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof, are granted hereunder;
iv. to determine the number of shares of Common Stock to be covered by
each Option and Stock Purchase Right granted hereunder;
v. to approve forms of agreement for use under the Plan;
vi. to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options or Stock Purchase Rights may be exercised (which may be
based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any
Option or Stock Purchase Right or the shares of Common Stock relating
thereto, based in each case on such factors as the Administrator, in its
sole discretion, shall determine;
vii. to reduce the exercise price of any Option or Stock Purchase
Right (other than an Option or Stock Purchase Right held by an Officer or
Director) to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
viii. to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
ix. to prescribe, amend and rescind rules and regulations relating to
the Plan, including rules and regulations relating to sub-plans established
for the purpose of qualifying for preferred tax treatment under foreign tax
laws;
x. to modify or amend each Option or Stock Purchase Right (subject to
Section 15(c) of the Plan), including the discretionary authority to extend
the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
xi. to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Option or Stock Purchase
Right previously granted by the Administrator;
xii. to institute an Option Exchange Program; (other than an Option
Exchange Program covering Options held by Officers or Directors)
xiii. to determine the terms and restrictions applicable to Options
and Stock Purchase Rights and any Restricted Stock; and
xiv. to make all other determinations deemed necessary or advisable
for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
A-4
<PAGE> 26
5. ELIGIBILITY
Nonstatutory Stock Options and Stock Purchase Rights may be granted to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees. If otherwise eligible, an Employee or Consultant who has been granted
an Option or Stock Purchase Right may be granted additional Options or Stock
Purchase Rights.
6. LIMITATIONS
(a) Each Option shall be designated in the Notice of Grant as either an
Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding
such designations, to the extent that the aggregate Fair Market Value of Shares
subject to an Optionee's Incentive Stock Options granted by the Company, any
Parent or Subsidiary, which become exercisable for the first time during any
calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock
Options. For purposes of this Section 6(a), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time of grant.
(b) Neither the Plan nor any Option or Stock Purchase Right shall confer
upon an Optionee any right with respect to continuing the Optionee's employment
or consulting relationship with the Company, nor shall they interfere in any way
with the Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options and Stock
Purchase Rights to Employees:
i. No Employee shall be granted, in any fiscal year of the Company,
Options and Stock Purchase Rights to purchase more than 300,000 Shares.
ii. The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 13.
iii. If an Option or Stock Purchase Right is canceled in the same
fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 13), the canceled Option
or Stock Purchase Right will be counted against the limit set forth in
Section 6(c)(i). For this purpose, if the exercise price of an Option or
Stock Purchase Right is reduced, the transaction will be treated as a
cancellation of the Option or Stock Purchase Right and the grant of a new
Option or Stock Purchase Right.
7. TERM OF PLAN
Subject to Section 19 of the Plan, the Plan shall become effective upon the
earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years unless terminated earlier under
Section 15 of the Plan.
8. TERM OF OPTION
The term of each Option shall be stated in the Notice of Grant; provided,
however, that in the case of an Incentive Stock Option, the term shall be ten
(10) years from the date of grant or such shorter term as may be provided in the
Notice of Grant. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Incentive
Stock Option shall be five (5) years from the date of grant or such shorter term
as may be provided in the Notice of Grant.
A-5
<PAGE> 27
9. OPTION EXERCISE PRICE AND CONSIDERATION
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
i. In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110%
of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described in
paragraph (A) immediately above, the per Share exercise price shall be
no less than 100% of the Fair Market Value per Share on the date of
grant.
ii. In the case of a Nonstatutory Stock Option, the per Share exercise
price shall be determined by the Administrator, provided that such per
Share exercise price shall not be less than eighty-five percent (85%) of
the Fair Market Value per Share on the date of grant.
(b) Waiting Period and Exercise Dates. At the time an Option is granted,
the Administrator shall fix the period within which the Option may be exercised
and shall determine any conditions which must be satisfied before the Option may
be exercised. In so doing, the Administrator may specify that an Option may not
be exercised until the completion of a service period.
(c) Form of Consideration. The Administrator shall determine the acceptable
form of consideration for exercising an Option, including the method of payment.
