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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File Number: 0-24858
WAVEPHORE, INC.
(Exact name of registrant as specified in its charter)
INDIANA 86-0491428
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3311 NORTH 44TH STREET, PHOENIX, AZ 85018
(602) 952-5500
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1964 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports, and (2) has been subject to the filing
requirements for the past 90 days.
Yes X No _______
The number of shares outstanding of the issuer's common stock, as of May 12,
1997:
COMMON SHARES, NO PAR VALUE: 16,325,406 SHARES
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WAVEPHORE, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996..........................................3
Condensed Consolidated Statements of Operations -
Three months ended March 31, 1997 and 1996....................................4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1997 and 1996....................................5
Notes to Condensed Consolidated Financial Statements..............................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................................7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .......................................10
SIGNATURES ....................................................................................11
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WavePhore, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 9,180,501 $11,793,205
Accounts receivable 2,638,266 3,880,715
Inventories 4,153,277 3,342,975
Other receivables 181,638 90,374
Notes receivable from officers, including interest 620,750 604,605
Prepaid expenses and other 1,325,696 1,133,946
----------- -----------
Total Current Assets 20,845,820
18,100,128
Notes and other receivables 48,299 129,716
Property and equipment, net 2,711,421 2,281,367
Intangible assets of businesses acquired, net 16,081,218 16,570,338
Deposits and other assets 1,746,239 1,734,929
----------- -----------
$38,687,305 $41,562,170
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 2,500,072 $ 2,126,129
Accrued expenses 1,573,802 675,322
Bank loans 1,320,103 1,720,731
Current portion of long-term debt 536,846 537,487
Other -- 39,370
----------- -----------
Total Current Liabilities 5,930,823 5,099,039
Long-term debt, less current portion 87,092 97,959
Other long-term liabilities 257,007 511,475
Stockholders' equity 32,412,383 35,853,697
----------- -----------
$38,687,305 $41,562,170
=========== ===========
</TABLE>
See accompanying notes.
3
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WavePhore, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------ ------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Networks services and equipment $ 3,236,782 $ 3,735,281
Newscast services 447,894 308,155
------------ ------------
Total Revenues 3,684,676 4,043,436
Cost of revenues 1,987,397 2,491,406
------------ ------------
Gross margin 1,697,279 1,552,030
Operating expenses:
Research and development 1,586,002 937,326
Sales and marketing 2,130,894 1,274,256
General and administrative 1,095,514 1,343,415
Amortization 489,120 483,694
------------ ------------
5,301,530 4,038,691
------------ ------------
Loss from operations (3,604,251) (2,486,661)
Other (income) expense:
Interest expense 48,343 47,986
Interest income (163,086) (189,898)
Other -- (973)
------------ ------------
(114,743) (142,885)
Net loss $ (3,489,508) $ (2,343,776)
============ ============
Less: Preferred stock dividends (288,293) (538,428)
------------ ------------
Net loss after preferred stock dividends $ (3,777,801) $ (2,882,204)
============ ============
Net loss per common share $ (0.21) $ (0.20)
============ ============
Net loss per common share after $ (0.23) $ (0.25)
preferred stock dividends ============ ============
Number of shares used in per share
calculation 16,260,471 11,648,169
============ ============
</TABLE>
See accompanying notes.
4
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WavePhore, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31, March 31,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3,489,508) $ (2,343,776)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 815,152 726,352
Gain on disposal of assets (561) --
Provision for doubtful accounts 15,000 21,000
Changes in operating assets and liabilities 909,051 (624,741)
------------ ------------
Net cash used in operating activities (1,750,866) (2,221,165)
INVESTING ACTIVITIES:
Purchase of property and equipment (501,979) (250,408)
Proceeds from sale of property & equipment 20,228 --
Purchase of treasury stock (362,954) --
Loans to officers, including interest (16,145) (935)
------------ ------------
Net cash used in investing activities (860,850) (251,343)
FINANCING ACTIVITIES:
Issuance of preferred shares, net 198,500 5,574,220
Payment of preferred stock dividend -- (276,080)
Issuance of common stock, net 155,629 2,444,400
Payments on notes payable (11,508) (19,550)
Credit line; net (400,628) 789,152
Other 57,019 3,539
------------ ------------
Net cash (used in) provided by financing activities (988) 8,515,681
------------ ------------
Net increase (decrease) in cash and cash equivalents (2,612,704) 6,043,173
Cash and cash equivalents at beginning of period 11,793,205 10,945,178
------------ ------------
Cash and cash equivalents at end of period $ 9,180,501 $ 16,988,351
============ ============
</TABLE>
See accompanying notes.
5
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WavePhore, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles, pursuant
to the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Certain
information and footnote disclosures normally included in financial statements
have been condensed or omitted pursuant to such rules and regulations. These
financial statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's Annual Report on Form 10K for
the year ended December 31, 1996. The results of operations for the three month
period ended March 31, 1997 are not necessarily indicative of the results to be
expected for the full year.
(2) LOSS PER SHARE
Loss per share is based on the weighted average number of common shares
outstanding during each period. Common stock equivalents, which were
anti-dilutive, were not included in the computation of net loss per share.
(3) RECLASSIFICATIONS
Certain amounts presented for the three months ended March 31, 1996
have been reclassified to conform to March 31, 1997 presentation.
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ----------
<S> <C> <C>
Finished goods $1,001,072 $ 687,914
Work-in-process 1,166,676 1,298,893
Raw materials 1,985,529 1,356,168
---------- ----------
$4,153,277 $3,342,975
========== ==========
</TABLE>
(5) RECENTLY ENACTED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of primary and fully diluted earnings per share for these
quarters is not expected to be material.
(6) SUBSEQUENT EVENT
During April, 1997, the Company signed a letter of intent to purchase
Paracel Online Systems Inc., a leading provider of Internet-based corporate
business intelligence services, for $3 million at closing, another $6 million in
180 days and future consideration based upon performance.
6
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
WavePhore, Inc. including its wholly-owned subsidiaries, WavePhore
Canada, Inc., and WavePhore Networks, Inc. and WavePhore Japan K.K.
(collectively the "Company"), is a developer and provider of proprietary
products and services for the low-cost, high speed distribution of digital data
via the existing worldwide television, radio, satellite and internet
infrastructures.
On February 10, 1997, the Company announced the creation of its
broadcast PC consumer service, Wavetop(TM), a nationwide broadcast medium for
the home PC. The new broadcast service will deliver news, sports and
entertainment programming via existing TV broadcasting signals without the
bottleneck of the Internet or tying up of phone lines.
In preparation for providing this consumer service, the Company signed
an agreement with PBS National Datacast, Inc. ("PBS") during 1996. Utilizing the
Company's technology, information will be sent to the consumer by embedding it
in the existing TV broadcast signals of PBS's 264 member stations.
During April, 1997, the Company signed a letter of intent to purchase
Paracel Online Systems Inc., a leading provider of Internet-based corporate
business intelligence services, for $3 million at closing, another $6 million in
180 days and future consideration based upon performance.
During 1996, the Company licensed certain software to Compaq Computer
Corporation ("Compaq"). The software, when installed in Compaq PC's, will allow
the home PC user to receive the Company's broadcast services.
RESULTS OF OPERATION - THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Revenues. Revenues are derived from networks services and related
equipment sales and Newscast(TM) services. Revenues for the three months ended
March 31, 1997 were $3,685,000 compared to $4,043,000 for the comparable period
in the prior year. The decrease in revenues is the result of certain large
customers scheduling network startups and equipment deliveries later in the year
than anticipated.
Cost of Revenues. Cost of revenues consists primarily of costs
associated with transmitting news services to customer sites and cost of
hardware and software sold to customers. Cost of revenues for the three months
ended March 31, 1997 were $1,987,000 compared to $2,491,000 for the comparable
period in the prior year. The decrease in cost of revenues is directly related
to the discussed decrease in revenues. Gross margin percentages are 46.1% and
38.4% for the three months ended March 31, 1997 and 1996, respectively. The
improvement in gross margin is the result of revenue mix changes to higher
margin networks services and newscast services.
Research and Development. Research and development expenses were
$1,586,000 for the three months ended March 31, 1997, compared to $937,000 for
the comparable period in the prior year. The research and development expenses
consists primarily of design, testing and support of the Company's existing and
developing hardware, software and services. The Company anticipates continuing
to make significant expenditures in product development as it develops new and
enhanced services and provides services to a growing customer base.
Sales and Marketing. Sales and marketing expenses for the three month
period ended March 31, 1997 were $2,131,000, compared to $1,274,000 for the
comparable period of the prior year. The increase relates primarily to
additional sales personnel, increased travel, and advertising and promotional
costs.
7
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General and administrative. General and administrative expenses for the
three months ended March 31, 1997 were $1,096,000, compared to $1,343,000 for
the comparable period of the prior year. The decrease relates primarily to cost
control measures taken by the Company.
Interest Expense. Interest expense remained unchanged during the three
months ended March 31, 1997 and 1996 at $48,000.
Interest Income. Interest income decreased during the three months
ended March 31, 1997, compared to the same period of the prior year, due to
reduction in the outstanding cash balances available for investment.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1997 and 1996, the Company used
cash in its operations of $1,751,000 and $2,221,000, respectively. Cash used in
operations is less than the net losses primarily because of non cash charges of
depreciation and amortization. Cash flows used in investing activities was
$861,000 for the three months ended March 31, 1997, compared to cash used in
investing activities of $251,000 for the same period in the prior year. The
Company made purchases of $363,000 and $502,000 of treasury stock and property
and equipment, respectively, during the first three months of 1997. For the
three months ended March 31, 1997, the Company used cash in financing activities
of $1,000 and for the three months ended March 31, 1996, the Company generated
$8,615,000 from financing activities. The generation of cash in 1996 was
primarily from the issuance of preferred and common stock.
