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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
--------------------
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of
(as permitted Commission Only by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SPECIAL DEVICES, INCORPORATED
- -------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- -------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee:
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------
4) Date Filed:
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SPECIAL DEVICES, INCORPORATED
16830 WEST PLACERITA CANYON ROAD
NEWHALL, CALIFORNIA 91321
_______________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MARCH 19, 1997
_______________________________
To The Stockholders of
Special Devices, Incorporated:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Special
Devices, Incorporated, a Delaware corporation (the "Company"), will be held at
the Hampton Inn, 25259 North The Old Road, Valencia, California, on Wednesday,
March 19, 1997, at 10:00 A.M., local time, for the purpose of considering and
acting upon the following:
1. The election of two directors, to hold office until the 2000 Annual
Meeting of Stockholders and thereafter until their successors are elected
and qualified;
2. To ratify 1996 Key Employee Stock Option and 1996 Performance Stock Option
grants made to certain key employees of the Company; and
3. The transaction of such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on February 4, 1997 will
be entitled to notice of and to vote at the meeting and any adjournments
thereof.
By Order of the Board of
Directors,
THOMAS F. TREINEN
Chairman of the Board
Dated: February 20, 1997
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE
ACCOMPANYING ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE> 3
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SPECIAL DEVICES, INCORPORATED
16830 WEST PLACERITA CANYON ROAD
NEWHALL, CALIFORNIA 91321
_________________
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MARCH 19, 1997
_________________
This Proxy Statement is being mailed on or about February 20, 1997 to
stockholders of Special Devices, Incorporated (the "Company") in connection
with the solicitation of proxies by the Board of Directors for use at the
Annual Meeting of Stockholders to be held on March 19, 1997, or any adjournment
or adjournments thereof, for the purposes set forth in this Proxy Statement and
in the accompanying Notice of Annual Meeting of Stockholders.
When a proxy in the form enclosed with this Proxy Statement is
returned properly executed, the shares represented thereby will be voted at the
Annual Meeting in accordance with the directions indicated thereon or, if no
direction is indicated, the shares will be voted in accordance with the
recommendations of the Board of Directors and in the discretion of the Proxies.
A stockholder who executes and returns the enclosed proxy may revoke it at any
time prior to its exercise by giving written notice of such revocation to the
Chairman of the Board of the Company, at the address of the Company, or by
revoking it in person at the Annual Meeting. Attendance at the Annual Meeting
by a stockholder who has executed and returned the enclosed proxy does not
alone revoke the proxy.
The costs of preparing and mailing this Notice and Proxy Statement and
the enclosed form of proxy will be paid by the Company. In addition to
soliciting proxies by mail, officers and regular employees of the Company may,
at the Company's expense, solicit proxies in person and by telephone or
telegraph. The Company has retained ChaseMellon Shareholder Services to
assist in the solicitation of proxies. The Company will pay reasonable
out-of-pocket expenses incurred by them. The Company will pay brokers,
nominees, fiduciaries and other custodians their reasonable fees and expenses
for forwarding solicitation material to principals and for obtaining their
instructions.
VOTING SECURITIES
As of the close of business on February 4, 1997, 7,685,363 shares of
the Company's common stock, par value $.01 per share (the "Common Stock"), were
outstanding and held of record by approximately 206 stockholders, each of which
shares is entitled to one vote at the Annual Meeting. The Company has no other
class of voting securities outstanding.
A majority of the shares entitled to vote, present in person or
represented by proxy, will constitute a quorum at the meeting. In all matters
other than the election of directors, the
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affirmative vote of a majority of shares of Common Stock present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
will be the act of the stockholders. Directors will be elected by a plurality
of the votes of the shares of Common Stock present in person or represented by
proxy and entitled to vote on the election of directors. Abstentions will be
treated as the equivalent of a negative vote for the purpose of determining
whether a proposal has been adopted and will have no effect for the purpose of
determining whether a director has been elected. As to certain matters other
than the election of directors, New York Stock Exchange and American Stock
Exchange rules generally require when shares are registered in street or
nominee name that their member brokers receive specific instructions from the
beneficial owners in order to vote on such a proposal. If a member broker
indicates on the proxy that such broker does not have discretionary authority
as to certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
ITEM 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a three-tiered
classified Board of Directors with staggered terms of office. The Board of
Directors consists of three classes, designated as Class I, Class II and Class
III. Pursuant to the Certificate of Incorporation, the term of Class I
directors expires at the 1998 Annual Meeting, the term of Class II directors
expires at the 1999 Annual Meeting, and the term of Class III directors expires
at the 1997 Annual Meeting. At each Annual Meeting, only one class of
directors will be elected, and each class of directors will serve a three-year
term and until their successors are elected and qualified.
INFORMATION CONCERNING NOMINEES
The nominees for election as Class III directors are set forth below
along with certain information regarding the nominees. Unless marked to the
contrary, proxies received will be voted for the election of Thomas F. Treinen
and Samuel Levin, each of whom currently serves as a Director of the Company,
to serve until the 2000 Annual Meeting and until his successor is elected and
qualified. If for any reason any nominee should not be available for election
or be unable to serve as a Director, the accompanying proxy will be voted for
the election of such other person, if any, as the Board of Directors may
designate. The Board has no reason to believe that any nominee will be
unavailable for election or unable to serve.
2
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<TABLE>
<CAPTION>
YEAR
COMMENCED OTHER
SERVING AS A CORPORATE
NAME AND PRINCIPAL OCCUPATION AGE DIRECTOR DIRECTORSHIPS
<S> <C> <C> <C>
Thomas F. Treinen 59 1976 None
Mr. Treinen has served as Chairman, President and as
a Director of the Company since 1976. Mr. Treinen
holds a degree in mechanical engineering and has been
employed by the Company since 1965.
Samuel Levin 67 1994 None
Mr. Levin has been President of Scot, Incorporated (a
wholly-owned subsidiary of the Company) and a
Director since September 1994. Prior to that time,
Mr. Levin spent 18 years in various executive
capacities (including as President beginning in 1992)
with Scot, Inc., which sold substantially all of its
assets to Scot, Incorporated, a subsidiary of the
Company, in September 1994. Mr. Levin holds a degree
in mechanical engineering.
</TABLE>
The proposed nominees are not related by blood or marriage to any
executive officer of the Company.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE ELECTION OF THE NOMINEES FOR DIRECTOR NAMED ABOVE.
3
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INFORMATION CONCERNING DIRECTORS
Set forth below are the Class I and Class II directors whose terms do
not expire this year, along with certain information regarding these directors.
<TABLE>
<CAPTION>
YEAR COMMENCED OTHER
SERVING AS A CORPORATE
NAME AND PRINCIPAL OCCUPATION AGE DIRECTOR DIRECTORSHIPS
- ------------------------------------------------------------- ----- --------------- -------------
<S> <C> <C> <C>
J. Nelson Hoffman(1) 63 1991 None
Mr. Hoffman has been a Director of the Company since May
1991. Mr. Hoffman was Chairman and Chief Executive
Officer of Brice Manufacturing Co., Pacoima, California,
a manufacturer of commercial aircraft interior spare
parts, until the company was sold in December 1994. Mr.
Hoffman holds a degree in optical physics and had been
employed by Brice Manufacturing Co. since 1979. (Class I)
Robert S. Ritchie 54 1994 None
Mr. Ritchie has been employed by the Company since May
1990, a Vice President since October 1991 and a Director
since September 1994. From 1985 to 1990, Mr. Ritchie was
an independent business management consultant servicing
aerospace and commercial companies. Mr. Ritchie holds a
degree in mechanical engineering and an MBA. (Class I)
Jack B. Watson 61 1991 Watson
Mr. Watson has been a Director of the Company since April Helicopters
1991 and was Vice President of the Company's Automotive Inc.
Products Division from January 1992 to April 1992. Mr.
Watson served as President of the Automotive Products
Division from 1987 to January 1992 when he resigned to
concentrate on specific projects. Effective January
1997, Mr. Watson became re-employed by the Company in the
position of Vice President, Automotive Products Division.
From 1982 to the present, Mr. Watson has been President
of Watson Helicopters Inc. (a company engaged in flight
training, charter service, maintenance and helicopter
sales). Prior to his re-employment by the Company,
Mr. Watson provided consulting services to the Company
regarding pyrotechnic devices. Mr. Watson was initially
employed by the Company from 1967 to 1981. He served as
Vice President from 1970 to 1975 and as Co-President with
Mr. Treinen from 1974 to 1981. Mr. Watson holds degrees
in aerodynamics. (Class I)
60 1991 Sierra
Donald A. Bendix(1) Concepts
Mr. Bendix has been a Director of the Company since May Corporation
1991. Mr. Bendix is the Chief Financial Officer, and
Secretary and Treasurer of Sierra Concepts Corporation Subsidiaries
and its major operating subsidiary, Ellison Machinery
Company, Santa Fe Springs, California, a distributor of
high technology machinery equipment and machine tools.
Mr. Bendix holds a degree in marketing and has been
employed by Ellison Machinery since 1968. (Class II)
</TABLE>
4
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<TABLE>
<CAPTION>
YEAR COMMENCED OTHER
SERVING AS A CORPORATE
NAME AND PRINCIPAL OCCUPATION AGE DIRECTOR DIRECTORSHIPS
- ------------------------------------------------------------- ----- --------------- -------------
<S> <C> <C> <C>
John M. Cuthbert 54 1991 None
Mr. Cuthbert has been a Director of the Company since
June 1991 and has served as President of the Automotive
Products Division since January 1992. From December 1989
to January 1992, he served as a Vice President of the
Automotive Products Division. From 1977 to 1984, Mr.
Cuthbert was Director of Engineering at OEA, Inc.
(aerospace and automotive products) and was Vice
President of Engineering for OEA from 1984 to 1989. Mr.