In the case of an Incentive Stock Option, the Administrator shall determine the
acceptable form of consideration at the time of grant. Such consideration may
consist entirely of:
i. cash;
ii. check;
iii. promissory note;
iv. other Shares which (a) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (b) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
v. delivery of a properly executed exercise notice together with such
other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the
Company of the sale or loan proceeds required to pay the exercise price;
vi. a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
vii. any combination of the foregoing methods of payment; or
viii. such other consideration and method of payment for the issuance
of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION
(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
A-6
<PAGE> 28
An Option shall be deemed exercised when the Company receives: (i) written
notice of exercise (in accordance with the Option Agreement) from the person
entitled to exercise the Option, and (ii) full payment for the Shares with
respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 13 of the
Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship. Upon termination
of an Optionee's Continuous Status as an Employee or Consultant, other than upon
the Optionee's death or Disability, the Optionee may exercise his or her Option,
but only within such period of time as is specified in the Notice of Grant, and
only to the extent that the Optionee was entitled to exercise it at the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). In the absence of a specified time
in the Notice of Grant, the Option shall remain exercisable for three months
following the Optionee's termination of Continuous Status as an Employee or
Consultant. In the case of an Incentive Stock Option, such period of time shall
not exceed three months from the date of termination. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the Shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. In the event that an Optionee's Continuous
Status as an Employee or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option at any time within
twelve (12) months from the date of such termination, but only to the extent
that the Optionee was entitled to exercise it at the date of such termination
(but in no event later than the expiration of the term of such Option as set
forth in the Notice of Grant). If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the Option
may be exercised at any time within twelve (12) months following the date of
death (but in no event later than the expiration of the term of such Option as
set forth in the Notice of Grant), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that the Optionee was entitled to exercise the Option at the date of
death. If, at the time of death, the Optionee was not entitled to exercise his
or her entire Option, the Shares covered by the unexercisable portion of the
Option shall immediately revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
(e) Rule 16b-3. Options granted to individuals subject to Section 16 of the
Exchange Act ("Insiders") must comply with the applicable provisions of Rule
16b-3 and shall contain such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
A-7
<PAGE> 29
11. STOCK PURCHASE RIGHTS
(a) Rights to Purchase. The Administrator shall have the authority to issue
Stock Purchase Rights to purchase up to an aggregate of 165,249 shares (subject
to adjustment pursuant to Section 13). Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing, by means of a Notice of Grant, of the terms,
conditions and restrictions related to the offer, including the number of Shares
that the offeree shall be entitled to purchase, the price to be paid, and the
time within which the offeree must accept such offer, which shall in no event
exceed six (6) months from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock Purchase Agreement in the form determined by the
Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise, the
Restricted Stock Purchase Agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment with the Company for any reason (including death or Disability). The
purchase price for Shares repurchased pursuant to the Restricted Stock purchase
agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at a rate determined by the Administrator.
(c) Rule 16b-3. Stock Purchase Rights granted to Insiders, and Shares
purchased by Insiders in connection with Stock Purchase Rights, shall be subject
to any restrictions applicable thereto in compliance with Rule 16b-3. An Insider
may only purchase Shares pursuant to the grant of a Stock Purchase Right, and
may only sell Shares purchased pursuant to the grant of a Stock Purchase Right,
during such time or times as are permitted by Rule 16b-3.
(d) Other Provisions. The Restricted Stock Purchase Agreement shall contain
such other terms, provisions and conditions not inconsistent with the Plan as
may be determined by the Administrator in its sole discretion. In addition, the
provisions of Restricted Stock Purchase Agreements need not be the same with
respect to each purchaser.
(e) Rights as a Stockholder. Once the Stock Purchase Right is exercised,
the purchaser shall have the rights equivalent to those of a stockholder, and
shall be a stockholder when his or her purchase is entered upon the records of
the duly authorized transfer agent of the Company. No adjustment will be made
for a dividend or other right for which the record date is prior to the date the
Stock Purchase Right is exercised, except as provided in Section 13 of the Plan.
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS
An Option or Stock Purchase Right may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET
SALE
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
A-8
<PAGE> 30
Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option
or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, to the extent that an Option or Stock Purchase Right
has not been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its sole
discretion in such instances, declare (i) that any Option or Stock Purchase
Right shall terminate as of a date fixed by the Board and give each Optionee the
right to exercise his or her Option or Stock Purchase Right as to all or any
part of the Optioned Stock, including Shares as to which the Option or Stock
Purchase Right would not otherwise be exercisable, and (ii) that any Restricted
Stock held by an Optionee shall become fully vested as of such date.