The Company estimates that its present financial resources will be
sufficient to fund operating activities including the company's accelerated
internal growth beyond 1997. The Company will continue to evaluate business
acquisitions and the development of strategic partnerships to help accelerate
its growth. The pace at which these acquisitions and strategic partnerships
occur will have an impact on the capital resources of the Company to the extent
they are funded with cash, or upon the dilution of existing shareholder
interests to the extent they are entered into for equity. It is likely the
Company will obtain outside financing to fund the cash portion of the proposed
acquisition of Paracel Online Systems, Inc.
Certain of the above statements may constitute forward looking
statements which may involve risks and uncertainties. Actual results could
differ materially from such forward looking statements as a result of a variety
of factors, including, but not limited to, technology changes, competitive
developments, industry and market acceptance of new products and services, and
risk factors listed from time to time in the Company's SEC filings.
8
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are included herein:
<TABLE>
<CAPTION>
<S> <C> <C>
10.1 1997 Incentive Plan
10.2 Executive Management Incentive Plan
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the period.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WavePhore, Inc.
Date: May 12, 1997 By /s/ David E. Deeds
------------ -------------------
David E. Deeds,
President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 12, 1997 By /s/ Kenneth D. Swenson
------------ ----------------------
Kenneth D. Swenson,
Executive Vice President, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting Officer)
10
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Exhibit
Number Description
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<S> <C> <C>
10.1 1997 Incentive Plan
10.2 Executive Management Incentive Plan
27 Financial Data Schedule
</TABLE>
11
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WAVEPHORE, INC.
-------------------------
1997 INCENTIVE PLAN
-------------------------
1. Purpose of the Plan
The purpose of this WavePhore, Inc. 1997 Incentive Plan ("Plan") is to
create shareholder value. To do so, the Plan provides incentives to selected
employees and directors of the Company and its Subsidiaries, and selected
non-employee consultants and advisors to the Company and its Subsidiaries, who
contribute, and are expected to contribute, materially to its success. The Plan
also provides a means of rewarding outstanding performance and enhances the
interest of such persons in the Company's success and development by providing
them a proprietary interest in the Company. Further, the Plan is designed to
enhance the Company's ability to maintain a competitive position in attracting
and retaining qualified personnel necessary for the success and development of
the Company.
2. Definitions
As used in the Plan, the following definitions apply to the terms
indicated below:
(a) "Board of Directors" shall mean the Board of Directors of
WavePhore, Inc.
(b) "Cause," when used in connection with the termination of a
Participant's employment with the Company, for purposes of the Plan,
shall mean the termination of the Participant's employment by the
Company on account of (i) the willful and continued failure by the
Participant substantially to perform his duties and obligations (other
than any such failure resulting from his incapacity due to physical or
mental illness) or (ii) the willful engaging by the Participant in an
act or acts which could reasonably be expected to cause injury to the
Company or are contrary to the best interests of the Company. For
purposes of this Section 2(b), no act, or failure to act, on a
Participant's part shall be
<PAGE> 2
considered "willful" unless done, or omitted to be done, by the
Participant in bad faith and without reasonable belief that his action
or omission was in the best interests of the Company.
(c) "Cash Bonus" shall mean an award of a bonus payable in
cash pursuant to Section 13 hereof.
(d) "Change in Control" shall mean:
(i) the acquisition at any time by a
"person" or "group" (as that term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act) (excluding, for this
purpose, David E. Deeds, any affiliate of David E. Deeds, the
Company or any Subsidiary or any employee benefit plan of the
Company or any Subsidiary) of beneficial ownership (as defined
in Rule 13d-3 under the Exchange Act) directly or indirectly,
of securities representing 20% or more of the combined voting
power in the election of directors of the then-outstanding
securities of the Company or any successor of the Company;
(ii) the termination of service as
directors, for any reason other than death, disability or
retirement from the Board of Directors, during any period of
two consecutive years or less, of individuals who at the
beginning of such period constituted a majority of the Board
of Directors, unless the election of or nomination for
election of each new director during such period was approved
by a vote of at least two-thirds of the directors still in
office who were directors at the beginning of the period;
(iii) approval by the shareholders of the
Company of any merger or consolidation or statutory share
exchange as a result of which the Common Shares shall be
changed, converted or exchanged (other than a merger or share
exchange with a wholly-owned Subsidiary of the Company), or
liquidation of the Company, or any sale or disposition of 50%
or more of the assets or earning power of the Company; or
(iv) approval by the shareholders of the
Company of any merger, or consolidation, or statutory share
exchange to which the Company is a party as a result of which
the persons who were shareholders of the Company immediately
prior to the effective date of the merger, or consolidation,
or statutory share exchange
2
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shall have beneficial ownership of less than 50% of the
combined voting power in the election of directors of the
surviving corporation following the effective date of such
merger, or consolidation, or statutory share exchange;
provided, however, that no change in control shall be deemed
to have occurred if, prior to such time as a change in control
would otherwise be deemed to have occurred, the Company's
Board of Directors deems otherwise.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(f) "Committee" shall mean the committee appointed by the
Board of Directors from time to time to administer the Plan.
(g) "Common Shares" shall mean WavePhore, Inc. common shares,
no par value per share.
(h) "Company" shall mean WavePhore, Inc., an Indiana
corporation, and each of its Subsidiaries.
(i) "Disability" shall mean a Participant's inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve (12) months.
(j) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(k) the "Fair Market Value" of Common Shares with respect to
any day shall be (i) the closing sales price on the immediately
preceding business day of Common Shares as reported on the principal
securities exchange on which Common Shares are then listed or admitted
to trading or (ii) if not so reported, the average of the closing bid
and ask prices on the immediately preceding business day as reported on
the National Association of Securities Dealers Automated Quotation
System or (iii) if not so reported, as furnished by any member of the
National Association of Securities Dealers, Inc. selected by the
Committee. In the event that the price of Common Shares shall not be so
reported, the Fair Market Value of Common Shares shall be determined by
the Committee in its absolute discretion.
3
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(l) "Incentive Award" shall mean an Option, LSAR, Tandem SAR,
Stand-Alone SAR, share of Phantom Stock, Stock Bonus or Cash Bonus
granted pursuant to the terms of the Plan.
(m) "Incentive Stock Option" shall mean an Option which is an
"incentive stock option" within the meaning of Section 422 of the Code
and which is identified as an Incentive Stock Option in the agreement
by which it is evidenced.
(n) "Issue Date" shall mean the date established by the
Committee on which certificates representing shares of Restricted Stock
shall be issued by WavePhore, Inc. pursuant to the terms of Section
10(d) hereof.
(o) "LSAR" shall mean a limited stock appreciation right which
is granted pursuant to the provisions of Section 8 hereof and which
relates to an Option. Each LSAR shall be exercisable only upon the
occurrence of a Change in Control and only in the alternative to the
exercise of its related Option.
(p) "Non-Employee Participant" shall mean a Participant who is
not an employee of the Company.
(q) "Non-Qualified Stock Option" shall mean an Option which is
not an Incentive Stock Option and which is identified as a
Non-Qualified Stock Option in the agreement by which it is evidenced.
(r) "Option" shall mean an option to purchase Common Shares of
WavePhore, Inc. granted pursuant to Section 6 hereof. Each Option shall
be identified as either an Incentive Stock Option or a Non-Qualified
Stock Option in the agreement by which it is evidenced.
(s) "Participant" shall mean a person who is eligible to
participate in the Plan and to whom an Incentive Award is granted
pursuant to the Plan, and, upon his death, his successors, heirs,
executors and administrators, as the case may be.
(t) "Person" shall mean a "person," as such term is used in
Sections 13(d) and 14(d) of the Exchange Act.
4
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(u) "Phantom Stock" shall mean the right to receive in cash
the Fair Market Value of Common Shares of WavePhore, Inc., which right
is granted pursuant to Section 11 hereof and subject to the terms and
conditions contained therein.
(v) "Plan" shall mean the WavePhore, Inc. 1997 Incentive Plan,
as it may be amended from time to time.
(w) "Restricted Stock" shall mean a Common Share which is
granted pursuant to the terms of Section 10 hereof and which is subject
to the restrictions set forth in Section 10(c) hereof for so long as
such restrictions continue to apply to such share.
(x) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(y) "Stand-Alone SAR" shall mean a stock appreciation right
granted pursuant to Section 9 hereof which is not related to any
Option.
(z) "Stock Bonus" shall mean a grant of a bonus payable in
Common Shares pursuant to Section 12 hereof.
(aa) "Subsidiary" shall mean any corporation in which at the
time of reference WavePhore, Inc. owns, directly or indirectly, stock
comprising more than fifty percent of the total combined voting power
of all classes of stock of such corporation.
(bb) "Tandem SAR" shall mean a stock appreciation right
granted pursuant to Section 8 hereof which is related to an Option.
Each Tandem SAR shall be exercisable only to the extent its related
Option is exercisable and only in the alternative to the exercise of
its related Option.
(cc) "Vesting Date" shall mean the date established by the
Committee on which a share of Restricted Stock or Phantom Stock may
vest.
(dd) "WavePhore, Inc." shall mean WavePhore, Inc., an Indiana
corporation, and its successors.
3. Stock Subject to the Plan
5
<PAGE> 6
Under the Plan, the Committee may grant to Participants (i) Options,
(ii) LSARs, (iii) Tandem SARs, (iv) Stand-Alone SARs, (v) shares of Restricted
Stock, (vi) shares of Phantom Stock, (vii) Stock Bonuses and (viii) Cash
Bonuses; provided, however, that grants under the Plan to non-employee directors
of the Company shall be made by the Board of Directors. When referring to grants
under the Plan to non-employee directors of the Company, any reference in this
Plan to the Committee shall be deemed to refer to the Board of Directors.
Subject to adjustment as provided in Section 14 hereof, the Committee
may grant Options, Stand-Alone SARs, shares of Restricted Stock, shares of
Phantom Stock and Stock Bonuses under the Plan with respect to a number of
Common Shares that in the aggregate does not exceed 4,000,000 shares. The
maximum number of Common Shares for which Incentive Awards, including Incentive
Stock Options, may be granted to any one Participant shall not exceed 500,000
shares in any one calendar year; and the total of all cash payments to any one
Participant pursuant to the Plan in any calendar year shall not exceed $500,000.