Cuthbert holds a degree in mechanical engineering. (Class
II)
- --------------
</TABLE>
(1) Member of the Audit Committee and Compensation Committee.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors has a standing Audit Committee and a standing
Compensation Committee, but does not have a standing nominating committee.
The members of the Audit Committee, which held one meeting during
fiscal year 1996, are Messrs. Bendix and Hoffman. Its functions include
recommending to the Board of Directors the selection of the Company's
independent public accountants and reviewing with such accountants the plan and
results of their audit, the scope and results of the Company's internal audit
procedures and the adequacy of the Company's systems of internal accounting
controls. In addition, the Audit Committee reviews the independence of the
independent public accountants and reviews the fees for audit and non-audit
services rendered to the Company by its independent public accountants.
The members of the Compensation Committee, which held one meeting
during fiscal year 1996, are Messrs. Bendix and Hoffman. Its functions include
recommending to the Board of Directors the compensation and benefits for senior
management, including the grant of stock options.
During fiscal year 1996, the Board of Directors met three times. Other
than Jack B. Watson, no director attended less than 75% of the meetings of the
Board and the Committees of the Board on which he served. Mr. Watson attended
two of three meetings of the Board of Directors held in fiscal year 1996.
COMPENSATION OF DIRECTORS
Directors who are not officers or consultants to the Company receive an
annual fee of $2,500 plus $250 for each Board of Directors or committee meeting
attended. All directors are eligible for reimbursement for their expenses in
connection with their attendance at such meetings. In fiscal year 1996, the
Company paid the premiums on group medical insurance for Mr. Watson in
consideration for consulting services rendered by Mr. Watson to the Company.
Such payments amounted to $5,775 for the fiscal year. Directors who are not
employees of the Company and who serve on the Company's Compensation Committee
or the committee appointed by the Board of Directors to administer the Company's
Amended and Restated 1991 Stock Incentive Plan (the "Plan") automatically
receive options on a bi-annual basis (on every other August 15th) to acquire
10,000 shares of the Company's Common Stock at an exercise price per share equal
to the fair market value of the Company's Common Stock on the date of grant.
Pursuant to the Plan, on August 15, 1996, Messrs. Bendix and Hoffman were each
granted options to purchase 10,000 shares of the Company's Common Stock at an
exercise price of $17.00 per share (the closing price of the Common Stock on the
Nasdaq National Market on such date). Such options have a term of ten years and
vest ratably over a three-year period, with the first third vesting on August
15, 1997.
5
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OWNERSHIP OF THE COMPANY'S SECURITIES
PRINCIPAL STOCKHOLDERS
The following table sets forth as of February 4, 1997, the record date
for the Annual Meeting, the stockholders known to management to be the
beneficial owner of more than five percent of the Company's Common Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS OUTSTANDING
- ------------------------------------ ------------------------------------ --------------------------
<S> <C> <C>
Walter Neubauer 1,457,750(2) 19.0%
Ordnance Products, Inc.
21200 S. Figueroa Street
Carson, CA 90745
Thomas F. Treinen 1,325,000(3) 17.2%
Special Devices, Incorporated
16830 W. Placerita Canyon Road
Newhall, CA 91321
Conner Clark & Co. Ltd. 1,105,900 14.4%
40 King Street
Suite 5110, Box 125
Toronto, Ontario M5H 3Y2
FMR Corp. 432,700 5.50%
82 Devonshire Street
Boston, MA 02109
</TABLE>
______________
(1) Based on 7,685,363 shares of the Company's Common Stock outstanding on
February 4, 1997. Except as indicated otherwise in the following notes,
shares shown as beneficially owned are those as to which the named persons
possess sole voting and investment power. However, under California law,
personal property owned by a married person may be community property that
either spouse may manage and control. The Company has no information as to
whether any shares shown in this table are subject to California community
property law.
(2) The Neubauer Family Trust dated March 7, 1985 owns 339,373 of such shares
and the Neubauer Family Trust dated May 19, 1993 owns 906,750 of such
shares. Under both of these trusts, Mr. Neubauer is the sole trustee and
has sole voting and investment power over such shares. The remaining
211,627 of such shares are owned by the Neubauer Trust dated December 3,
1992, under which George Ota is the sole trustee and has sole voting and
investment power over such shares.
(3) All of such shares are owned by the Treinen Family Trust dated December 2,
1981, as restated on November 3, 1986, under which Mr. Treinen is the sole
trustee and has sole voting and investment power.
6
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OWNERSHIP BY MANAGEMENT
The following table sets forth as of February 4, 1997, the record date
for the Annual Meeting, the number of shares of Common Stock of the Company and
the percent of Common Stock owned beneficially by each Director and Named
Officer (as defined below) of the Company, and by all Directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
AND NATURE OF CLASS
NAME BENEFICIAL OWNERSHIP(1) OUTSTANDING
- ---------------------------------------------------- --------------------------- -----------
<S> <C> <C>
Thomas F. Treinen.................................. 1,325,000(2) 17.2%
John M. Cuthbert................................... 109,200(3)(4) 1.4%
Robert S. Ritchie.................................. 13,950(4) *
Samuel Levin....................................... 3,000(4)(5) *
Donald A. Bendix................................... 6,667(4) *
J. Nelson Hoffman.................................. 6,666(4)(6) *
Jack B. Watson..................................... 10,600 *
John T. Vinke...................................... 14,100(4) *
All directors and executive officers
as a group (eight persons)(4).................. 1,495,633 19.3%
- --------------
</TABLE>
* Indicates ownership of less than one percent of outstanding shares.
(l) Based on 7,685,363 shares of the Company's Common Stock outstanding on
February 4, 1997. Except as indicated otherwise in the following notes,
shares shown as beneficially owned are those as to which the named persons
possess sole voting and investing power. However, under California law,
personal property owned by a married person may be community property which
either spouse may manage and control, and the Company has no information as
to whether any shares shown in this table are subject to California
community property law.
(2) All of such shares are owned by the Treinen Family Trust dated December 2,
1981, as restated on November 3, 1986, under which Mr. Treinen is the sole
trustee and has sole voting and investment power.
(3) All of such shares are owned by the Cuthbert Family Trust dated June 9,
1993, under which Mr. Cuthbert is co-trustee with his wife. Mr. and Mrs.
Cuthbert, as co-trustees, have shared voting and investment power with
respect to such shares.
(4) Includes stock options currently exercisable or exercisable within 60 days
of 23,950, 13,950, 1,000, 6,667, 3,333 and 14,100 for Messrs. Cuthbert,
Ritchie, Levin, Bendix, Hoffman and Vinke, respectively.
(5) All of such shares are held by The Samuel Levin Trust dated July 18, 1994,
under which Mr. Levin is sole trustee and has sole voting and investment
power with respect to such shares.
(6) All of such shares are held by The Hoffman Family Trust dated September 30,
1991, under which Mr. Hoffman is co-trustee with his wife. Mr. and Mrs.
Hoffman, as co-trustees, have shared voting and investment power with
respect to such shares.
7
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COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and Directors and persons who own more than ten
percent of the Company's Common Stock to file reports of ownership and changes
in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission
(the "SEC"). Executive officers, Directors and ten percent stockholders are
required by the SEC to furnish the Company with copies of all Forms 3, 4 and 5
they file.
Based solely on the Company's review of the copies of such forms it
has received and written representations from certain reporting persons that
they were not required to file a Form 5 for specified fiscal years, the Company
believes that all of its executive officers, Directors and greater than ten
percent beneficial owners complied with all the filing requirements applicable
to them with respect to transactions during fiscal year 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As discussed above, the Compensation Committee of the Board of
Directors is composed of two members, Messrs. Bendix and Hoffman, neither of
whom is or has been an employee or officer of the Company. No executive
officer of the Company has served as a member of the board of directors or
compensation committee of any company in which Messrs. Bendix or Hoffman is an
executive officer.
8
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EXECUTIVE OFFICERS
The following table sets forth the current executive officers of the
Company:
<TABLE>
<CAPTION>
NAME CAPACITIES IN WHICH SERVED AGE
- ----------------------------------------------------------------- -------------------------- ---
<S> <C> <C>
Thomas F. Treinen Chairman and President 59
Mr. Treinen has served as Chairman, President and as a
Director of the Company since 1976. Mr. Treinen holds a
degree in mechanical engineering and has been employed by the
Company since 1965.
John M. Cuthbert President, Automotive 54
Mr. Cuthbert has been a Director of the Company since June Products Division
1991 and has served as President of the Automotive Products
Division since January 1992. From December 1989 to January
1992, he served as a Vice President of the Automotive
Products Division. From 1977 to 1984, he was Director of
Engineering at OEA, Inc. (aerospace and automotive products)
and was Vice President of Engineering for OEA from 1984 to
1989. Mr. Cuthbert holds a degree in mechanical engineering.
Samuel Levin President, Scot, Incorporated 67
Mr. Levin has been President of Scot, Incorporated (a wholly-
owned subsidiary of the Company) and a Director since
September 1994. Prior to that time, Mr. Levin spent 18 years
in various executive capacities (including as President
beginning in 1992) with Scot, Inc., which sold substantially
all of its assets to Scot, Incorporated, a subsidiary of the
Company, in September 1994. Mr. Levin holds a degree in
mechanical engineering.
Robert S. Ritchie Vice President, Aerospace 54
Mr. Ritchie has been employed by the Company since May 1990 Division
and a Vice President since October 1991. From 1985 to 1990,
Mr. Ritchie was an independent business management consultant
servicing aerospace and commercial companies. Mr. Ritchie
holds a degree in mechanical engineering and an MBA.