(c) Merger or Asset Sale. In the event of a merger of the Company with or
into another corporation, or the sale of substantially all of the assets of the
Company, each outstanding Option and Stock Purchase Right may be assumed or an
equivalent option or right may be substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. The Administrator may, in
lieu of such assumption or substitution, provide (i) for the Optionee to have
the right to exercise the Option or Stock Purchase Right as to all or a portion
of the Optioned Stock, including Shares as to which it would not otherwise be
exercisable, and (ii) for any Restricted Stock held by an Optionee to become
fully vested. If the Administrator makes an Option or Stock Purchase Right
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee that the Option or
Stock Purchase Right shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, and the Option or Stock Purchase Right will
terminate upon the expiration of such period. For the purposes of this
paragraph, the Option or Stock Purchase Right shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right to
purchase, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets was not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
14. DATE OF GRANT
The date of grant of an Option or Stock Purchase Right shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option or Stock Purchase Right, or such other later date as is determined
by the Administrator. Notice of the determination shall be provided to each
Optionee within a reasonable time after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain stockholder approval of
any Plan amendment to the extent necessary and desirable to comply with Rule
16b-3 or with Section 422 of the Code (or any successor rule or statute or other
applicable law, rule or regulation, including the requirements of any exchange
or quotation system on which the Common Stock is listed or quoted). Such
stockholder approval, if
A-9
<PAGE> 31
required, shall be obtained in such a manner and to such a degree as is required
by the applicable law, rule or regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
16. CONDITIONS UPON ISSUANCE OF SHARES
(a) Legal Compliance. Shares shall not be issued pursuant to the exercise
of an Option or Stock Purchase Right unless the exercise of such Option or Stock
Purchase Right and the issuance and delivery of such Shares shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, Applicable Laws, and the requirements of any stock exchange or
quotation system upon which the Shares may then be listed or quoted, and shall
be further subject to the approval of counsel for the Company with respect to
such compliance.
(b) Investment Representations. As a condition to the exercise of an Option
or Stock Purchase Right, the Company may require the person exercising such
Option or Stock Purchase Right to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required.
17. LIABILITY OF COMPANY
(a) Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered by an
Option or Stock Purchase Right exceeds, as of the date of grant, the number of
Shares which may be issued under the Plan without additional stockholder
approval, such Option or Stock Purchase Right shall be void with respect to such
excess Optioned Stock, unless stockholder approval of an amendment sufficiently
increasing the number of Shares subject to the Plan is timely obtained in
accordance with Section 15(b) of the Plan.
18. RESERVATION OF SHARES
The Company, during the term of this Plan, will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
19. STOCKHOLDER APPROVAL
Continuance of the Plan shall be subject to approval by the stockholders of
the Company within twelve (12) months before or after the date the Plan is
adopted. Such stockholder approval shall be obtained in the manner and to the
degree required under applicable federal and state law.
A-10
<PAGE> 32
APPENDIX B
HARMONIC LIGHTWAVES, INC.
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1995 Employee Stock Purchase
Plan of Harmonic Lightwaves, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of
the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Harmonic Lightwaves, Inc. and any Designated
Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings,
including commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses, and other compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the Company
for tax purposes whose customary employment with the Company is at least twenty
(20) hours per week and more than five (5) months in any calendar year. For
purposes of the Plan, the employment relationship shall be treated as continuing
intact while the individual is on sick leave or other leave of absence approved
by the Company. Where the period of leave exceeds 90 days and the individual's
right to reemployment is not guaranteed either by statute or by contract, the
employment relationship will be deemed to have terminated on the 91st day of
such leave.
(h) "Enrollment Date" shall mean the first day of each Offering Period.
(i) "Exercise Date" shall mean the last day of each Purchase Period.