The grant of an LSAR, Tandem SAR or Cash Bonus shall not reduce the number of
Common Shares with respect to which Options, Stand-Alone SARs, shares of
Restricted Stock, shares of Phantom Stock or Stock Bonuses may be granted
pursuant to the Plan.
In the event that any outstanding Option or Stand-Alone SAR expires,
terminates or is canceled for any reason (other than pursuant to Paragraphs
7(b)(2) or 8(b)(3) hereof), the Common Shares subject to the unexercised portion
of such Option or Stand-Alone SAR shall again be available for grants under the
Plan. In the event that an outstanding Option is canceled pursuant to Paragraphs
7(b)(2) or 8(b)(3) hereof by reason of the exercise of an LSAR or a Tandem SAR,
the Common Shares subject to the canceled portion of such Option shall not again
be available for grants under the Plan. In the event that any shares of
Restricted Stock or Phantom Stock, or any Common Shares granted in a Stock Bonus
are forfeited or canceled for any reason, such shares shall again be available
for grants under the Plan.
Common Shares issued under the Plan may be either newly issued shares
or treasury shares, at the discretion of the Committee, and WavePhore, Inc.
hereby reserves 4,000,000 Common Shares for issuance pursuant to the Plan.
4. Administration of the Plan
6
<PAGE> 7
The Plan shall be administered by a Committee of the Board of Directors
consisting of two or more persons, each of whom shall be a "non-employee
director" within the meaning of Rule 16b-3(b)(3) promulgated under Section 16 of
the Exchange Act. The Committee shall from time to time designate the persons
who shall be granted Incentive Awards and the amount and type of such Incentive
Awards. Provided, however that any Incentive Awards granted to non-employee
directors of the Company shall be granted by the Board and not by the Committee.
When referring to grants under the Plan to non-employee directors of the
Company, any reference in this Plan to the Committee shall be deemed to refer to
the Board of Directors.
The Committee shall have full authority to administer the Plan,
including authority to interpret and construe any provision of the Plan and the
terms of any Incentive Award issued under it and to adopt such rules and
regulations for administering the Plan as it may deem necessary. Decisions of
the Committee shall be final and binding on all parties.
The Committee may, in its absolute discretion (i) accelerate the date
on which any Option or Stand-Alone SAR granted under the Plan becomes
exercisable, (ii) accelerate the Vesting Date or Issue Date, or waive any
condition imposed pursuant to Section 10(b) hereof, with respect to any share of
Restricted Stock granted under the Plan and (iii) accelerate the Vesting Date or
waive any condition imposed pursuant to Section 11 hereof, with respect to any
share of Phantom Stock granted under the Plan.
In addition, the Committee may, in its absolute discretion, grant
Incentive Awards to Participants on the condition that such Participants
surrender to the Committee for cancellation such other Incentive Awards
(including, without limitation, Incentive Awards with higher exercise prices) as
the Committee specifies. Notwithstanding Section 3 herein, prior to the
surrender of such other Incentive Awards, Incentive Awards granted pursuant to
the preceding sentence of this Section 4 shall not count against the limits set
forth in such Section 3.
Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Committee.
No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and WavePhore, Inc. shall indemnify and hold
harmless each member of the Committee and each other director or
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<PAGE> 8
employee of the Company to whom any duty or power relating to the administration
or interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Committee) arising out of any action, omission or
determination relating to the Plan, unless, in either case, such action,
omission or determination was taken or made by such member, director or employee
in bad faith and without reasonable belief that it was in the best interests of
the Company.
5. Eligibility
The persons who shall be eligible to receive Incentive Awards pursuant
to the Plan shall be such persons, including employees, officers, and directors
of the Company and non-employee consultants and advisors to the Company, as the
Committee shall select from time to time.
6. Options
Subject to the provisions of the Plan, the Committee may grant Options,
which Options shall be evidenced by agreements in such form as the Committee
shall from time to time approve. Options shall comply with and be subject to the
following terms and conditions:
(a) Identification of Options
All Options granted under the Plan shall be clearly identified
in the agreement evidencing such Options as either Incentive Stock
Options or as Non-Qualified Stock Options.
(b) Exercise Price
The exercise price of any Non-Qualified Stock Option granted
under the Plan shall be such price as the Committee shall determine on
the date on which such Non-Qualified Stock Option is granted; provided,
that such price may not be less than the minimum price required by
applicable law. The exercise price of any Incentive Stock Option
granted under the Plan shall be not less than 100% of the Fair Market
Value of Common Shares on the date on which such Incentive Stock Option
is granted.
(c) Term and Exercise of Option
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<PAGE> 9
(1) Each Option shall be exercisable on such date or
dates, during such period and for such number of Common Shares
as shall be determined by the Committee on the day on which
such Option is granted and set forth in the Option agreement
with respect to such Option; provided, however, that no Option
shall be exercisable after the expiration of ten years from
the date such Option was granted; and, provided, further, that
each Option shall be subject to earlier termination,
expiration or cancellation as provided in the Plan.
(2) Each Option shall be exercisable in whole or in
part; provided, that no partial exercise of an Option shall be
for an aggregate exercise price of less than $1,000, unless
such partial exercise is for the last remaining unexercised
portion of such Option. The partial exercise of an Option
shall not cause the expiration, termination or cancellation of
the remaining portion thereof. Upon the partial exercise of an
Option, the agreements evidencing such Option and any related
LSARs and Tandem SARs shall be returned to the Participant
exercising such Option together with the delivery of the
certificates described in Section 6(c)(4) hereof.
(3) An Option shall be exercised by delivering notice
to WavePhore, Inc.'s principal office, to the attention of its
Secretary, no less than one business day in advance of the
effective date of the proposed exercise. Such notice shall be
accompanied by the agreements evidencing the Option and any
related LSARs and Tandem SARs, shall specify the number of
Common Shares with respect to which the Option is being
exercised and the effective date of the proposed exercise and
shall be signed by the Participant. The Participant may
withdraw such notice at any time prior to the close of
business on the business day immediately preceding the
effective date of the proposed exercise, in which case such
agreements shall be returned to him. Payment for Common Shares
purchased upon the exercise of an Option shall be made on the
effective date of such exercise either (i) in cash, by
certified check, bank cashier's check or wire transfer or (ii)
subject to the approval of the Committee, in Common Shares
owned by the Participant and valued at their Fair Market Value
on the effective date of such exercise, or partly in Common
Shares with the balance in cash, by certified check, bank
cashier's check or wire transfer. Any payment in Common Shares
shall be effected by the
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<PAGE> 10
delivery of such shares to the Secretary of WavePhore, Inc.,
duly endorsed in blank or accompanied by stock powers duly
executed in blank, together with any other documents and
evidences as the Secretary of WavePhore, Inc. shall require
from time to time.
(4) Any Option granted under the Plan may be
exercised by a broker-dealer acting on behalf of a Participant
if (i) the broker-dealer has received from the Participant or
the Company a fully-and-duly-endorsed agreement evidencing
such Option and instructions signed by the Participant
requesting WavePhore, Inc. to deliver the Common Shares
subject to such Option to the broker-dealer on behalf of the
Participant and specifying the account into which such shares
should be deposited, (ii) adequate provision has been made
with respect to the payment of any withholding taxes due upon
such exercise and (iii) the broker-dealer and the Participant
have otherwise complied with Section 220.3(e)(4) of Regulation
T, 12 CFR Part 220.
(5) Certificates for Common Shares purchased upon the
exercise of an Option shall be issued in the name of the
Participant and delivered to the Participant as soon as
practicable following the effective date on which the Option
is exercised.
(d) Limitations on Grant of Incentive Stock Options
(1) The aggregate Fair Market Value of Common Shares
with respect to which "incentive stock options" (within the
meaning of Section 422 of the Code) are exercisable for the
first time by a Participant during any calendar year under the
Plan and any other stock option plan of the Company (or any
"subsidiary" of WavePhore, Inc. as such term is defined in
Section 425 of the Code) shall not exceed $100,000. Such Fair
Market Value shall be determined as of the date on which each
such incentive stock option is granted. In the event that the
aggregate Fair Market Value of Common Shares with respect to
such incentive stock options exceeds $100,000, then Incentive
Stock Options granted hereunder to such Participant shall, to
the extent and in the order required by Regulations
promulgated under the Code (or any other authority having the
force of Regulations), automatically be deemed to be
Non-Qualified Stock Options, but all other terms and
provisions of such Incentive Stock Options shall remain
unchanged. In the absence of such Regulations (and authority),
or
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<PAGE> 11
in the event such Regulations (or authority) require or permit
a designation of the options which shall cease to constitute
incentive stock options, Incentive Stock Options shall, to the
extent of such excess and in the order in which they were
granted, automatically be deemed to be Non-Qualified Stock
Options, but all other terms and provisions of such Incentive
Stock Options shall remain unchanged.
(2) No Incentive Stock Option may be granted to an
individual if, at the time of the proposed grant, such
individual owns stock possessing more than ten percent of the
total combined voting power of all classes of stock of
WavePhore, Inc. or any of its "subsidiaries" (within the
meaning of Section 425 of the Code), unless (i) the exercise
price of such Incentive Stock Option is at least one hundred
and ten percent of the Fair Market Value of a Common Share at
the time such Incentive Stock Option is granted and (ii) such
Incentive Stock Option is not exercisable after the expiration
of five years from the date such Incentive Stock Option is
granted.
(e) Effect of Termination of Employment
(1) In the event that the employment of a Participant
with the Company shall terminate for any reason other than
retirement at age 60 or later, Cause, Disability or death (i)
Options granted to such Participant, to the extent that they
were exercisable at the time of such termination, shall remain
exercisable until the expiration of one month after such
termination, on which date they shall expire, and (ii) Options
granted to such Participant, to the extent that they were not
exercisable at the time of such termination, shall expire at
the close of business on the date of such termination;
provided, however, that no Option shall be exercisable after
the expiration of its term.