</TABLE>
9
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<TABLE>
<CAPTION>
NAME CAPACITIES IN WHICH SERVED AGE
- ----------------------------------------------------------------- -------------------------- ---
<S> <C> <C>
John T. Vinke Vice President, Finance and 52
Mr. Vinke has been employed by the Company since April 1994. Chief Financial Officer
From January 1990 through March 1994, Mr. Vinke served as
Vice President of Finance and Chief Financial Officer of
Chalco Industries, Inc., a publicly-held aerospace
manufacturing company that filed a petition for protection
under the federal bankruptcy laws in December 1993. For the
six years prior to January 1990, Mr. Vinke was an independent
consultant and advised aerospace and other commercial
companies on the design of management information systems,
mergers and acquisitions, and capital financing. Mr. Vinke
is a Certified Public Accountant.
Jack B. Watson Vice President, Automotive 61
Mr. Watson has been a Director of the Company since April Products Division
1991 and was Vice President of the Company's Automotive
Products Division from January 1992 to April 1992. Mr.
Watson served as President of the Automotive Products
Division from 1987 to January 1992 when he resigned to
concentrate on specific projects. Effective January
1997, Mr. Watson became re-employed by the Company in the
position of Vice President, Automotive Products Division.
From 1982 to the present, Mr. Watson has been President
of Watson Helicopters Inc. (a company engaged in flight
training, charter service, maintenance and helicopter
sales). Prior to his re-employment by the Company,
Mr. Watson provided consulting services to the Company
regarding pyrotechnic devices. Mr. Watson was initially
employed by the Company from 1967 to 1981. He served as
Vice President from 1970 to 1975 and as Co-President with
Mr. Treinen from 1974 to 1981. Mr. Watson holds degrees
in aerodynamics.
</TABLE>
10
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EXECUTIVE COMPENSATION AND RELATED MATTERS
COMPENSATION
Set forth below is information concerning the annual and long-term
compensation for services in all capacities to the Company for the three fiscal
years ended October 31, 1996, of those persons who were, at that date (i) the
Chief Executive Officer and (ii) the four other most highly compensated
executive officers receiving compensation of $100,000 or more from the Company
during such fiscal year (collectively, the "Named Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
LONG-TERM
COMPENSATION
AWARDS-STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(SHARES) COMPENSATION(1)
- ---------------------------------------- ---- -------- ------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
Thomas F. Treinen 1996 $199,992 $27,465 -- $4,030
President and 1995 199,992 19,018 -- 2,999
Chief Executive Officer 1994 190,180 29,466 -- 2,622
John M. Cuthbert 1996 171,592 13,158 3,000(2) 3,056
President, Automotive 1995 164,394 7,199 -- 2,465
Products Division 1994 154,078 21,354 5,000(2) 2,134
Robert S. Ritchie 1996 133,634 13,365 3,000(2) 2,200
Vice President, Aerospace 1995 126,592 44,703 -- 1,898
Division 1994 127,005 16,578 5,000(2) 1,644
Samuel Levin 1996 181,900 66,972 5,000(2) 7,894
President, Scot 1995 169,584 64,216 -- 5,762
Incorporated 1994 33,654(3) -- -- 2,301
John T. Vinke 1996 112,912 12,149 3,000(2) 1,078
Vice President, Finance and 1995 109,323 7,776 -- 655
Chief Financial Officer 1994 57,698(3) 9,500 20,000(2) --
- --------------
</TABLE>
(1) Consists of matching contributions by the Company under its 401(k) plan,
which was adopted in fiscal year 1994, or its non-qualified deferred
compensation plan, which was adopted in fiscal year 1995, and certain life
insurance premiums paid on behalf of Mr. Levin.
(2) Granted pursuant to the Company's Amended and Restated 1991 Stock Incentive
Plan at the market price on the date of grant.
(3) Messrs. Levin and Vinke became employed by the Company in September 1994
and April 1994, respectively. Accordingly, their fiscal year 1994
compensation figures reflect compensation earned for only a portion of
fiscal year 1994.
11
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OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information concerning grants of options issued by the
Company to Named Officers during fiscal year 1996:
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS AT ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES IN PRICE EXPIRATION FOR OPTION TERM(2)
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---------------------------------------- ------------ ----------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
John M. Cuthbert . . . . . . . . . . . 3,000 17.6% $17.75 2006 $2,670 $5,340
Robert S. Ritchie . . . . . . . . . . . 3,000 17.6% $17.75 2006 $2,670 $5,340
Samuel Levin . . . . . . . . . . . . . 5,000 29.4% $17.75 2006 $4,450 $8,900
John T. Vinke . . . . . . . . . . . . . 3,000 17.6% $17.75 2006 $2,670 $5,340
- ----------------
</TABLE>
(1) All options were granted in March 1996, with an exercise price equal
to the closing sale price of the Common Stock as reported on the Nasdaq
National Market on such date. All options vest ratably over five years,
with the first 20% of such options vesting in March 1997.
(2) The 5% and 10% assumed rates of appreciation are specified under the rules
of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future price of its Common Stock.
The actual value, if any, which a Named Officer may realize upon the
exercise of stock options will be based upon the difference between the
market price of the Common Stock on the date of exercise and the exercise
price.
FISCAL YEAR-END OPTION VALUES
The following table sets forth for the Named Officers information with
respect to unexercised options and year-end option values, in each case with
respect to options to purchase shares of the Company's Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END ($) (1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Thomas F. Treinen . . . . . . -- -- -- --
John M. Cuthbert . . . . . . -- -- 23,350/4,650 $220,150/$18,600
Robert S. Ritchie . . . . . . -- -- 13,350/4,650 $125,150/$18,600
Samuel Levin . . . . . . . . -- -- -- /5,000 $ -- /$ 6,250
John T. Vinke . . . . . . . . -- -- 6,900/9,600 $ 69,000/$69,750
- --------------
</TABLE>
(1) Based upon the closing price on the Nasdaq National Market of the Common
Stock on January 29, 1997 ($19.00 per share).
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EMPLOYMENT AGREEMENTS
Samuel Levin, the President and Chief Executive Officer of Scot,
Incorporated ("Scot"), entered into an employment agreement with Scot and the
Company, the term of which began on September 8, 1994 and ends on October 31,
1997, subject to renewal by the Company for successive one-year periods
thereafter, that provides for an annual salary of $168,272 with annual
cost-of-living increases. Such employment agreement also provides for
participation by Mr. Levin in a bonus and qualified deferred compensation plan.
The level of Mr. Levin's participation is calculated according to a formula
based upon the net operating income of Scot. In the event Mr. Levin
voluntarily terminates the employment agreement or the employment agreement is
terminated due to a disability suffered by Mr. Levin, Mr. Levin is entitled to
a severance payment equal to one year's salary. In the event Mr. Levin's
employment agreement is terminated "For Cause" (as defined therein), Mr. Levin
is not entitled to a severance payment. In the event Mr. Levin's employment
agreement is terminated due to his death, neither Scot nor the Company is
obligated to make a severance payment to Mr. Levin's estate. In the event Mr.
Levin's employment agreement is terminated by Scot or the Company for any
reason other than "For Cause" or upon Mr. Levin's death or disability, Mr.
Levin is entitled to receive as severance an amount equal to his then base
salary and his existing employee benefits for the remaining period of the
employment agreement. Pursuant to the employment agreement, Mr. Levin has
agreed to serve on the Company's Board of Directors, and the Company has agreed
to recommend to its stockholders that Mr. Levin serve in such capacity.
Jack B. Watson, Vice President of the Company's Automotive Products
Division and a Director of the Company, entered into an employment and
consulting agreement with the Company dated as of January 1, 1997. The
employment portion of the agreement is for a term of one year which commenced
on January 1, 1997 and ends on December 31, 1997. The employment portion of
the agreement provides for a salary of $150,000 for the one year term, and also
entitles Mr. Watson to participate in the benefit plans provided by the Company
to its other senior officers. The agreement also provides that Mr. Watson may
earn a bonus in the amount of $150,000 if the Company achieves certain
financial milestones set forth on Exhibit A thereto. In the event Mr. Watson's
employment is terminated by the Company for any reason other than (i)
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"For Cause" (as defined therein) or (ii) upon Mr. Watson's death or disability,
Mr. Watson is entitled to receive as severance an amount equal to the unpaid
balance of his $150,000 salary for the employment term. The Company has no
obligations under the agreement to make severance payments to Mr. Watson of any
kind. The consulting portion of the agreement is for a term of two years which
commences on January 1, 1998 and ends on December 31, 1999. For his services as
a consultant to the Company, Mr. Watson will receive an annual fee of $50,000
subject to Mr. Watson providing a certain number of hours of service to the
Company each month. In the event Mr. Watson's retention as a consultant to the
Company is terminated for any reason, Mr. Watson shall receive accrued
compensation through the date of termination. In addition, with respect to the
1996 Performance Stock Options granted by the Compensation Committee to Mr.
Watson on December 30, 1996 and submitted for stockholder ratification in this
proxy statement, if (i) the employment portion of the agreement is terminated
without cause or (ii) the consulting portion of the agreement is terminated for
any reason (other than Mr. Watson's death or disability), then Mr. Watson shall
nevertheless be entitled to the benefits of the 1996 Performance Stock Option
Agreements entered into between Mr. Watson and the Company (the forms of which
are set forth on Annex E and Annex G hereto) with respect to the accelerated
vesting provisions contained in each of those agreements (one for a period of
three years, which is based on the Company's stock price, and the other for a
period of two years, which is based on the Company achieving certain earnings
per share target levels). In the event (i) the employment portion of the
agreement is terminated For Cause or (ii) the employment or consulting portion
of the agreement is terminated upon Mr. Watson's death or disability, Mr. Watson
shall be entitled to the benefits granted to him under the Performance Stock
Option Agreements to the extent set forth in Section 6 of each such agreement.
No other Named Officer (as defined above under "Executive Compensation
and Related Matters") is a party to an employment agreement with the Company.
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PERFORMANCE GRAPH
The performance graph shown below shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such acts. The graph shows the Company's total
return to stockholders compared to the NASDAQ Market Value Index(1) and a Peer
Group Index(2) over the period from November 1, 1991 to October 31, 1996 (the
final day of the most recently completed fiscal year).