(j) "Fair Market Value" shall mean, as of any date, the value of Common
Stock determined as follows:
(1) If the Common Stock is listed on any established stock exchange or
a national market system, including without limitation the Nasdaq National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing
sale price for the Common Stock (or the mean of the closing bid and asked
prices, if no sales were reported), as quoted on such exchange (or the
exchange with the greatest volume of trading in Common Stock) or system on
the date of such determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable, or;
(2) If the Common Stock is quoted on the NASDAQ System (but not on the
Nasdaq National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean of the closing bid and asked prices for the Common
Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
B-1
<PAGE> 33
(3) Notwithstanding paragraphs (1) and (2), in the case of an Offering
Period commencing substantially concurrent with the Company's initial
public offering, the Fair Market Value may be determined by the Board to be
equal to the initial price to the public of shares of Common Stock in such
offering; or
(4) In the absence of an established market for the Common Stock, the
Fair Market Value thereof shall be determined in good faith by the Board.
(k) "Offering Period" shall mean the period of approximately twenty-four
(24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after June 30 and December
31 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later. The duration and timing of Offering Periods may be
changed pursuant to Section 4 of this Plan. Notwithstanding the foregoing, in
the event that the Company shall effect an initial public offering of Common
Stock, the Board may determine to commence an Offering Period substantially
concurrent with the public offering.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair Market
Value of a share of Common Stock on the Enrollment Date or on the Exercise Date,
whichever is lower.
(n) "Purchase Period" shall mean the approximately six month period
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(o) "Reserves" shall mean the number of shares of Common Stock covered by
each option under the Plan which have not yet been exercised and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges and
the Nasdaq System are open for trading.
3. Eligibility. (a) Any Employee (as defined in Section 2(g)), who shall be
employed by the Company on a given Enrollment Date shall be eligible to
participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee
shall be granted an option under the Plan (i) if, immediately after the grant,
such Employee (or any other person whose stock would be attributed to such
Employee pursuant to Section 424(d) of the Code) would own capital stock of the
Company and/or hold outstanding options to purchase such stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of the capital stock of the Company or of any Subsidiary, or (ii) which permits
his or her rights to purchase stock under all employee stock purchase plans of
the Company and its subsidiaries to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) worth of stock (determined at the fair market value
of the shares at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after June 30 and December 31 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 19 hereof. The Board shall have the power to change the
duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without stockholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected thereafter.
B-2
<PAGE> 34
5. Participation.
(a) An eligible Employee may become a participant in the Plan by completing
a subscription agreement authorizing payroll deductions in the form of Exhibit A
to this Plan and filing it with the Company's payroll office prior to the
applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription agreement, he
or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding ten percent (10%) of the Compensation
which he or she receives on each pay day during the Offering Period, and the
aggregate of such payroll deductions during the Offering Period shall not exceed
ten percent (10%) of the participant's Compensation during said Offering Period.
However, with respect to the first Offering Period, a participant may elect to
have payroll deductions made as above in an amount not exceeding fifteen percent
(15%) of such Compensation.
(b) All payroll deductions made for a participant shall be credited to his
or her account under the Plan and will be withheld in whole percentages only. A
participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan as
provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll
deductions may be decreased to 0% at such time during any Purchase Period which
is scheduled to end during the current calendar year (the "Current Purchase
Period") that the aggregate of all payroll deductions which were previously used
to purchase stock under the Plan in a prior Purchase Period which ended during
that calendar year plus all payroll deductions accumulated with respect to the
Current Purchase Period equal $21,250. Payroll deductions shall recommence at
the rate provided in such participant's subscription agreement at the beginning
of the first Purchase Period which is scheduled to end in the following calendar
year, unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at the
time some or all of the Company's Common Stock issued under the Plan is disposed
of, the participant must make adequate provision for the Company's federal,
state, or other tax withholding obligations, if any, which arise upon the
exercise of the option or the disposition of the Common Stock. At any time, the
Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than a
number
B-3
<PAGE> 35
of Shares determined by dividing $12,500 by the Fair Market Value of a share of
the Company's Common Stock on the Enrollment Date. However, with respect to the
first Offering Period, an Employee shall be permitted to purchase up to the
number of shares determined by dividing $25,000 by the Fair Market Value of a
share of Common Stock on the Enrollment Date of the first Offering Period. All
such purchases shall be subject to the limitations set forth in Sections 3(b)
and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof, and
shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on which a
purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account will be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period will be automatically terminated, and no further payroll deductions for
the purchase of shares will be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions will not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee (as defined in Section
2(g) hereof), for any reason, he or she will be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to such participant's
account during the Offering Period but not yet used to exercise the option will
be returned to such participant or, in the case of his or her death, to the
person or persons entitled thereto under Section 14 hereof, and such
participant's option will be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
11. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock which shall
be made available for sale under the Plan shall be 400,000 shares, subject to
adjustment upon changes in capitalization of the Company as provided in Section
18 hereof. If, on a given Exercise Date, the number of shares with respect to
which options are to be exercised exceeds the number of shares then available
under the Plan, the Company shall make a pro rata allocation of the shares
remaining available for purchase in as uniform a manner as shall be practicable
and as it shall determine to be equitable.