(2) In the event that the employment of a Participant
with the Company shall terminate on account of the retirement
at age 60 or later, Disability or death of the Participant (i)
Options granted to such Participant, to the extent that they
were exercisable at the time of such termination, shall remain
exercisable until the expiration of one year after such
termination, on which date they shall expire, and (ii) Options
granted to such Participant, to the extent that they were not
exercisable at the time of such
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<PAGE> 12
termination, shall expire at the close of business on the date
of such termination; provided, however, that no Option shall
be exercisable after the expiration of its term.
(3) In the event of the termination of a
Participant's employment for Cause, all outstanding Options
granted to such Participant shall expire at the commencement
of business on the date of such termination.
(4) In the event that a Non-Employee Participant
ceases to provide services to the Company, all Options granted
to such Non-Employee Participant shall remain exercisable in
accordance with their terms.
(f) Acceleration of Exercise Date Upon Change in Control
Upon the occurrence of a Change in Control, each Option
granted under the Plan and outstanding at such time shall become fully
and immediately exercisable and shall remain exercisable until its
expiration, termination or cancellation pursuant to the terms of the
Plan.
7. Limited Stock Appreciation Rights
The Committee may grant in connection with any Option granted hereunder
one or more LSARs relating to a number of Common Shares equal to or less than
the number of Common Shares subject to the related Option. An LSAR may be
granted at the same time as, or subsequent to the time that, its related Option
is granted. Each LSAR shall be evidenced by an agreement in such form as the
Committee shall from time to time approve. Each LSAR granted hereunder shall be
subject to the following terms and conditions:
(a) Benefit Upon Exercise
(1) The exercise of an LSAR relating to a
Non-Qualified Stock Option with respect to any number of
Common Shares shall entitle the Participant to a cash payment,
for each such share, equal to the excess of (i) the greater of
(A) the highest price per Common Share paid in the Change in
Control in connection with which such LSAR became exercisable
and (B) the Fair Market Value of a Common Share on the date of
such Change in Control over (ii) the exercise price of the
related Option. Such payment shall be paid as soon as
practical, but in no event later than the
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<PAGE> 13
expiration of five business days, after the effective date of
such exercise.
(2) The exercise of an LSAR relating to an Incentive
Stock Option with respect to any number of Common Shares shall
entitle the Participant to a cash payment, for each such
share, equal to the excess of (i) the Fair Market Value of a
Common Share on the effective date of such exercise over (ii)
the exercise price of the related Option. Such payment shall
be paid as soon as practical, but in no event later than the
expiration of five business days, after the effective date of
such exercise.
(b) Term and Exercise of LSARs
(1) An LSAR shall be exercisable only during the
period commencing on the first day following the occurrence of
a Change in Control and terminating on the expiration of sixty
days after such date. Notwithstanding the preceding sentence
of this Section 7(b), in the event that an LSAR held by any
Participant who is or may be subject to the provisions of
Section 16(b) of the Exchange Act becomes exercisable prior to
the expiration of six months following the date on which it is
granted, then the LSAR shall also be exercisable during the
period commencing on the first day immediately following the
expiration of such six month period and terminating on the
expiration of sixty days following such date. Notwithstanding
anything else herein, an LSAR relating to an Incentive Stock
Option may be exercised with respect to a Common Share only if
the Fair Market Value of such share on the effective date of
such exercise exceeds the exercise price relating to such
share. Notwithstanding anything else herein, an LSAR may be
exercised only if and to the extent that the Option to which
it relates is exercisable.
(2) The exercise of an LSAR with respect to a number
of Common Shares shall cause the immediate and automatic
cancellation of the Option to which it relates with respect to
an equal number of shares. The exercise of an Option, or the
cancellation, termination or expiration of an Option (other
than pursuant to this Paragraph (2)), with respect to a number
of Common Shares, shall cause the cancellation of the LSAR
related to it with respect to an equal number of shares.
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<PAGE> 14
(3) Each LSAR shall be exercisable in whole or in
part; provided, that no partial exercise of an LSAR shall be
for an aggregate exercise price of less than $1,000, unless
such partial exercise is for the last remaining unexercised
portion of such LSAR. The partial exercise of an LSAR shall
not cause the expiration, termination or cancellation of the
remaining portion thereof. Upon the partial exercise of an
LSAR, the agreements evidencing the LSAR, the related Option
and any Tandem SARs related to such Option shall be returned
to the Participant exercising such LSAR together with the
payment described in Paragraph 7(a)(1) or (2) hereof, as
applicable.
(4) An LSAR shall be exercised by delivering notice
to WavePhore, Inc.'s principal office, to the attention of its
Secretary, no less than one business day in advance of the
effective date of the proposed exercise. Such notice shall be
accompanied by the applicable agreements evidencing the LSAR,
the related Option and any Tandem SARs relating to such
Option, shall specify the number of Common Shares with respect
to which the LSAR is being exercised and the effective date of
the proposed exercise and shall be signed by the Participant.
The Participant may withdraw such notice at any time prior to
the close of business on the business day immediately
preceding the effective date of the proposed exercise, in
which case such agreements shall be returned to him.
8. Tandem Stock Appreciation Rights
The Committee may grant in connection with any Option granted hereunder
one or more Tandem SARs relating to a number of Common Shares equal to or less
than the number of Common Shares subject to the related Option. A Tandem SAR may
be granted at the same time as, or subsequent to the time that, its related
Option is granted. Each Tandem SAR shall be evidenced by an agreement in such
form as the Committee shall from time to time approve. Tandem SARs shall comply
with and be subject to the following terms and conditions:
(a) Benefit Upon Exercise
The exercise of a Tandem SAR with respect to any number of
Common Shares shall entitle a Participant to a cash payment, for each
such share, equal to the excess of (i) the Fair Market Value of a
Common
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<PAGE> 15
Share on the effective date of such exercise over (ii) the exercise price of the
related Option. Such payment shall be paid as soon as practical, but in no event
later than the expiration of five business days, after the effective date of
such exercise.
(b) Term and Exercise of Tandem SAR
(1) A Tandem SAR shall be exercisable at the same
time and to the same extent (on a proportional basis, with any
fractional amount being rounded down to the immediately
preceding whole number) as its related Option. Notwithstanding
the first sentence of this Paragraph 8(b)(1), (i) a Tandem SAR
shall not be exercisable at any time that an LSAR related to
the Option to which the Tandem SAR is related is exercisable
and (ii) a Tandem SAR relating to an Incentive Stock Option
may be exercised with respect to a Common Share only if the
Fair Market Value of such share on the effective date of such
exercise exceeds the exercise price relating to such share.
(2) Notwithstanding the first sentence of Paragraph
8(b)(1) hereof, the Committee may, in its absolute discretion,
grant one or more Tandem SARs which shall not become
exercisable unless and until the Participant to whom such
Tandem SAR is granted is, in the determination of the
Committee, subject to Section 16(b) of the Exchange Act and
which shall cease to be exercisable if and at the time that
the Participant ceases, in the determination of the Committee,
to be subject to such Section 16(b).
(3) The exercise of a Tandem SAR with respect to a
number of Common Shares shall cause the immediate and
automatic cancellation of its related Option with respect to
an equal number of shares. The exercise of an Option, or the
cancellation, termination or expiration of an Option (other
than pursuant to this Paragraph (3)), with respect to a number
of Common Shares shall cause the automatic and immediate
cancellation of its related Tandem SARs to the extent that the
number of Common Shares subject to such Option after such
exercise, cancellation, termination or expiration is less than
the number of shares subject to such Tandem SARs. Such Tandem
SARs shall be canceled in the order in which they became
exercisable.
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<PAGE> 16
(4) Each Tandem SAR shall be exercisable in whole or
in part; provided, that no partial exercise of a Tandem SAR
shall be for an aggregate exercise price of less than $1,000,
unless such partial exercise is for the last remaining
unexercised portion of such Tandem SAR. The partial exercise
of a Tandem SAR shall not cause the expiration, termination or
cancellation of the remaining portion thereof. Upon the
partial exercise of a Tandem SAR, the agreements evidencing
such Tandem SAR, its related Option and LSARs relating to such
Option shall be returned to the Participant exercising such
Tandem SAR together with the payment described in Section 8(a)
hereof.
(5) A Tandem SAR shall be exercised by delivering
notice to WavePhore, Inc.'s principal office, to the attention
of its Secretary, no less than one business day in advance of
the effective date of the proposed exercise. Such notice shall
be accompanied by the applicable agreements evidencing the
Tandem SAR, its related Option and any LSARs related to such
Option, shall specify the number of Common Shares with respect
to which the Tandem SAR is being exercised and the effective
date of the proposed exercise and shall be signed by the
Participant. The Participant may withdraw such notice at any
time prior to the close of business on the business day
immediately preceding the effective date of the proposed
exercise, in which case such agreements shall be returned to
him.
9. Stand-Alone Stock Appreciation Rights
Subject to the provisions of the Plan, the Committee may grant
Stand-Alone SARs, which Stand-Alone SARs shall be evidenced by agreements in
such form as the Committee shall from time to time approve. Stand-Alone SARs
shall comply with and be subject to the following terms and conditions:
(a) Exercise Price
The exercise price of any Stand-Alone SAR granted under the
Plan shall be determined by the Committee at the time of the grant of
such Stand-Alone SAR.