COMPARISON OF CUMULATIVE TOTAL RETURN OF SPECIAL DEVICES,
INCORPORATED, NASDAQ MARKET INDEX AND PEER GROUP INDEX
[COMPARISON CHART]
<TABLE>
<CAPTION>
FY 1991 FY 1992 FY 1993 FY 1994 FY 1995 FY 1996
<S> <C> <C> <C> <C> <C> <C>
Special Devices, $100.00 $78.26 $58.70 $155.43 $141.30 $108.70
NASDAQ Market Index $100.00 $96.87 $127.13 $135.16 $160.32 $188.27
Peer Group Index $100.00 $104.70 $163.00 $176.51 $170.29 $211.08
</TABLE>
__________________________________
1 Includes all issues trading over the Nasdaq National Market and Over
the Counter Markets during the period from November 1, 1991 through
October 31, 1996, weighted annually by market capitalization (shares
outstanding multiplied by stock price).
2 A Peer Group Index compiled and published by Media General Financial
Services, Inc. comprised of all automotive and automotive parts and
accessories companies that were publicly traded in the United States
at October 31, 1996, weighted annually by market capitalization
(shares outstanding multiplied by stock price). Copies of this index
can be obtained by ordering MG Industry Group 03 from Media General
Financial Services, Inc., P.O. Box 85333, Richmond, VA, 23293,
telephone number (804) 649-6097, and paying their standard fee.
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The cumulative total return shown on the stock performance graph
indicates historical results only and is not necessarily indicative of future
results.
Each line on the stock performance graph assumes that $100 was
invested in the Company's Common Stock and the respective indices on November
1, 1991. The graph then tracks the value of these investments, assuming
reinvestment of dividends, through October 31, 1996.
COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS ON EXECUTIVE COMPENSATION
The report of the Compensation Committee given below shall not be
deemed incorporated by reference by any general statement incorporating by
reference this proxy statement into any filing under the Securities Act of 1933
or under the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such acts.
The Compensation Committee of the Board of Directors (the
"Compensation Committee"), comprised of two non-employee directors, is
responsible for establishing the base salary of the Company's President and for
approving and monitoring the criteria used in establishing the base salaries
and other compensation of the Company's other executive officers. Set forth
below is a report, submitted by Messrs. Hoffman and Bendix in their capacity as
the Board's Compensation Committee, addressing the Company's compensation
policies for fiscal year 1996 as they affected Mr. Treinen and the other
officers named in the Summary Compensation Table appearing elsewhere herein
(collectively, the "Executive Officers").
COMPENSATION POLICIES TOWARDS EXECUTIVE OFFICERS
The compensation programs of the Company historically have been
comprised of only a cash component, awarded primarily based on individual
performance. However, the Compensation Committee believes that the most
effective executive compensation program is one that provides incentives to
achieve both current and long-term strategic management goals of the Company,
with the ultimate objective of enhancing stockholder value. In this regard,
the Compensation Committee believes executive compensation should be comprised
of cash as well as equity- based and other incentive programs. With respect to
equity-based compensation, the Compensation Committee believes that an integral
part of the Company's compensation program is the ownership and retention of
the Company's Common Stock by its Executive Officers. By providing Executive
Officers with a meaningful stake in the Company, the value of which is
dependent on the Company's long-term success, a commonality of interests
between the Company's Executive Officers and its stockholders is fostered.
As an initial step of introducing incentive-based compensation, in
December 1991, options were granted to certain key employees, including Messrs.
Cuthbert and Ritchie. The Compensation Committee intends to further increase
the orientation of executive compensation policies toward long-term performance
and to increase the utilization of objective performance criteria. Options to
purchase 17,000 shares of Common Stock were granted to certain corporate
officers, at an exercise price of $17.75 per share, the fair market value on
the date of grant, during fiscal year 1996.
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SALARIES AWARDED TO THE PRESIDENT AND OTHER EXECUTIVE OFFICERS
The Board of Directors has delegated to the Compensation Committee the
authority to establish compensation levels for the Company's Executive
Officers. The Compensation Committee has established a policy of setting the
salary of Mr. Treinen while reviewing the base salaries of the other Executive
Officers as determined by Mr. Treinen. The salaries of certain of the
Executive Officers (including Mr. Treinen) were initially established at or
before the time of the Company's initial public offering in 1991 in order to
attract and retain high-quality individuals for such positions. Such base
salary levels were also established to compensate for the absence of any
additional compensation in the form of cash bonuses or equity-based awards.
Individual salary levels further took into account the knowledge required, the
problem-solving abilities necessary to satisfactorily achieve the assigned
duties and responsibilities, the accountability of the positions and their
impact on the operations and profitability of the Company. The salaries of
Samuel Levin, President of Scot, and John T. Vinke, the Company's Chief
Financial Officer, who became executive officers of the Company in 1994, were
also established in accordance with these principles.
In evaluating the performance and setting of the compensation of Mr.
Treinen and approving the compensation of the other Executive Officers in
fiscal year 1996, the Compensation Committee considered management's continued
success in directing the Company's transition toward an increased emphasis on
commercial products as compared to defense products, and in the overall growth,
improvements made in operations, efficiencies achieved in manufacturing and
profitability of the Company. In addition, the Compensation Committee
considered management's success in integrating the operations of Scot, its
wholly owned subsidiary acquired in September 1994, into the operations of the
Aerospace Division. In setting Mr. Treinen's salary, the Compensation
Committee also took into account its subjective evaluation of his performance
during fiscal year 1996. Although Mr. Treinen's salary has not historically
been based upon an evaluation of the Company's overall financial performance,
the Compensation Committee may consider the Company's overall financial
performance in awarding bonuses to Mr. Treinen and other executive officers in
future fiscal years.
Mr. Treinen determines salary ranges for each of the other Executive
Officers based, in part, on his subjective understanding of competitive
conditions. Small annual percentage increases in base salaries have been
awarded to the Executive Officers within the range of percentage increases
given to all of the Company's personnel. Increases to each Executive Officer
have been determined by, among other things, a subjective evaluation of such
Executive Officer's performance and the results of his operating division.
Bonuses awarded to Mr. Ritchie and Mr. Cuthbert in 1994, 1995 and 1996 were
based, in part, on the operating performance of the Aerospace and Automotive
Products Divisions, respectively, and in part by overall corporate performance.
Bonuses awarded to Executive Officers other than Mr. Ritchie and Mr. Cuthbert
in those years were based in part on overall corporate operating performance,
among other factors.
THE COMPENSATION COMMITTEE
J. Nelson Hoffman
Donald A. Bendix
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ITEM 2
PROPOSAL TO RATIFY 1996 KEY EMPLOYEE STOCK OPTION
AND 1996 PERFORMANCE STOCK OPTION GRANTS
The Company's Board of Directors unanimously recommends that the
stockholders ratify 1996 Key Employee Stock Options and 1996 Performance Stock
Options granted to certain key employees of the Company as set forth below.
All such options were granted by the Compensation Committee of the Board of
Directors at an exercise price of $17.00 per share, the fair market value of
the Common Stock on December 30, 1996, the date of grant. These options
are subject to ratification by the stockholders.
1. Key Employee Stock Options were granted to:
(i) John M. Cuthbert, President, Automotive Products
Division, to purchase 50,000 shares (the form of which option
agreement is attached hereto as Annex A);
(ii) Robert S. Ritchie, Vice President, Aerospace
Division, to purchase 30,000 shares (the form of which option
agreement is attached hereto as Annex B);
(iii) John T. Vinke, Vice President, Finance and Chief
Financial Officer, to purchase 25,000 shares (the form of which option
agreement is attached hereto as Annex C); and
(iv) Thomas J. Treinen, Jr., Vice President,
Administration and Secretary, to purchase 25,000 shares (the form of
which option agreement is attached hereto as Annex D).
The Key Employee Stock Options granted to Messrs. Cuthbert, Ritchie,
Vinke and Treinen are at an exercise price of $17.00 per share and vest in
equal installments over a five-year period, with the first 20% of the options
vesting on December 30, 1997. These options expire on December 30, 2006.
2. Performance Stock Options were granted to:
(i) Jack B. Watson, Vice President, Automotive Products
Division, to purchase 154,000 shares (the form of which option
agreement is attached hereto as Annex E); and
(ii) John M. Cuthbert, President, Automotive Products
Division, to purchase 100,000 shares (the form of which option
agreement is attached hereto as Annex F).
These Performance Stock Options granted to Messrs. Watson and Cuthbert
are at an exercise price of $17.00 per share and vest in full on the eighth
anniversary of the date of grant (December 30, 2004); provided, however, that if
during the period commencing on December 30, 1996 (the date of grant) and ending
on December 30, 1999, the closing sale price of the Common Stock on the Nasdaq
National Market is at least $30.00 per share on 15 trading days within any 30
consecutive-trading-day period, then the Performance Stock Options granted to
Messrs. Watson
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and Cuthbert shall accelerate and vest in full upon close of the Nasdaq
National Market on such 15th trading day. These options expire on December 30,
2006.
3. Performance Stock Options were granted to Jack B. Watson, Vice
President, Automotive Products Division, to purchase 58,000 shares at an
exercise price of $17.00 per share (the form of which option agreement is
attached hereto as Annex G). These Performance Stock Options vest in full on
the eighth anniversary of the date of grant (December 30, 2004); provided,
however, that if (i) during the period commencing on December 30, 1996 (the date
of grant) and ending on December 30, 1997 (the "Initial Period"), the Company's
earnings per share is equal to or exceeds a certain target level set forth in
the resolutions of the Compensation Committee of the Board of Directors
authorizing such option grant (the "Resolutions") or (ii) during the period
commencing on December 30, 1997 and ending on December 30, 1998 (the "Subsequent
Period"), the Company's earnings per share is equal to or exceeds a certain
target level set forth in the Resolutions, then the Performance Stock Options
granted to Mr. Watson to purchase 58,000 shares shall accelerate and vest in
full upon the achievement of either of the target levels for the Initial or
Subsequent Periods. These performance options expire on December 30, 2006.