(b) The participant will have no interest or voting right in shares covered
by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
B-4
<PAGE> 36
13. Administration.
(a) Administrative Body. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of Subsection
(a) of this Section 13, in the event that Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be only administered by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to an Exercise Date on
which the option is exercised but prior to delivery to such participant of such
shares and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under the
Plan in the event of such participant's death prior to exercise of the option.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and distribution
or as provided in Section 14 hereof) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds from
an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each participant in
the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the Reserves as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any
B-5
<PAGE> 37
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Offering Periods will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each option under the Plan shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board determines,
in the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Offering Periods then in progress by setting a new
Exercise Date (the "New Exercise Date"). If the Board shortens the Offering
Periods then in progress in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for his option has been changed to the New Exercise Date and that his
option will be exercised automatically on the New Exercise Date, unless prior to
such date he has withdrawn from the Offering Period as provided in Section 10
hereof. For purposes of this paragraph, an option granted under the Plan shall
be deemed to be assumed if, following the sale of assets or merger, the option
confers the right to purchase, for each share of option stock subject to the
option immediately prior to the sale of assets or merger, the consideration
(whether stock, cash or other securities or property) received in the sale of
assets or merger by holders of Common Stock for each share of Common Stock held
on the effective date of the transaction (and if such holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares of Common Stock); provided, however, that if
such consideration received in the sale of assets or merger was not solely
common stock of the successor corporation or its parent (as defined in Section
424(e) of the Code), the Board may, with the consent of the successor
corporation, provide for the consideration to be received upon exercise of the
option to be solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration received by holders of
Common Stock and the sale of assets or merger.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 18 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule
or provision or any other applicable law or regulation), the Company shall
obtain stockholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from
B-6
<PAGE> 38
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the stockholders of
the Company. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 19 hereof.
23. Automatic Transfer to Low Price Offering Period. To the extent
permitted by Rule 16b-3 of the Exchange Act, if the Fair Market Value of the
Common Stock on any Exercise Date in an Offering Period is lower than the Fair
Market Value of the Common Stock on the Enrollment Date of such Offering Period,
then all participants in such Offering Period shall be automatically withdrawn
from such Offering Period immediately after the exercise of their option on such
Exercise Date and automatically re-enrolled in the immediately following
Offering Period as of the first day thereof.
B-7
<PAGE> 39
EXHIBIT A
HARMONIC LIGHTWAVES, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
[ ] Original Application Enrollment Date:
[ ] Change in Payroll Deduction Rate
[ ] Change of Beneficiary(ies)
1. hereby elects to participate in the Harmonic Lightwaves,
Inc. 1995 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
subscribes to purchase shares of the Company's Common Stock in accordance with
this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of % of my Compensation on each payday (not to exceed 10%) during the
Offering Period in accordance with the Employee Stock Purchase Plan. (Please
note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price determined
in accordance with the Employee Stock Purchase Plan. I understand that if I do
not withdraw from an Offering Period, any accumulated payroll deductions will be
used to automatically exercise my option.