(b) Benefit Upon Exercise
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<PAGE> 17
The exercise of a Stand-Alone SAR with respect to any number
of Common Shares prior to the occurrence of a Change in Control shall
entitle a Participant to a cash payment, for each such share, equal to
the excess of (i) the Fair Market Value of a Common Share on the
exercise date over (ii) the exercise price of the Stand-Alone SAR. The
exercise of a Stand-Alone SAR with respect to any number of Common
Shares upon or after the occurrence of a Change in Control shall
entitle a Participant to a cash payment, for each such share, equal to
the excess of (i) the greater of (A) the highest price per Common Share
paid in connection with such Change in Control and (B) the Fair Market
Value of a Common Share on the date of such Change in Control over (ii)
the exercise price of the Stand-Alone SAR. Such payments shall be paid
as soon as practical, but in no event later than five business days,
after the effective date of the exercise.
(c) Term and Exercise of Stand-Alone SARs
(1) Each Stand-Alone SAR shall be exercisable on such
date or dates, during such period and for such number of
Common Shares as shall be determined by the Committee and set
forth in the Stand-Alone SAR agreement with respect to such
Stand-Alone SAR; provided, however, that no Stand-Alone SAR
shall be exercisable after the expiration of ten years from
the date such Stand-Alone SAR was granted; and, provided,
further, that each Stand-Alone SAR shall be subject to earlier
termination, expiration or cancellation as provided in the
Plan.
(2) Each Stand-Alone SAR may be exercised in whole or
in part; provided, that no partial exercise of a Stand-Alone
SAR shall be for an aggregate exercise price of less than
$1,000, unless such partial exercise is for the last remaining
unexercised portion of such Stand-Alone SAR. The partial
exercise of a Stand-Alone SAR shall not cause the expiration,
termination or cancellation of the remaining portion thereof.
Upon the partial exercise of a Stand-Alone SAR, the agreement
evidencing such Stand-Alone SAR shall be returned to the
Participant exercising such Stand-Alone SAR together with the
payment described in Section 9(b) hereof.
(3) A Stand-Alone SAR shall be exercised by
delivering notice to WavePhore, Inc.'s principal office, to
the attention of its Secretary, no less than one business day
in advance of the effective
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<PAGE> 18
date of the proposed exercise. Such notice shall be
accompanied by the applicable agreement evidencing the
Stand-Alone SAR, shall specify the number of Common Shares
with respect to which the Stand-Alone SAR is being exercised
and the effective date of the proposed exercise and shall be
signed by the Participant. The Participant may withdraw such
notice at any time prior to the close of business on the
business day immediately preceding the effective date of the
proposed exercise, in which case the agreement evidencing the
Stand-Alone SAR shall be returned to him.
(d) Effect of Termination of Employment
(1) In the event that the employment of a Participant
with the Company shall terminate for any reason other than
retirement at age 60 or later, Cause, Disability or death (i)
Stand-Alone SARs granted to such Participant, to the extent
that they were exercisable at the time of such termination,
shall remain exercisable until the expiration of one month
after such termination, on which date they shall expire, and
(ii) Stand-Alone SARs granted to such Participant, to the
extent that they were not exercisable at the time of such
termination, shall expire at the close of business on the date
of such termination; provided, however, that no Stand-Alone
SAR shall be exercisable after the expiration of its term.
(2) In the event that the employment of a Participant
with the Company shall terminate on account of the retirement
at age 60 or later, Disability or death of the Participant (i)
Stand-Alone SARs granted to such Participant, to the extent
that they were exercisable at the time of such termination,
shall remain exercisable until the expiration of one year
after such termination, on which date they shall expire, and
(ii) Stand-Alone SARs granted to such Participant, to the
extent that they were not exercisable at the time of such
termination, shall expire at the close of business on the date
of such termination; provided, however, that no Stand-Alone
SAR shall be exercisable after the expiration of its term.
(3) In the event of the termination of a
Participant's employment for Cause, all outstanding
Stand-Alone SARs granted
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<PAGE> 19
to such Participant shall expire at the commencement of
business on the date of such termination.
(4) In the event that a Non-Employee Participant
ceases to provide services to the Company, all Stand-Alone
SARs granted to such Non-Employee Participant shall remain
exercisable in accordance with their terms.
(e) Acceleration of Exercise Date Upon Change in Control
Upon the occurrence of a Change in Control, each Stand-Alone
SAR granted under the Plan and outstanding at such time shall become
fully and immediately exercisable and shall remain exercisable until
its expiration, termination or cancellation pursuant to the terms of
the Plan.
10. Restricted Stock
Subject to the provisions of the Plan, the Committee may grant shares
of Restricted Stock. Each grant of shares of Restricted Stock shall be evidenced
by an agreement in such form as the Committee shall from time to time approve.
Each grant of shares of Restricted Stock shall comply with and be subject to the
following terms and conditions:
(a) Issue Date and Vesting Date
At the time of the grant of shares of Restricted Stock, the
Committee shall establish an Issue Date or Issue Dates and a Vesting
Date or Vesting Dates with respect to such shares. The Committee may
divide such shares into classes and assign a different Issue Date
and/or Vesting Date for each class. Except as provided in Sections
10(c) and 10(f) hereof, upon the occurrence of the Issue Date with
respect to a share of Restricted Stock, a share of Restricted Stock
shall be issued in accordance with the provisions of Section 10(d)
hereof. Provided that all conditions to the vesting of a share of
Restricted Stock imposed pursuant to Section 10(b) hereof are
satisfied, and except as provided in Sections 10(c) and 10(f) hereof,
upon the occurrence of the Vesting Date with respect to a share of
Restricted Stock, such share shall vest and the restrictions of Section
10(c) hereof shall cease to apply to such share.
(b) Conditions to Vesting
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<PAGE> 20
At the time of the grant of shares of Restricted Stock, the
Committee may impose such restrictions or conditions, not inconsistent
with the provisions hereof, to the vesting of such shares as it, in its
absolute discretion deems appropriate. By way of example and not by way
of limitation, the Committee may require, as a condition to the vesting
of any class or classes of shares of Restricted Stock, that the
Participant or the Company achieve certain performance criteria, such
criteria to be specified by the Committee at the time of the grant of
such shares.
(c) Restrictions on Transfer Prior to Vesting
Prior to the vesting of a share of Restricted Stock, no
transfer of a Participant's rights with respect to such shares, whether
voluntary or involuntary, by operation of law or otherwise, shall vest
the transferee with any interest or right in or with respect to such
share, but immediately upon any attempt to transfer such rights, such
share, and all of the rights related thereto, shall be forfeited by the
Participant and the transfer shall be of no force or effect.
(d) Issuance of Certificates
(1) Except as provided in Sections 10(c) or 10(f)
hereof, reasonably promptly after the Issue Date with respect
to shares of Restricted Stock, WavePhore, Inc. shall cause to
be issued a stock certificate, registered in the name of the
Participant to whom such shares were granted, evidencing such
shares; provided, that WavePhore, Inc. shall not cause to be
issued such a stock certificate unless it has received a stock
power duly endorsed in blank with respect to such shares. Each
such stock certificate shall bear the following legend:
The transferability of this certificate and
the shares of stock represented hereby are subject to
the restrictions, terms and conditions (including
forfeiture and restrictions against transfer)
contained in the WavePhore, Inc. 1995 Incentive Plan
and an Agreement entered into between the registered
owner of such shares and WavePhore, Inc. A copy of
the Plan and Agreement is on file in the office of
the Secretary of WavePhore, Inc. Such legend shall
not be removed from the certificate
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<PAGE> 21
evidencing such shares until such shares vest
pursuant to the terms hereof.
(2) Each certificate issued pursuant to Paragraph
10(d)(1) hereof, together with the stock powers relating to
the shares of Restricted Stock evidenced by such certificate,
shall be deposited by the Company with a custodian designated
by the Company. The Company shall cause such custodian to
issue to the Participant a receipt evidencing the certificates
held by it which are registered in the name of the
Participant.
(e) Consequences Upon Vesting
Upon the vesting of a share of Restricted Stock
pursuant to the terms hereof, the restrictions of Section 10(c) hereof
shall cease to apply to such share. Reasonably promptly after a share
of Restricted Stock vests pursuant to the terms hereof, WavePhore, Inc.
shall cause to be issued and delivered to the Participant to whom such
shares were granted, a certificate evidencing such share, free of the
legend set forth in Paragraph 10(d)(1) hereof, together with any other
property of the Participant held by the custodian pursuant to Section
14(b) hereof.
(f) Effect of Termination of Employment
(1) In the event that the employment of a Participant
with the Company shall terminate for any reason other than
Cause prior to the vesting of shares of Restricted Stock
granted to such Participant, a proportion of such shares, to
the extent not forfeited or canceled on or prior to such
termination pursuant to any provision hereof, shall vest on
the date of such termination. The proportion referred to in
the preceding sentence shall be determined by the Committee at
the time of the grant of such shares of Restricted Stock and
may be based on the achievement of any conditions imposed by
the Committee with respect to such shares pursuant to Section
10(b). Such proportion may be equal to zero.
(2) In the event of the termination of a
Participant's employment for Cause, all shares of Restricted
Stock granted to such Participant which have not vested as of
the date of such termination shall immediately be forfeited.
(3) In the event that a Non-Employee Participant
ceases to
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<PAGE> 22
provide services to the Company all shares of Restricted Stock
granted to such Non-Employee Participant shall vest in
accordance with the terms of the grant.
(g) Effect of Change in Control
Upon the occurrence of a Change in Control, all
shares of Restricted Stock which have not theretofore vested (including
those with respect to which the Issue Date has not yet occurred), or
been canceled or forfeited pursuant to any provision hereof, shall
immediately vest.
11. Phantom Stock
Subject to the provisions of the Plan, the Committee may grant shares
of Phantom Stock. Each grant of shares of Phantom Stock shall be evidenced by an
agreement in such form as the Committee shall from time to time approve. Each
grant of shares of Phantom Stock shall comply with and be subject to the
following terms and conditions:
(a) Vesting Date
At the time of the grant of shares of Phantom Stock,
the Committee shall establish a Vesting Date or Vesting Dates with
respect to such shares. The Committee may divide such shares into
classes and assign a different Vesting Date for each class. Provided
that all conditions to the vesting of a share of Phantom Stock imposed
pursuant to Section 11(c) hereof are satisfied, and except as provided
in Section 11(d) hereof, upon the occurrence of the Vesting Date with
respect to a share of Phantom Stock, such share shall vest.