The Company has not made any option grants other than the grants made
under its 1991 Amended and Restated Stock Incentive Plan (the "Plan") and the
1996 Key Employee Stock Option and 1996 Performance Stock Option grants
discussed above. As of the February 4, 1997, there was room available under
the Plan to grant options to purchase approximately 60,000 shares of Common
Stock. On that date, the closing sale price of the Common Stock on the Nasdaq
National Market was $19.00 per share.
CERTAIN INCOME TAX CONSEQUENCES
The following is a brief description of the federal income tax
treatment that generally will apply to the 1996 Key Employee Stock Option and
1996 Performance Stock Option grants made to the key employees discussed above,
based on federal income tax laws in effect on the date hereof.
The options grants discussed above generally are not taxable events
for the optionee. Upon exercise of the option, however, the optionee will
generally recognize ordinary income in an amount equal to the excess of the
fair market value of the stock acquired upon exercise (determined as of the
date of exercise) over the exercise price of such option, and the Company will
be entitled to a deduction equal to such amount.
Special rules will apply in cases where an optionee pays the exercise
price of the option or applicable withholding tax obligations by delivering
previously owned shares or by reducing the amount of shares otherwise issuable
pursuant to the option. The surrender or withholding of such shares will in
certain circumstances result in the recognition of income with respect to such
shares or a carryover basis in the shares acquired.
In certain circumstances, the Company may be denied a deduction for
compensation (including compensation attributable to the ordinary income
recognized with respect to options
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granted to the optionees above) to certain officers of the Company to the
extent that the compensation exceeds $1,000,000 (per person) annually.
RECOMMENDATION
Ratification of the option grants discussed above will require the
affirmative vote of the holders of a majority of the Company's shares of Common
Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote. Unless indicated to the contrary, the enclosed proxy will be
voted "FOR" the ratification of such option grants.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THIS PROPOSAL TO RATIFY THE 1996 KEY EMPLOYEE STOCK OPTION AND 1996
PERFORMANCE STOCK OPTION GRANTS DISCUSSED ABOVE.
CERTAIN TRANSACTIONS
NEWHALL LEASE
The Company leases its land and facilities located in Newhall,
California from Placerita Land and Farming Company, the sole partners of which
are Thomas F. Treinen, the Chairman, President and a Director of the Company,
and Walter Neubauer, a stockholder of the Company. The lease is a triple net
lease that requires the Company to pay all utilities, taxes and insurance.
This lease expired on April 30, 1996, but the Company continues to lease this
property from Placerita Land and Farming Company on a month-to-month basis.
For fiscal years 1994, 1995 and 1996, the Company's lease expense for this
property was $492,400 and $499,100, respectively. Lease payments under the
month-to-month lease are $41,600 per month, subject to annual increases
based on the Consumer Price Index. The Company believes that the terms of
the lease are no less favorable to the Company than those that could have
been obtained from an unrelated third party.
PURCHASES FROM AFFILIATES
The Company purchases various parts and components manufactured to the
Company's specifications used in the Company's products from Ordnance Products,
Inc. and Multi-Screw, Inc., companies controlled by Walter Neubauer, a
significant stockholder of the Company. In most cases, these parts and
components are similar to those that could be obtained from other suppliers
without significant delay. For fiscal years 1994, 1995 and 1996, the Company's
aggregate purchases of parts and components from these companies were
$1,357,100, $1,247,400 and $2,361,500, respectively. The Company believes that
parts and components purchased from these companies were purchased at prices
that were no less favorable to the Company than those that could have been
obtained from an unrelated third party.
The Company also has a contract to purchase glass seals (the "Seal
Contract") from Hermetic Seal Corporation ("HSC"), which was amended in 1994.
Mr. Neubauer acquired 40% of the common stock of the ultimate parent company of
HSC in November 1989. Both the original and the new contracts were
competitively bid by the Company. In both instances, HSC was the low bidder.
The Seal Contract requires the Company to buy a substantial majority of its
requirements of four header sub-assemblies from HSC at a decreasing fixed price
per unit through
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December 1999. The Company's obligations under the contract are subject to
HSC's prices, technology and quality remaining competitive. For fiscal years
1994, 1995 and 1996, the Company's purchases of header sub-assemblies from HSC
aggregated $9,060,800, $12,791,600 and $12,768,500, respectively. The Company
believes that the terms of the Seal Contract are no less favorable to the
Company than could have been obtained from an unrelated third party.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP has been selected as the Company's independent
public accountants for fiscal year 1997. A representative of KPMG Peat Marwick
will be present at the Annual Meeting and such representative will have an
opportunity to make a statement if he or she so desires. Further, such
representative will be available to respond to appropriate stockholder
questions.
STOCKHOLDER PROPOSALS
Any stockholder wishing to submit a proposal to be presented to all
stockholders at the Company's 1998 Annual Meeting must submit such proposal to
the Company so that it is received by the Company at its principal executive
offices no later than October 23, 1997.
ANNUAL REPORT
The Company's Annual Report on Form 10-K for the year ended October
31, 1996 is being mailed to stockholders with this Proxy Statement. The Annual
Report does not form part of the material for solicitation of proxies. If you
do not receive the 1996 Annual Report, which includes financial statements,
please contact Investor Relations, 16830 W. Placerita Canyon Road, Newhall,
California 91321, and a copy will be sent to you.
MISCELLANEOUS
The Board of Directors knows of no other matters that are likely to
come before the meeting. If any other matter, of which the Board is not now
aware, should properly come before the meeting, it is intended that the persons
named in the accompanying form of proxy will vote such proxy in accordance with
their best judgment on such matters.
By the order of the Board of Directors,
Thomas F. Treinen
Chairman of the Board
Newhall, California
February 20, 1997
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ANNEX A
1996 KEY EMPLOYEE STOCK OPTION
AWARD AGREEMENT
THIS AWARD AGREEMENT is dated as of December 30, 1996, by and
between Special Devices, Incorporated, a Delaware corporation (the
"Corporation"), and John M. Cuthbert (the "Optionee").
W I T N E S S E T H
WHEREAS, on December 30, 1996 the Compensation Committee of
the Board of Directors (the "Board") has granted to the Optionee, as a key
employee of the Corporation, effective as of December 30, 1996 (the "Award
Date") a stock option (the "Option" or "Award") to purchase all or any part of
50,000 shares of Common Stock, $.01 par value, of the Corporation (the "Common
Stock") upon the terms and conditions hereinafter set forth; provided, however,
that such Option grant is subject to ratification by the stockholders of the
Corporation at its upcoming 1997 Annual Meeting of Stockholders;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. DEFINITIONS.
"Beneficiary" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the
benefits specified under this Award Agreement in the event of the Optionee's
death.
"Change in Control" shall be deemed to have occurred if (A)
there occurs a change of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A under the Exchange Act,
or, if Item 6(e) is no longer in effect, any regulations issued by the
Commission which serve a similar purpose; (B) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding securities, unless
such person was, on the date hereof, such a beneficial owner of securities
representing 20% or more of such voting power; or (C) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Corporation's
stockholders, of each new Board member was approved by a vote of at least
three-fourths of the Board members then still in office who were Board members
at the beginning of such period.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
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"Commission" shall mean the Securities and Exchange
Commission.
"Event" shall mean any of the following:
(1) Approval by the stockholders of the
Corporation of the dissolution or liquidation
of the Corporation;
(2) Approval by the stockholders of the
Corporation of an agreement to merge or consolidate, or otherwise reorganize,
with or into one or more entities which are not Subsidiaries, as a result of
which less than 50% of the outstanding voting securities of the surviving or
resulting entity are, or are to be, owned by former stockholders of the
Corporation;
(3) Approval by the stockholders of the
Corporation of the sale of substantially all of the Corporation's business
and/or assets to a person or entity which is not a Subsidiary; or
(4) A Change in Control.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean the closing sale price (or, if
no closing sale price is reported, the closing bid price) of the Common Stock
in the over-the-counter market, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or, if the Common
Stock is not quoted on NASDAQ, as reported by the National Quotation Bureau
Incorporated. In the event that the stock is hereafter listed for trading on
one or more United States national or regional securities exchanges, "Fair
Market Value" shall mean the closing price on the exchange or system designated
by the Board as the principal United States market in which the Common Stock is
traded; provided, however, that if the Common Stock is not listed or admitted
to trade on a national securities exchange, the Board may designate such other
exchange, market or source of data as it deems appropriate for determining such
value for purposes of this Award Agreement.
"Personal Representative" shall mean the person or persons
who, upon the disability or incompetence of the Optionee, shall have acquired
on behalf of the Optionee by legal proceeding or otherwise the power to
exercise the rights and receive the benefits specified in this Award Agreement.
"Retirement" shall mean retirement from active service as an
employee or officer of the Corporation on or after attaining age 65.
"Subsidiary" shall mean any corporation or other entity a
majority or more of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Corporation.
"Termination for Cause" shall mean (i) conviction of a felony
involving moral turpitude, (ii) gross and willful misconduct by Optionee that
results in a material injury to the Corporation, (iii) a finding of gross
dishonesty of Optionee that results in a material injury to the
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Corporation, (iv) willful malfeasance or willful non-feasance by Optionee,
provided that such malfeasance or non-feasance in fact has a material adverse
effect on the Corporation or (v) continued insubordination or refusal to
perform assigned duties which duties are commensurate with the Optionee's
position or the terms of any employment agreement to which Optionee is a party
(provided that Optionee shall have an opportunity to cure any act or failure to
act pursuant to clause (v) within 15 days of receipt of a written notice
specifically setting forth the basis for the purported termination).