4. I have received a copy of the complete "Harmonic Lightwaves, Inc. 1995
Employee Stock Purchase Plan." I understand that my participation in the
Employee Stock Purchase Plan is in all respects subject to the terms of the
Plan. I understand that my ability to exercise the option under this
Subscription Agreement is subject to obtaining stockholder approval of the
Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and spouse only):
.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the Offering
Period during which I purchased such shares) or one year after the Exercise
Date, I will be treated for federal income tax purposes as having received
ordinary income at the time of such disposition in an amount equal to the excess
of the fair market value of the shares at the time such shares were purchased
over the price which I paid for the shares. I HEREBY AGREE TO NOTIFY THE COMPANY
IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION OF MY SHARES AND I
WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING
OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE COMMON STOCK. The
Company may, but will not be obligated to, withhold from my compensation the
amount necessary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and 1-year
holding periods, I understand that I will be treated for federal income tax
purposes as having received income only at the time of such disposition, and
that such income will be taxed as ordinary income only to the extent of an
amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I paid for
the shares, or (2) 15% of the fair market value of the shares on the first day
of the Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
-1-
<PAGE> 40
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the Employee
Stock Purchase Plan:
NAME: (Please print)
- --------------------------------------------------------------------------------
(First) (Middle) (Last)
- --------------------------------------------------------------------------------
Relationship
- --------------------------------------------------------------------------------
(Address)
- --------------------------------------------------------------------------------
Employee's Social Security Number:
- --------------------------------------------------------------------------
Employee's Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT
THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
<TABLE>
<S> <C>
Dated: ---------------------------------- -----------------------------------------------------
Signature of Employee
Dated: ---------------------------------- -----------------------------------------------------
Spouse's Signature (If beneficiary other than spouse)
</TABLE>
-2-
<PAGE> 41
EXHIBIT B
HARMONIC LIGHTWAVES, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Harmonic
Lightwaves, Inc. 1995 Employee Stock Purchase Plan which began on
, 19 (the "Enrollment Date") hereby notifies the Company that he
or she hereby withdraws from the Offering Period. He or she hereby directs the
Company to pay to the undersigned as promptly as practicable all the payroll
deductions credited to his or her account with respect to such Offering Period.
The undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned under-stands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
--------------------------------------
Signature
--------------------------------------
Date
--------------------------------------
Signature
--------------------------------------
Date
--------------------------------------
Address
--------------------------------------
Address
--1--
<PAGE> 42
- --------------------------------------------------------------------------------
Please mark
your vote as [ X ]
indicated in
this example.
WITHHOLD AUTHORITY TO
FOR WITHHOLD VOTE FOR ANY INDIVIDUAL
ALL ALL NOMINEE FOR WHOM
1. ELECTION OF DIRECTORS NOMINEES NOMINEES VOTE IS WITHHELD
[ ] [ ] [ ]
WRITE NUMBER(S) OF
NOMINEE(S) BELOW.
THE BOARD RECOMMENDS A VOTE FOR ELECTION
OF THE FOLLOWING DIRECTORS
01 - ANTHONY J. LEY 02 - MOSHE NAZARATHY
03 - E. FLOYD KVAMME 04 - BARRY D. LEMIEUX
05 - DAVID A. LANE 06 - MICHEL L. VAILLAUD
---------------------------
FOR AGAINST ABSTAIN
2. PROPOSAL TO VOTE FOR APPROVAL OF THE [ ] [ ] [ ]
AMENDMENT TO THE 1995 STOCK PLAN.
FOR AGAINST ABSTAIN
3. VOTE FOR APPROVAL OF THE AMENDMENT [ ] [ ] [ ]
TO THE 1995 EMPLOYEE STOCK PURCHASE
PLAN.
FOR AGAINST ABSTAIN
4. PROPOSAL TO RATIFY THE APPOINTMENT OF [ ] [ ] [ ]
PRICE WATERHOUSE, LLP AS INDEPENDENT
AUDITORS OF THE COMPANY FOR THE FISCAL
YEAR ENDING DECEMBER 31, 1998.
"NOTE" SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENT THEREOF
PLACE "X" HERE IF YOU PLAN TO VOTE YOUR SHARES
AT THE MEETING [ ]
Signature(s) Date
------------------------------------------------------ -------
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 43
PROXY
HARMONIC LIGHTWAVES, INC.
ANNUAL MEETING TO BE HELD ON APRIL 29, 1998 AT 8:00 A.M. PT
FOR HOLDERS AS OF MARCH 11, 1997
THIS FORM IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY.
PLEASE DO NOT USE IT FOR VOTING PURPOSES.
(Continued and to be signed on reverse side)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