(b) Benefit Upon Vesting
Upon the vesting of a share of Phantom Stock, a
Participant shall be entitled to receive in cash, within 30 days of the
date on which such share vests, an amount in cash in a lump sum equal
to the sum of (i) the Fair Market Value of a Common Share of the
Company on the date on which such share of Phantom Stock vests and (ii)
the aggregate amount of cash dividends paid with respect to a Common
Share of the Company during the period commencing on the date on which
the share of Phantom Stock was granted and terminating on the date on
which such share vests.
(c) Conditions to Vesting
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At the time of the grant of shares of Phantom Stock,
the Committee may impose such restrictions or conditions, not
inconsistent with the provisions hereof, to the vesting of such shares
as it, in its absolute discretion deems appropriate. By way of example
and not by way of limitation, the Committee may require, as a condition
to the vesting of any class or classes of shares of Phantom Stock, that
the Participant or the Company achieve certain performance criteria,
such criteria to be specified by the Committee at the time of the grant
of such shares.
(d) Effect of Termination of Employment
(1) In the event that the employment of a Participant
with the Company shall terminate for any reason other than
Cause prior to the vesting of shares of Phantom Stock granted
to such Participant, a proportion of such shares, to the
extent not forfeited or canceled on or prior to such
termination pursuant to any provision hereof, shall vest on
the date of such termination. The proportion referred to in
the preceding sentence shall be determined by the Committee at
the time of the grant of such shares of Phantom Stock and may
be based on the achievement of any conditions imposed by the
Committee with respect to such shares pursuant to Section
11(c). Such proportion may be equal to zero.
(2) In the event of the termination of a
Participant's employment for Cause, all shares of Phantom
Stock granted to such Participant which have not vested as of
the date of such termination shall immediately be forfeited.
(3) In the event that a Non-Employee Participant
ceases to provide services to the Company, all shares of
Phantom Stock granted to such Non-Employee Participant shall
vest in accordance with the terms of the grant.
(e) Effect of Change in Control
Upon the occurrence of a Change in Control, all
shares of Phantom Stock which have not theretofore vested, or been
canceled or forfeited pursuant to any provision hereof, shall
immediately vest.
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12. Stock Bonuses
Subject to the provisions of the Plan, the Committee may grant Stock
Bonuses in such amounts as it shall determine from time to time. A Stock Bonus
shall be paid at such time and subject to such conditions as the Committee shall
determine at the time of the grant of such Stock Bonus. Certificates for Common
Shares granted as a Stock Bonus shall be issued in the name of the Participant
to whom such grant was made and delivered to such Participant as soon as
practicable after the date on which such Stock Bonus is required to be paid.
13. Cash Bonuses
Subject to the provisions of the Plan, the Committee may grant, in
connection with any grant of Restricted Stock or Stock Bonus or at any time
thereafter, a cash bonus, payable promptly after the date on which the
Participant is required to recognize income for federal income tax purposes in
connection with such Restricted Stock or Stock Bonus, in such amounts as the
Committee shall determine from time to time; provided however, that in no event
shall the amount of a Cash Bonus exceed 50% of the Fair Market Value of the
related shares of Restricted Stock or Stock Bonus on such date. A Cash Bonus
shall be subject to such conditions as the Committee shall determine at the time
of the grant of such Cash Bonus.
14. Adjustment Upon Changes in Common Shares
(a) Shares Available for Grants
In the event of any change in the number of Common
Shares outstanding by reason of any stock dividend or split,
recapitalization, merger, consolidation, combination or exchange of
shares or similar corporate change, the maximum aggregate number of
Common Shares with respect to which the Committee may grant Options,
Stand-Alone SARs, shares of Restricted Stock, shares of Phantom Stock
and Stock Bonuses shall be appropriately adjusted by the Committee. In
the event of any change in the number of Common Shares outstanding by
reason of any other event or transaction, the Committee may, but need
not, make such adjustments in the number and class of Common Shares
with respect to which Options, Stand-Alone SARs, shares of Restricted
Stock, shares of Phantom Stock and Stock Bonuses may be granted as the
Committee may deem appropriate.
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(b) Outstanding Restricted Stock and Phantom Stock
Unless the Committee in its absolute discretion
otherwise determines, any securities or other property (including
dividends paid in cash) received by a Participant with respect to a
share of Restricted Stock, the Issue Date with respect to which occurs
prior to such event, but which has not vested as of the date of such
event, as result of any dividend, stock split, recapitalization,
merger, consolidation, combination, exchange of shares or otherwise
will not vest until such share of Restricted Stock vests, and shall be
promptly deposited with the custodian designated pursuant to Paragraph
10(d)(2) hereof.
The Committee may, in its absolute discretion, adjust any
grant of shares of Restricted Stock, the Issue Date with respect to
which has not occurred as of the date of the occurrence of any of the
following events, or any grant of shares of Phantom Stock, to reflect
any dividend, stock split, recapitalization, merger, consolidation,
combination, exchange of shares or similar corporate change as the
Committee may deem appropriate to prevent the enlargement or dilution
of rights of Participants under the grant.
(c) Outstanding Options, LSARs, Tandem SARs and
Stand-Alone SARs--Certain Increases or Decreases in Issued
Shares Without Consideration
Subject to any required action by the shareholders of
WavePhore, Inc., in the event of any increase or decrease in the number
of issued Common Shares resulting from a subdivision or consolidation
of Common Shares or the payment of a stock dividend (but only on the
Common Shares), the Committee shall proportionally adjust the number of
Common Shares subject to each outstanding Option, LSAR, Tandem SAR and
Stand-Alone SAR, and the exercise price per Common Share of each such
Option, LSAR, Tandem SAR and Stand-Alone SAR.
(d) Outstanding Options, LSARs, Tandem SARs and
Stand-Alone SARs--Certain Mergers
Subject to any required action by the shareholders of
WavePhore, Inc., in the event that WavePhore, Inc. shall be the
surviving corporation in any merger or consolidation (except a merger
or consolidation as a result of which the holders of Common Shares
receive securities of another corporation), each Option, LSAR, Tandem
SAR and Stand-Alone
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<PAGE> 26
SAR outstanding on the date of such merger or consolidation shall
pertain to and apply to the securities which a holder of the number of
Common Shares subject to such Option, LSAR, Tandem SAR or Stand-Alone
SAR would have received in such merger or consolidation.
(e) Outstanding Options, LSARs, Tandem SARs and
Stand-Alone SARs--Certain Other Transactions
In the event of (i) a dissolution or liquidation of WavePhore,
Inc., (ii) a sale of all or substantially all of WavePhore, Inc.'s
assets, (iii) a merger or consolidation involving WavePhore, Inc. in
which WavePhore, Inc. is not the surviving corporation or (iv) a merger
or consolidation involving WavePhore, Inc. in which WavePhore, Inc. is
the surviving corporation but the holders of Common Shares receive
securities of another corporation and/or other property, including
cash, the Committee shall, in its absolute discretion, have the power
to:
(i) cancel, effective immediately prior to
the occurrence of such event, each Option (including each LSAR
and Tandem SAR related thereto) and Stand-Alone SAR
outstanding immediately prior to such event (whether or not
then exercisable), and, in full consideration of such
cancellation, pay to the Participant to whom such Option or
Stand-Alone SAR was granted an amount in cash, for each Common
Share subject to such Option or Stand-Alone SAR, respectively,
equal to the excess of (A) the value, as determined by the
Committee in its absolute discretion, of the property
(including cash) received by the holder of a Common Share as a
result of such event over (B) the exercise price of such
Option or Stand-Alone SAR; or
(ii) provide for the exchange of each Option
(including any related LSAR or Tandem SAR) and Stand-Alone SAR
outstanding immediately prior to such event (whether or not
then exercisable) for an option on or stock appreciation right
with respect to, as appropriate, some or all of the property
for which such Option or Stand-Alone SAR is exchanged and,
incident thereto, make an equitable adjustment as determined
by the Committee in its absolute discretion in the exercise
price of the option or stock appreciation right, or the number
of shares or amount of property subject to the option or stock
appreciation right or, if appropriate, provide for a cash
payment to the Participant to whom such Option or Stand-Alone
SAR was granted
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<PAGE> 27
in partial consideration for the exchange of the Option or
Stand-Alone SAR.
(f) Outstanding Options, LSARs, Tandem SARs and
Stand-Alone SARs--Other Changes
In the event of any change in the capitalization of WavePhore,
Inc. or corporate change other than those specifically referred to in
Section 14(c), (d) or (e) hereof, the Committee may, in its absolute
discretion, make such adjustments in the number and class of shares
subject to Options, LSARs, Tandem SARs or Stand-Alone SARs outstanding
on the date on which such change occurs and in the per share exercise
price of each such Option, LSAR, Tandem SAR and Stand-Alone SAR as the
Committee may consider appropriate to prevent dilution or enlargement
of rights.
(g) No Other Rights
Except as expressly provided in the Plan, no Participant shall
have any rights by reason of any subdivision or consolidation of shares
of stock of any class, the payment of any dividend, any increase or
decrease in the number of shares of stock of any class or any
dissolution, liquidation, merger or consolidation of WavePhore, Inc. or
any other corporation. Except as expressly provided in the Plan, no
issuance by WavePhore, Inc. 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 of Common Shares subject to an Incentive Award or the
exercise price of any Option, LSAR, Tandem SAR or Stand-Alone SAR.
15. Rights as a Stockholder
No person shall have any rights as a stockholder with respect to any
Common Shares covered by or relating to any Incentive Award granted pursuant to
this Plan until the date of the issuance of a stock certificate with respect to
such shares. Except as otherwise expressly provided in Section 14 hereof, no
adjustment to any Incentive Award shall be made for dividends or other rights
for which the record date occurs prior to the date such stock certificate is
issued.