"Total Disability" shall mean a "permanent and total
disability" within the meaning of Section 22(e)(3) of the Code.
2. GRANT OF OPTION. The Corporation has granted to the
Optionee as a matter of separate inducement and agreement in connection with
the determination by the Board of Optionee being a key employee of the
Corporation, and not in lieu of any salary or other compensation for his
services, the right and option to purchase, in accordance with the terms and
conditions hereinafter set forth, all or any part of an aggregate of 50,000
shares of Common Stock at the price of $17.00 per share (the "Price"), the Fair
Market Value on the date of grant, exercisable from time to time subject to
the provisions of this Award Agreement prior to the close of business on
December 30, 2006 (the "Expiration Date").
3. EXERCISABILITY OF OPTION. Except as otherwise provided in
this Award Agreement, the Option may be exercised from time to time and for the
number of shares as follows:
<TABLE>
<CAPTION>
Date on or after which Number of shares as
Option installment may to which Option
be exercised is exercisable
<S> <C>
December 30, 1997 1/5
December 30, 1998 1/5
December 30, 1999 1/5
December 30, 2000 1/5
December 30, 2001 1/5
</TABLE>
provided, however, that the Option may not be exercised as to less than 100
shares at any one time unless the number of shares purchased is the total
number at the time available for purchase under an installment of the Option,
and provided further that the Option is not exercisable for at least six months
after the Award Date. If the Optionee does not, in any given installment
period, purchase all of the shares which he is entitled to purchase in such
installment period, the Optionee's right to purchase any shares not so
purchased shall continue until the Expiration Date, unless theretofore
terminated in accordance with the provisions hereof. The Option may be
exercised only as to whole shares; fractional share interests shall be
disregarded except that they may be accumulated.
A-3
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4. METHOD OF EXERCISE AND PAYMENT. Each exercise of an
installment of the Option shall be by means of written notice of exercise duly
delivered to the Corporation, specifying the number of whole shares with
respect to which the Option is being exercised, together with any written
statements required pursuant to Section 11(a)(1) below and either payment of
the Price in full in cash or by check payable to the order of the Corporation
or, with the permission of the Board, and in its sole discretion, by delivery
of an acceptable secured promissory note promising to pay the Corporation the
Price in full. Said promissory note shall provide for interest at a rate at
least equal to the applicable Federal rate specified in Section 1274 of the
Code. The Optionee may also deliver in payment of a portion or all of the
Price, certificates for Common Stock, which shall be valued at the Fair Value
Market Value of such Common Stock on the date of exercise of the Option.
5. CONTINUANCE OF EMPLOYMENT. Nothing contained in this
Award Agreement shall confer upon the Optionee any right to continue in the
employ of the Corporation or constitute any contract or agreement of
employment. The Optionee acknowledges that the Corporation has the right to
terminate the Optionee at will. Nothing contained in this Award Agreement
shall interfere in any way with the right of the Corporation to (a) terminate
the employment of the Optionee at any time for any reason whatsoever, with or
without cause, or (b) reduce the compensation received by the Optionee from the
rate in existence on the Award Date.
6. EFFECT OF TERMINATION OF RELATIONSHIP. The Option and all
other rights hereunder, to the extent such rights shall not have been exercised
prior to the date the Optionee ceases to be employed by the Corporation, shall
terminate and become null and void on such date; provided, however, that the
Optionee may, to the extent the Option shall have become exercisable prior to
such date, exercise the Option at any time (1) up to three months after
termination of employment other than termination for Retirement, Total
Disability, death or Termination for Cause; (2) up to twelve months after such
termination if such termination occurs by reason of Retirement or Total
Disability; or (3) until the Expiration Date, if the Optionee dies while in the
employ of the Corporation or during the period referred to in clause (2) of
this Section 6. During the period after death, the Option may, to the extent
exercisable on the date of death (or earlier termination), be exercised by the
person or persons to which the Optionee's rights under this Award Agreement
shall pass by will or by the applicable laws of descent and distribution.
Unless sooner terminated, the Option shall expire at the end of the applicable
period specified in clauses (1), (2) or (3) above, to the extent not exercised
within that period. In no event may the Option be exercised by any person
after the Expiration Date.
7. NON-ASSIGNABILITY OF OPTION. Amounts payable pursuant to
the Award shall be paid only to the Optionee or the Optionee's Beneficiary or
Personal Representative, as the case may be. Amounts payable under and
interests in Awards shall not be subject to sale, transfer, pledge, assignment
or alienation other than by will or the laws of descent and distribution
regardless of any community property or other interest therein of the
Optionee's spouse or such spouse's successor in interest. In the event that
the spouse of the Optionee shall have acquired a community property interest in
the Option, the Optionee, or such transferees, may exercise it on behalf of the
spouse of the Optionee or such spouse's successor in interest.
A-4
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8. ADJUSTMENTS UPON SPECIFIED CHANGES. If the outstanding
shares of the Corporation of the class subject to this Option are increased or
decreased, or are changed into or exchanged for a different number or kind of
shares or securities as a result of one or more reorganizations,
recapitalizations, stock splits, reverse stock splits, stock dividends or
similar transaction, appropriate adjustments, to be conclusively determined by
and subject to the absolute discretion of the Board, shall be made in the
number and/or type of shares or securities subject to the Option and the Price,
so that the total exercise price of the shares then subject to the Option shall
remain unchanged.
9. ACCELERATION. Upon the occurrence of certain Events (as
defined above), this Option shall become immediately exercisable to the full
extent theretofore not exercisable unless prior to an Event the Board
determines otherwise. However, no Option shall be accelerated to a date less
than six months after the Award Date.
10. OPTIONEE NOT A STOCKHOLDER. Neither the Optionee nor any
other person entitled to exercise the Option shall have any of the rights or
privileges of a stockholder of the Corporation as to any shares of Common Stock
not actually issued and delivered to him or her. No adjustment will be made
for dividends or other rights for which the record date is prior to the date on
which such stock certificate or certificates are issued even if such record
date is subsequent to the date upon which notice of exercise was delivered and
the tender of payment was accepted.
11. APPLICATION OF SECURITIES LAWS.
(a) No shares of Common Stock may be purchased pursuant to
the Option unless and until any then applicable requirements of the Securities
and Exchange Commission (the "Commission"), the California Commissioner of
Corporations and any other regulatory agencies, including any other state
securities law commissioners having jurisdiction over the Corporation or such
issuance, and any exchanges upon which the Common Stock may be listed, shall
have been fully satisfied. The Optionee represents, agrees and certifies that:
(1) If the Optionee exercises the Option in whole
or in part at a time when there is not in effect under the Securities
Act of 1933, as amended (the "Securities Act"), a registration
statement relating to the Common Stock issuable upon exercise and
available for delivery to him a prospectus meeting the requirements of
Section 10(a)(3) of the Securities Act ("Prospectus"), the Optionee
will acquire the Common Stock issuable upon such exercise for the
purpose of investment and not with a view to resale or distribution
and that, as a condition to each such exercise, he will furnish to the
Corporation a written statement to such effect, satisfactory in form
and substance to the Corporation; and
(2) If and when the Optionee proposes to offer or
sell the Common Stock issued to him upon exercise of the Option, the
Optionee will notify the Corporation prior to any such offering or
sale and will abide by the opinion of counsel to the Corporation as to
whether and under what conditions and circumstances, if any, he may
offer and sell such shares, but such procedure need not be followed if
a Prospectus was
A-5
<PAGE> 29
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delivered to the Optionee with the shares of Common Stock and the
Common Stock was and is listed on a national securities exchange.
(b) The Optionee understands that the certificates
representing the Common Stock acquired pursuant to the Option may bear a legend
referring to the foregoing matters and any limitations under the Securities Act
and state securities laws with respect to the transfer of such Common Stock,
and the Corporation may impose stop transfer instructions to implement such
limitations, if applicable. Any person or person entitled to exercise the
Option under the provisions of Section 6 above shall be bound by and obligated
under the provisions of this Section 11 to the same extent as is the Optionee.
(c) The Board may impose such conditions on an Award or on
its exercise or acceleration or on the payment of any withholding obligation
(including without limitation restricting the time of exercise to specified
periods) as may be required to satisfy applicable regulatory requirements,
including, without limitation, Rule 16b-3 (or any successor rule) promulgated
by the Commission pursuant to the Securities Exchange Act of 1934, as amended.
12. NOTICES. Any notice to be given to the Corporation under
the terms of this Award Agreement shall be in writing and addressed to the
Secretary of the Corporation at its principal office and any notice to be given
to the Optionee shall be addressed to him at the address given beneath the
Optionee's signature hereto, or at such other address as either party may
hereafter designate in writing to the other party. Any such notice shall be
deemed to have been duly given when enclosed in a properly sealed envelope
addressed as afore-said, registered or certified, and deposited (postage and
registry or certification fee prepaid) in a post office or branch post office
regularly maintained by the United States Government. Notice given by any
other means is deemed given upon actual receipt by the addressee.
13. EFFECT OF AWARD AGREEMENT. This Award Agreement shall be
assumed by, be binding upon and inure to the benefit of any successor or
successors of the Corporation.
14. TAX WITHHOLDINGS. If the Corporation becomes obligated
to withhold an amount on account of any tax imposed as a result of the exercise
of the Option, including, without limitation, any Federal, state, local or
other income tax, or any F.I.C.A., state disability insurance tax or other
employment tax, then Optionee shall, on the first day upon which the
Corporation becomes obligated to pay such amount to the appropriate taxing
authority, pay such amount to the Corporation in cash or by check payable to
the Corporation.
15. LAWS APPLICABLE TO CONSTRUCTION. The Option has been
granted, executed and delivered as of the day and year first above written, and
the interpretation, performance and enforcement of the Award and this Award
Agreement shall be governed by the laws of the State of California.