16. No Special Employment Rights; No Right to Incentive Award
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<PAGE> 28
Nothing contained in the Plan or any Incentive Award shall confer upon
any Participant any right with respect to the continuation of his employment by
the Company or interfere in any way with the right of the Company, subject to
the terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
Participant from the rate in existence at the time of the grant of an Incentive
Award.
No person shall have any claim or right to receive an Incentive Award
hereunder. The Committee's granting of an Incentive Award to a Participant at
any time shall neither require the Committee to grant an Incentive Award to such
Participant or any other Participant or other person at any time nor preclude
the Committee from making subsequent grants to such Participant or any other
Participant or other person.
17. Securities Matters
(a) The Company shall be under no obligation to effect the
registration pursuant to the Securities Act of any Common Shares to be
issued hereunder or to effect similar compliance under any state laws.
Notwithstanding anything herein to the contrary, the Company shall not
be obligated to cause to be issued or delivered any certificates
evidencing Common Shares pursuant to the Plan unless and until the
Company is advised by its counsel that the issuance and delivery of
such certificates is in compliance with all applicable laws,
regulations of governmental authority and the requirements of any
securities exchange on which Common Shares are traded. The Committee
may require, as a condition of the issuance and delivery of
certificates evidencing Common Shares pursuant to the terms hereof,
that the recipient of such shares make such covenants, agreements and
representations, and that such certificates bear such legends, as the
Committee, in its sole discretion, deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall only be
effective at such time as counsel to the Company shall have determined
that the issuance and delivery of Common Shares pursuant to such
exercise is in compliance with all applicable laws, regulations of
governmental authority and the requirements of any securities exchange
on which Common Shares are traded. The Company may, in its sole
discretion, defer the effectiveness of any exercise of an Option
granted hereunder in order to allow the issuance of shares of Common
stock
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<PAGE> 29
pursuant thereto to be made pursuant to registration or an exemption
from the registration or other methods for compliance available under
federal or state securities laws. The Company shall inform the
Participant in writing of its decision to defer the effectiveness of
the exercise of an Option granted hereunder. During the period that the
effectiveness of the exercise of an Option has been deferred, the
Participant may, by written notice, withdraw such exercise and obtain
the refund of any amount paid with respect thereto.
(c) With respect to persons subject to Section 16 of the
Securities Exchange Act of 1934, transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provision of the
Plan, the grant of an Incentive Award, or action by the Committee fails
to so comply, it shall be deemed null and void, to the extent permitted
by law and deemed advisable by the Committee.
18. Withholding Taxes
(a) Cash Remittance
Whenever Common Shares are to be issued upon the exercise of
an Option, the occurrence of the Issue Date or Vesting Date with
respect to a share of Restricted Stock or the payment of a Stock Bonus,
the Company shall have the right to require the Participant to remit to
the Company in cash an amount sufficient to satisfy federal, state and
local withholding tax requirements, if any, attributable to such
exercise, occurrence or payment prior to the delivery of any
certificate or certificates for such shares. In addition, upon the
exercise of an LSAR, Tandem SAR or Stand-Alone Sar, the grant of a Cash
Bonus or the making of a payment with respect to a share of Phantom
Stock, the Company shall have the right to withhold from any cash
payment required to be made pursuant thereto an amount sufficient to
satisfy the federal, state and local withholding tax requirements.
(b) Stock Remittance
At the election of the Participant, subject to the approval of
the Committee, when Common Shares are to be issued upon the exercise of
an Option, the occurrence of the Issue Date or the Vesting Date with
respect to a share of Restricted Stock or the grant of a Stock Bonus,
in lieu of the remittance required by Section 18(a) hereof, the
Participant
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<PAGE> 30
may tender to the Company a number of Common Shares determined by such
Participant, the Fair Market Value of which at the tender date the
Committee determines to be sufficient to satisfy the federal, state and
local withholding tax requirements, if any, attributable to such
exercise, occurrence or grant and not greater than the Participant's
estimated total federal, state and local tax obligations associated
with such exercise, occurrence or grant.
(c) Stock Withholding
At the election of the Participant, subject to the approval of
the Committee, when Common Shares are to be issued upon the exercise of
an Option, the occurrence of the Issue Date or the Vesting Date with
respect to a share of Restricted Stock or the grant of a Stock Bonus,
in lieu of the remittance required by Section 18(a) hereof, the Company
shall withhold a number of such shares determined by such Participant,
the Fair Market Value of which at the exercise date the Committee
determines to be sufficient to satisfy the federal, state and local
withholding tax requirements, if any, attributable to such exercise,
occurrence or grant and is not greater than the Participant's estimated
total federal, state and local tax obligations associated with such
exercise, occurrence or grant.
19. Amendment of the Plan
The Plan will have no fixed termination date, but may be terminated at
any time by the Board of Directors. Incentive Awards outstanding as of the date
of any such termination will not be affected or impaired by the termination of
the Plan. The Board of Directors may amend, alter, or discontinue the Plan, but
no amendment, alteration or discontinuation shall be made which would (i) impair
the rights of a Participant without the Participant's consent, except such an
amendment which is necessary to cause any Incentive Award or transaction under
the Plan to qualify, or to continue to qualify, for the exemption provided by
Rule 16b-3, or (ii) disqualify any Incentive Award or transaction under the Plan
from the exemption provided by Rule 16b-3. In addition, no such amendment may be
made without the approval of the Company's stockholders to the extent such
approval is required by law or agreement.
20. No Obligation to Exercise
The grant to a Participant of an Option, LSAR, Tandem SAR or
Stand-Alone SAR shall impose no obligation upon such Participant to exercise
such
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Option, LSAR, Tandem SAR or Stand-Alone SAR.
21. Nontransferability
Unless the Committee provides otherwise, (i) no right or interest of a
Participant in any Incentive Award may be pledged, encumbered, or hypothecated
to or in favor of any party other than the Company or a Subsidiary, or shall be
subject to any lien, obligation, or liability of such Participant to any other
party other than the Company or a Subsidiary, and (ii) no Incentive Award shall
be assignable or transferable by a Participant other than by will or the laws of
descent and distribution.
22. Expenses and Receipts
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Incentive Award will be used for
general corporate purposes.
23. Suspension or Termination of Incentive Award
In addition to the remedies of the Company elsewhere provided for
herein, if the Committee reasonably believes that a Participant has committed an
act of misconduct as described in this Section, the Committee may suspend the
Participant's rights to exercise any Incentive Award pending a determination by
the Board of Directors. If the Board of Directors determines a Participant has
committed an act of misconduct, including, but not limited to, embezzlement,
fraud, dishonesty, nonpayment of any obligation owed to the Company, breach of
fiduciary duty or deliberate disregard of the Company's rules resulting in loss,
damage or injury to the Company, or a Participant makes an unauthorized
disclosure of any Company trade secret or confidential information, engages in
any conduct constituting unfair competition, induces any Company customer to
breach a contract with the Company, induces any principal for whom the Company
acts as agent to terminate such agency relationship, or has failed to comply
with of the terms and conditions of the Plan or any agreement executed by such
Participant evidencing an Incentive Award, unless such failure has been remedied
by such Participant within 10 days after having been notified of such failure by
the Committee, neither the Participant nor his or her estate, executors,
administrators, or heirs, shall be entitled to exercise any Incentive Award
whatsoever. In making such determination, the Board of Directors shall act
fairly and shall give the Participant an opportunity to appear and present
evidence on his or her behalf at a hearing before a committee of the Board of
Directors. For any Participant
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<PAGE> 32
who is an "Executive Officer" the purposes of Section 16 of the Securities
Exchange Act of 1934, as amended, a determination of the Board of Directors
shall be subject to the approval of the Committee.
24. Code Section 162(m).
The Committee, in its sole discretion, may require that one or more
Incentive Awards contain provisions which provide that, in the event Section
162(m) of the Code, or any successor provision relating to excessive employee
remuneration, would operate to disallow a deduction by the Company for all or
part of any Incentive Award under the Plan, a Participant's receipt of the
portion of such Incentive Award that would not be deductible by the Company
shall be deferred until the next succeeding year or years in which the
Participant's remuneration does not exceed the limit set forth in such provision
of the Code.
25. Effective Date of Plan
The Plan shall be effective as of February 10, 1997, subject to
approval by the Company's Stockholders at their next Annual or Special Meeting.
32
<PAGE> 1
WAVEPHORE, INC.
EXECUTIVE MANAGEMENT INCENTIVE PLAN
ARTICLE I.
ESTABLISHMENT, AND PURPOSE, AND DURATION
1.1 Establishment of the Plan. WavePhore, Inc., an Indiana corporation
(the "Company"), hereby establishes an annual incentive plan to be known as the
"WavePhore, Inc. Executive Management Incentive Plan" (the "Plan").
1.2 Purpose of the Plan. The Plan is designed to (i) recognize and
reward on an annual basis select Company executives for their contributions to
the overall success of the Company, and (ii) qualify compensation paid under the
Plan as "performance-based compensation" as that term is defined in Section
162(m) of the Internal Revenue Code of 1986 (the "Code") and the regulations
thereunder.
1.3 Duration of the Plan. Subject to approval by the Company's
stockholders, the Plan will commence as of February 10, 1997. If the Plan is not
approved by the Company's stockholders, the Plan will not be effective and any
grants made under the Plan prior to that date will be void. No award may be made
under the Plan after the date the Plan terminates, but awards made prior to that
date may extend beyond that date.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 Definitions. Whenever used in the Plan, the following terms shall
have the meanings set forth below and, when the meaning is intended, the initial
letter of the word is capitalized:
(a) "Award" means the agreement of the Company to pay
compensation to a Participant upon the attainment of specified
Performance Goals.
(b) "Award Agreement" means the written agreement evidencing
the terms and conditions of an Award.
(c) "Board" or "Board or Directors" means the Board of
Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Committee" means the Compensation Committee of the Board
or the committee appointed by the Board pursuant to Article 3 to
administer the Plan.
(f) "Company" means WavePhore, Inc., an Indiana corporation,
or any successor thereto.
<PAGE> 2
(g) "Covered Employee" means an Employee who is a "covered
employee" within the meaning of Section 162(m) of the Code.
(h) "Director" means any individual who is a member of the
Board of Directors of the Company.
(i) "Employee" means any full-time, nonunion employee of the
Company or any subsidiary of the Company. Directors who are not
otherwise employed by the Company or any subsidiary of the Company
shall not be considered Employees under this Plan.
(j) "Participant" means a Covered Employee who is designated
by the Committee to participate in the Plan for a Performance Period
pursuant to Article 4.
(k) "Performance Criteria" means the criteria that the
Committee selects for purposes of establishing the Performance Goal or
Performance Goals for a Participant for a Performance Period. The
Performance Criteria that will be used to establish Performance Goals
shall be limited to the following: pre- or after-tax net income,
consolidated pre-tax net income (prior to payments under this Plan),
revenue growth, operating income, operating cash flow, return on net
assets, return on shareholders' equity, return on assets, return on
capital, Share price growth, shareholder returns, gross or net profit
margin, earnings per Share, price per Share, and market share, any of
which may be measured either in absolute terms, or as compared to any
incremental increase, or as compared to results of a peer group. The
Committee shall, within the time prescribed by Section 162(m) of the
Code, define in an objective fashion the manner of calculating the
Performance Criteria it selects to use for such Performance Period for
such Participant.
(l) "Performance Goals" means, for a Performance Period, the
goals established in writing by the Committee for the Performance
Period based upon the Performance Criteria. Depending on the
Performance Criteria used to establish such Goal, the Goal may be
expressed in terms of overall Company performance or the performance of
a division or an operating unit. The Committee, in its discretion, may,
within the time prescribed by Section 162(m) of the Code, adjust or
modify the calculation of Performance Goals for such Performance Period
in order to prevent the dilution or enlargement of the rights of
Participants, (i) in the event of, or in anticipation of, any unusual
or extraordinary corporate item, transaction, event, or development;
and (ii) in recognition of, or in anticipation of, any other unusual or
nonrecurring events affecting the Company, or the financial statements
of the Company, or in response to, or in anticipation of, changes in
applicable laws, regulations,
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<PAGE> 3
accounting principles, or business conditions.
(m) "Performance Period" means the one or more periods of
time, which may be of varying and overlapping durations, as the
Committee may select, over which the attainment of one or more
Performance Goals will be measured for the purpose of determining a
Participant's right to, and the payment of, compensation under the
Plan.
(n) "Shares" means the shares of common stock of the Company.
2.2 Severability. In the event that a court of competent jurisdiction
determines that any portion of this Plan is in violation of any statute, common
law, or public policy, then only the portions of this Plan that violate such
statute, common law, or public policy shall be stricken. All portions of this
Plan that do not violate any statute or public policy shall continue in full
force and effect. Further, any court order striking any portion of this Plan
shall modify the stricken terms as narrowly as possible to give as much effect
as possible to the intentions of the parties under this Plan.
ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the Compensation
Committee of the Board, or by any other Committee appointed by the Board
consisting solely of two (2) or more Directors who qualify as "outside
directors" under Section 162(m) of the Code and the regulations issued
thereunder. The members of the Committee shall be appointed from time to time
by, and shall serve at the discretion of, the Board of Directors.
3.2 Authority of the Committee. The Committee shall have all the
authority that is necessary or helpful to enable it to discharge its
responsibilities under the Plan. Without limiting the generality of the
preceding sentence, the Committee shall have the exclusive right to interpret
the Plan, to determine eligibility for participation in the Plan, to decide all
questions concerning eligibility for and the amount of Awards payable under the
Plan, to establish and administer the Performance Goals and certify whether, and
to what extent, they are attained, to construe any ambiguous provisions of the
Plan, to correct any default, to supply any omission, to reconcile any
inconsistency, to issue administrative guidelines as an aide to the
administration of the Plan, to make regulations for carrying out the Plan, and
to decide any and all questions arising in the administration, interpretation,
and application of the Plan.
3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive, and binding on
all persons, including the Company, its stockholders, Employees, Participants,
and their estates and beneficiaries.
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<PAGE> 4
3.4 Section 162(m) Compliance. This Plan shall be administered to
comply with Section 162(m) of the Code and, if any provisions of the Plan cause
any Award to not qualify as performance-based compensation under Section 162(m)
of the Code, that provision shall be stricken from this Plan, but the other
provisions of this Plan shall remain in effect. Any action striking any portion
of this Plan shall modify the stricken terms as narrowly as possible to give as
much effect as possible to the intentions of the parties under this Plan.
Furthermore, if any portion of the Plan or any Award Agreement conflicts with
Section 162(m) or the regulations issued thereunder, the provisions of Section
162(m) and such regulations shall control.
ARTICLE 4. ELIGIBILITY AND PARTICIPATION
4.1 Eligibility. Participation is limited in any fiscal year to
Employees who the Committee concludes will be Covered Employees for such year.
4.2 Actual Participation. From among the Covered Employees eligible to
participate each year, the Committee may select those to receive Awards in any
one or more Performance Periods under the Plan.
ARTICLE 5. FORM OF AWARDS.
Awards shall be paid in cash. The Committee may, in its sole
discretion, subject any Award to such terms, conditions, restrictions, or
limitations (including but not limited to restrictions on transferability,
vesting, termination of employment for cause or otherwise, or change of control)
that the Committee deems to be appropriate, provided that such terms are not
inconsistent with the terms of the Plan or Section 162(m) of the Code. All
Awards will be evidenced by an Award Agreement.
ARTICLE 6. DETERMINATION AND LIMITATION OF AWARDS.
6.1 Determination of Awards. Within the time prescribed by Section
162(m) of the Code for each Performance Period, the Committee shall, in its sole
discretion, determine and establish:
(a) the Performance Goals applicable to the Performance Period
for each Participant;
(b) subject to Section 6.3, the total dollar amount payable to
each Participant under the Award based upon attaining the Performance Goals; and
(c) such other terms and conditions of such Award as the
Committee determines to be appropriate under the circumstances.
Such determinations shall be reflected in the minutes of a Committee meeting, or
in a written action adopted without the necessity of a meeting, and also shall
be
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documented in the Award Agreement.
6.2 Limitations of Awards. If only one Performance Goal is established
for a Performance Period, the Performance Goal for such Performance Period must
be achieved in order for a Participant to receive payment for an Award for such
Performance Period. If more than one Performance Goal is established for a
Performance Period, one or more of the Performance Goals for such Performance
Period must be achieved in order for a Participant to receive payment for an
Award for such Performance Period, all as set forth in accordance with the terms
of the Award Agreement. Furthermore, the Committee is authorized at any time
during or after a Performance Period to reduce or eliminate (but not to
increase) the amount of an Award payable to any Covered Employee for a
Performance Period for any reason.
6.3 Maximum Awards. Notwithstanding any provision in the Plan to the
contrary, the maximum Award payable to any Covered Employee under the Plan for a
Performance Period shall be the greater of (i) $1,000,000, or (ii) three percent
(3%) of the Company's consolidated pre-tax net income (prior to any payments
under this Plan) for the last fiscal year ended on or before the end of the
Performance Period.
6.4 Employment Continuation. Unless otherwise determined by the
Committee, provided in the Award Agreement, or required by applicable law, no
payment pursuant to this Plan shall be made to a Participant unless the
Participant is employed by the Company on the last day of the Performance
Period.
6.5 Deferrals of Payments. In the exercise of its discretion, the
Committee may allow a Participant to elect to defer the receipt of all or any
portion of an Award. Such deferral shall only be made pursuant to the terms and
conditions set forth in any deferred compensation plan established by the
Company.
ARTICLE 7. RIGHTS OF EMPLOYEES
7.1 Employment. Nothing in the Plan shall interfere with or limit in
any way the right of the Company to terminate any Participant's employment at
any time, nor confer upon any Participant any right to continue in the employ of
the Company.
7.2 Participation. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected to
receive a future Award.
ARTICLE 8. AMENDMENT, MODIFICATION, AND TERMINATION
The Committee may suspend or terminate the Plan at any time with or
without prior notice. In addition, the Committee may from time to time and with
or without prior notice, amend or modify the Plan in any manner, but may not
without shareholder
5
<PAGE> 6
approval adopt any amendment that would require the vote of shareholders of the
Company pursuant to Section 162(m) of the Code.
ARTICLE 9. WITHHOLDING
The Company shall have the power and the right to deduct or withhold,
or require a Participant to remit to the Company, an amount sufficient to
satisfy Federal, state, and local taxes (including the Participant's FICA
obligation) required by law to be withheld with respect to any grant, exercise,
or payment made under or as a result of this Plan.
ARTICLE 10. SUCCESSORS
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
ARTICLE 11. REQUIREMENTS OF LAW
11.1 Requirements of Law. The granting of Awards under the Plan shall
be subject to all applicable laws, rules, and regulations, and to such approvals
by any governmental agencies as may be required.
11.2 Governing Law. The Plan, and all agreements hereunder, shall be
governed by the laws of the State of Arizona.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,181
<SECURITIES> 0
<RECEIVABLES> 3,334
<ALLOWANCES> (696)
<INVENTORY> 4,153
<CURRENT-ASSETS> 18,100
<PP&E> 3,863
<DEPRECIATION> (1,152)
<TOTAL-ASSETS> 38,687
<CURRENT-LIABILITIES> 5,931
<BONDS> 87
16,533
0
<COMMON> 67,458
<OTHER-SE> (51,579)
<TOTAL-LIABILITY-AND-EQUITY> 38,687
<SALES> 3,685
<TOTAL-REVENUES> 3,685
<CGS> 1,987
<TOTAL-COSTS> 1,987
<OTHER-EXPENSES> 5,302
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (115)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,490)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,490)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