A-6
<PAGE> 30
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IN WITNESS WHEREOF, the Corporation has caused this Award Agreement to be
executed on its behalf by a duly authorized officer and the Optionee has
hereunto set his hand as of the date and year first above written.
SPECIAL DEVICES, INCORPORATED
By:_________________________________
Thomas F. Treinen
President
OPTIONEE
____________________________________
(Signature)
____________________________________
(Print Name)
____________________________________
(Street Address)
____________________________________
(City, State, Zip Code)
____________________________________
(Social Security Number)
A-7
<PAGE> 31
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ANNEX B
1996 KEY EMPLOYEE STOCK OPTION
AWARD AGREEMENT
THIS AWARD AGREEMENT is dated as of December 30, 1996, by and
between Special Devices, Incorporated, a Delaware corporation (the
"Corporation"), and Robert S. Ritchie (the "Optionee").
W I T N E S S E T H
WHEREAS, on December 30, 1996 the Compensation Committee of
the Board of Directors (the "Board") has granted to the Optionee, as a key
employee of the Corporation, effective as of December 30, 1996 (the "Award
Date") a stock option (the "Option" or "Award") to purchase all or any part of
30,000 shares of Common Stock, $.01 par value, of the Corporation (the "Common
Stock") upon the terms and conditions hereinafter set forth; provided, however,
that such Option grant is subject to ratification by the stockholders of the
Corporation at its upcoming 1997 Annual Meeting of Stockholders;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. DEFINITIONS.
"Beneficiary" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the
benefits specified under this Award Agreement in the event of the Optionee's
death.
"Change in Control" shall be deemed to have occurred if (A)
there occurs a change of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A under the Exchange Act,
or, if Item 6(e) is no longer in effect, any regulations issued by the
Commission which serve a similar purpose; (B) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding securities, unless
such person was, on the date hereof, such a beneficial owner of securities
representing 20% or more of such voting power; or (C) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Corporation's
stockholders, of each new Board member was approved by a vote of at least
three-fourths of the Board members then still in office who were Board members
at the beginning of such period.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
B-1
<PAGE> 32
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"Commission" shall mean the Securities and Exchange
Commission.
"Event" shall mean any of the following:
(1) Approval by the stockholders of the
Corporation of the dissolution or liquidation
of the Corporation;
(2) Approval by the stockholders of the
Corporation of an agreement to merge or consolidate, or otherwise reorganize,
with or into one or more entities which are not Subsidiaries, as a result of
which less than 50% of the outstanding voting securities of the surviving or
resulting entity are, or are to be, owned by former stockholders of the
Corporation;
(3) Approval by the stockholders of the
Corporation of the sale of substantially all of the Corporation's business
and/or assets to a person or entity which is not a Subsidiary; or
(4) A Change in Control.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean the closing sale price (or, if
no closing sale price is reported, the closing bid price) of the Common Stock
in the over-the-counter market, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or, if the Common
Stock is not quoted on NASDAQ, as reported by the National Quotation Bureau
Incorporated. In the event that the stock is hereafter listed for trading on
one or more United States national or regional securities exchanges, "Fair
Market Value" shall mean the closing price on the exchange or system designated
by the Board as the principal United States market in which the Common Stock is
traded; provided, however, that if the Common Stock is not listed or admitted
to trade on a national securities exchange, the Board may designate such other
exchange, market or source of data as it deems appropriate for determining such
value for purposes of this Award Agreement.
"Personal Representative" shall mean the person or persons
who, upon the disability or incompetence of the Optionee, shall have acquired
on behalf of the Optionee by legal proceeding or otherwise the power to
exercise the rights and receive the benefits specified in this Award Agreement.
"Retirement" shall mean retirement from active service as an
employee or officer of the Corporation on or after attaining age 65.
"Subsidiary" shall mean any corporation or other entity a
majority or more of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Corporation.
"Termination for Cause" shall mean (i) conviction of a felony
involving moral turpitude, (ii) gross and willful misconduct by Optionee that
results in a material injury to the Corporation, (iii) a finding of gross
dishonesty of Optionee that results in a material injury to the
B-2
<PAGE> 33
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Corporation, (iv) willful malfeasance or willful non-feasance by Optionee,
provided that such malfeasance or non-feasance in fact has a material adverse
effect on the Corporation or (v) continued insubordination or refusal to
perform assigned duties which duties are commensurate with the Optionee's
position or the terms of any employment agreement to which Optionee is a party
(provided that Optionee shall have an opportunity to cure any act or failure to
act pursuant to clause (v) within 15 days of receipt of a written notice
specifically setting forth the basis for the purported termination).
"Total Disability" shall mean a "permanent and total
disability" within the meaning of Section 22(e)(3) of the Code.
2. GRANT OF OPTION. The Corporation has granted to the
Optionee as a matter of separate inducement and agreement in connection with
the determination by the Board of Optionee being a key employee of the
Corporation, and not in lieu of any salary or other compensation for his
services, the right and option to purchase, in accordance with the terms and
conditions hereinafter set forth, all or any part of an aggregate of 30,000
shares of Common Stock at the price of $17.00 per share (the "Price"), the Fair
Market Value on the date of grant, exercisable from time to time subject to the
provisions of this Award Agreement prior to the close of business on December
30, 2006 (the "Expiration Date").
3. EXERCISABILITY OF OPTION. Except as otherwise provided in
this Award Agreement, the Option may be exercised from time to time and for the
number of shares as follows:
<TABLE>
<CAPTION>
Date on or after which Number of shares as
Option installment may to which Option
be exercised is exercisable
<S> <C>
December 30, 1997 1/5
December 30, 1998 1/5
December 30, 1999 1/5
December 30, 2000 1/5
December 30, 2001 1/5
</TABLE>
provided, however, that the Option may not be exercised as to less than 100
shares at any one time unless the number of shares purchased is the total
number at the time available for purchase under an installment of the Option,
and provided further that the Option is not exercisable for at least six months
after the Award Date. If the Optionee does not, in any given installment
period, purchase all of the shares which he is entitled to purchase in such
installment period, the Optionee's right to purchase any shares not so
purchased shall continue until the Expiration Date, unless theretofore
terminated in accordance with the provisions hereof. The Option may be
exercised only as to whole shares; fractional share interests shall be
disregarded except that they may be accumulated.
B-3
<PAGE> 34
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4. METHOD OF EXERCISE AND PAYMENT. Each exercise of an
installment of the Option shall be by means of written notice of exercise duly
delivered to the Corporation, specifying the number of whole shares with
respect to which the Option is being exercised, together with any written
statements required pursuant to Section 11(a)(1) below and either payment of
the Price in full in cash or by check payable to the order of the Corporation
or, with the permission of the Board, and in its sole discretion, by delivery
of an acceptable secured promissory note promising to pay the Corporation the
Price in full. Said promissory note shall provide for interest at a rate at
least equal to the applicable Federal rate specified in Section 1274 of the
Code. The Optionee may also deliver in payment of a portion or all of the
Price, certificates for Common Stock, which shall be valued at the Fair Value
Market Value of such Common Stock on the date of exercise of the Option.
5. CONTINUANCE OF EMPLOYMENT. Nothing contained in this
Award Agreement shall confer upon the Optionee any right to continue in the
employ of the Corporation or constitute any contract or agreement of
employment. The Optionee acknowledges that the Corporation has the right to
terminate the Optionee at will. Nothing contained in this Award Agreement
shall interfere in any way with the right of the Corporation to (a) terminate
the employment of the Optionee at any time for any reason whatsoever, with or
without cause, or (b) reduce the compensation received by the Optionee from the
rate in existence on the Award Date.
6. EFFECT OF TERMINATION OF RELATIONSHIP. The Option and all
other rights hereunder, to the extent such rights shall not have been exercised
prior to the date the Optionee ceases to be employed by the Corporation, shall
terminate and become null and void on such date; provided, however, that the
Optionee may, to the extent the Option shall have become exercisable prior to
such date, exercise the Option at any time (1) up to three months after
termination of employment other than termination for Retirement, Total
Disability, death or Termination for Cause; (2) up to twelve months after such
termination if such termination occurs by reason of Retirement or Total
Disability; or (3) until the Expiration Date, if the Optionee dies while in the
employ of the Corporation or during the period referred to in clause (2) of
this Section 6. During the period after death, the Option may, to the extent
exercisable on the date of death (or earlier termination), be exercised by the
person or persons to which the Optionee's rights under this Award Agreement
shall pass by will or by the applicable laws of descent and distribution.
Unless sooner terminated, the Option shall expire at the end of the applicable
period specified in clauses (1), (2) or (3) above, to the extent not exercised
within that period. In no event may the Option be exercised by any person
after the Expiration Date.
7. NON-ASSIGNABILITY OF OPTION. Amounts payable pursuant to
the Award shall be paid only to the Optionee or the Optionee's Beneficiary or
Personal Representative, as the case may be. Amounts payable under and
interests in Awards shall not be subject to sale, transfer, pledge, assignment
or alienation other than by will or the laws of descent and distribution
regardless of any community property or other interest therein of the
Optionee's spouse or such spouse's successor in interest. In the event that
the spouse of the Optionee shall have acquired a community property interest in
the Option, the Optionee, or such transferees, may exercise it on behalf of the
spouse of the Optionee or such spouse's successor in interest.
B-4
<PAGE> 35
PRELIMINARY COPY
8. ADJUSTMENTS UPON SPECIFIED CHANGES. If the outstanding
shares of the Corporation of the class subject to this Option are increased or
decreased, or are changed into or exchanged for a different number or kind of
shares or securities as a result of one or more reorganizations,
recapitalizations, stock splits, reverse stock splits, stock dividends or
similar transaction, appropriate adjustments, to be conclusively determined by
and subject to the absolute discretion of the Board, shall be made in the
number and/or type of shares or securities subject to the Option and the Price,
so that the total exercise price of the shares then subject to the Option shall
remain unchanged.
9. ACCELERATION. Upon the occurrence of certain Events (as
defined above), this Option shall become immediately exercisable to the full
extent theretofore not exercisable unless prior to an Event the Board
determines otherwise. However, no Option shall be accelerated to a date less
than six months after the Award Date.
10. OPTIONEE NOT A STOCKHOLDER. Neither the Optionee nor any
other person entitled to exercise the Option shall have any of the rights or
privileges of a stockholder of the Corporation as to any shares of Common Stock
not actually issued and delivered to him or her. No adjustment will be made
for dividends or other rights for which the record date is prior to the date on
which such stock certificate or certificates are issued even if such record
date is subsequent to the date upon which notice of exercise was delivered and
the tender of payment was accepted.
11. APPLICATION OF SECURITIES LAWS.
(a) No shares of Common Stock may be purchased pursuant
to the Option unless and until any then applicable requirements of the
Securities and Exchange Commission (the "Commission"), the California
Commissioner of Corporations and any other regulatory agencies, including any
other state securities law commissioners having jurisdiction over the
Corporation or such issuance, and any exchanges upon which the Common Stock may
be listed, shall have been fully satisfied. The Optionee represents, agrees
and certifies that:
(1) If the Optionee exercises the Option in whole
or in part at a time when there is not in effect under the Securities
Act of 1933, as amended (the "Securities Act"), a registration
statement relating to the Common Stock issuable upon exercise and
available for delivery to him a prospectus meeting the requirements of
Section 10(a)(3) of the Securities Act ("Prospectus"), the Optionee
will acquire the Common Stock issuable upon such exercise for the
purpose of investment and not with a view to resale or distribution
and that, as a condition to each such exercise, he will furnish to the
Corporation a written statement to such effect, satisfactory in form
and substance to the Corporation; and
(2) If and when the Optionee proposes to offer or
sell the Common Stock issued to him upon exercise of the Option, the
Optionee will notify the Corporation prior to any such offering or
sale and will abide by the opinion of counsel to the Corporation as to
whether and under what conditions and circumstances, if any, he may
offer and sell such shares, but such procedure need not be followed if
a Prospectus was
B-5
<PAGE> 36
PRELIMINARY COPY
delivered to the Optionee with the shares of Common Stock and the
Common Stock was and is listed on a national securities exchange.
(b) The Optionee understands that the certificates
representing the Common Stock acquired pursuant to the Option may bear a legend
referring to the foregoing matters and any limitations under the Securities Act
and state securities laws with respect to the transfer of such Common Stock,
and the Corporation may impose stop transfer instructions to implement such
limitations, if applicable. Any person or person entitled to exercise the
Option under the provisions of Section 6 above shall be bound by and obligated
under the provisions of this Section 11 to the same extent as is the Optionee.
(c) The Board may impose such conditions on an Award or
on its exercise or acceleration or on the payment of any withholding obligation
(including without limitation restricting the time of exercise to specified
periods) as may be required to satisfy applicable regulatory requirements,
including, without limitation, Rule 16b-3 (or any successor rule) promulgated
by the Commission pursuant to the Securities Exchange Act of 1934, as amended.
12. NOTICES. Any notice to be given to the Corporation under
the terms of this Award Agreement shall be in writing and addressed to the
Secretary of the Corporation at its principal office and any notice to be given
to the Optionee shall be addressed to him at the address given beneath the
Optionee's signature hereto, or at such other address as either party may
hereafter designate in writing to the other party. Any such notice shall be
deemed to have been duly given when enclosed in a properly sealed envelope
addressed as afore-said, registered or certified, and deposited (postage and
registry or certification fee prepaid) in a post office or branch post office
regularly maintained by the United States Government. Notice given by any
other means is deemed given upon actual receipt by the addressee.
13. EFFECT OF AWARD AGREEMENT. This Award Agreement shall be
assumed by, be binding upon and inure to the benefit of any successor or
successors of the Corporation.
14. TAX WITHHOLDINGS. If the Corporation becomes obligated
to withhold an amount on account of any tax imposed as a result of the exercise
of the Option, including, without limitation, any Federal, state, local or
other income tax, or any F.I.C.A., state disability insurance tax or other
employment tax, then Optionee shall, on the first day upon which the
Corporation becomes obligated to pay such amount to the appropriate taxing
authority, pay such amount to the Corporation in cash or by check payable to
the Corporation.
15. LAWS APPLICABLE TO CONSTRUCTION. The Option has been
granted, executed and delivered as of the day and year first above written, and
the interpretation, performance and enforcement of the Award and this Award
Agreement shall be governed by the laws of the State of California.
B-6
<PAGE> 37
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IN WITNESS WHEREOF, the Corporation has caused this Award Agreement to be
executed on its behalf by a duly authorized officer and the Optionee has
hereunto set his hand as of the date and year first above written.
SPECIAL DEVICES, INCORPORATED
By:_________________________________
Thomas F. Treinen
President
OPTIONEE
____________________________________
(Signature)
____________________________________
(Print Name)
____________________________________
(Street Address)
____________________________________
(City, State, Zip Code)
____________________________________
(Social Security Number)
B-7
<PAGE> 38
PRELIMINARY COPY
ANNEX C
1996 KEY EMPLOYEE STOCK OPTION
AWARD AGREEMENT
THIS AWARD AGREEMENT is dated as of December 30, 1996, by and
between Special Devices, Incorporated, a Delaware corporation (the
"Corporation"), and John T. Vinke (the "Optionee").
W I T N E S S E T H
WHEREAS, on December 30, 1996 the Compensation Committee of
the Board of Directors (the "Board") has granted to the Optionee, as a key
employee of the Corporation, effective as of December 30, 1996 (the "Award
Date") a stock option (the "Option" or "Award") to purchase all or any part of
25,000 shares of Common Stock, $.01 par value, of the Corporation (the "Common
Stock") upon the terms and conditions hereinafter set forth; provided, however,
that such Option grant is subject to ratification by the stockholders of the
Corporation at its upcoming 1997 Annual Meeting of Stockholders;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. DEFINITIONS.
"Beneficiary" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the
benefits specified under this Award Agreement in the event of the Optionee's
death.
"Change in Control" shall be deemed to have occurred if (A)
there occurs a change of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A under the Exchange Act,
or, if Item 6(e) is no longer in effect, any regulations issued by the
Commission which serve a similar purpose; (B) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding securities, unless
such person was, on the date hereof, such a beneficial owner of securities
representing 20% or more of such voting power; or (C) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Corporation's
stockholders, of each new Board member was approved by a vote of at least
three-fourths of the Board members then still in office who were Board members
at the beginning of such period.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
C-1
<PAGE> 39
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"Commission" shall mean the Securities and Exchange
Commission.
"Event" shall mean any of the following:
(1) Approval by the stockholders of the
Corporation of the dissolution or liquidation
of the Corporation;
(2) Approval by the stockholders of the
Corporation of an agreement to merge or consolidate, or otherwise reorganize,
with or into one or more entities which are not Subsidiaries, as a result of
which less than 50% of the outstanding voting securities of the surviving or
resulting entity are, or are to be, owned by former stockholders of the
Corporation;
(3) Approval by the stockholders of the
Corporation of the sale of substantially all of the Corporation's business
and/or assets to a person or entity which is not a Subsidiary; or
(4) A Change in Control.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean the closing sale price (or, if
no closing sale price is reported, the closing bid price) of the Common Stock
in the over-the-counter market, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or, if the Common
Stock is not quoted on NASDAQ, as reported by the National Quotation Bureau
Incorporated. In the event that the stock is hereafter listed for trading on
one or more United States national or regional securities exchanges, "Fair
Market Value" shall mean the closing price on the exchange or system designated
by the Board as the principal United States market in which the Common Stock is
traded; provided, however, that if the Common Stock is not listed or admitted
to trade on a national securities exchange, the Board may designate such other
exchange, market or source of data as it deems appropriate for determining such
value for purposes of this Award Agreement.
"Personal Representative" shall mean the person or persons
who, upon the disability or incompetence of the Optionee, shall have acquired
on behalf of the Optionee by legal proceeding or otherwise the power to
exercise the rights and receive the benefits specified in this Award Agreement.
"Retirement" shall mean retirement from active service as an
employee or officer of the Corporation on or after attaining age 65.
"Subsidiary" shall mean any corporation or other entity a
majority or more of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Corporation.
"Termination for Cause" shall mean (i) conviction of a felony
involving moral turpitude, (ii) gross and willful misconduct by Optionee that
results in a material injury to the Corporation, (iii) a finding of gross
dishonesty of Optionee that results in a material injury to the
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Corporation, (iv) willful malfeasance or willful non-feasance by Optionee,
provided that such malfeasance or non-feasance in fact has a material adverse
effect on the Corporation or (v) continued insubordination or refusal to
perform assigned duties which duties are commensurate with the Optionee's
position or the terms of any employment agreement to which Optionee is a party
(provided that Optionee shall have an opportunity to cure any act or failure to
act pursuant to clause (v) within 15 days of receipt of a written notice
specifically setting forth the basis for the purported termination).
"Total Disability" shall mean a "permanent and total
disability" within the meaning of Section 22(e)(3) of the Code.
2. GRANT OF OPTION. The Corporation has granted to the
Optionee as a matter of separate inducement and agreement in connection with
the determination by the Board of Optionee being a key employee of the
Corporation, and not in lieu of any salary or other compensation for his
services, the right and option to purchase, in accordance with the terms and
conditions hereinafter set forth, all or any part of an aggregate of 25,000
shares of Common Stock at the price of $17.00 per share (the "Price"), the Fair
Market Value on the date of grant, exercisable from time to time subject to the
provisions of this Award Agreement prior to the close of business on December
30, 2006 (the "Expiration Date").
3. EXERCISABILITY OF OPTION. Except as otherwise provided in
this Award Agreement, the Option may be exercised from time to time and for the
number of shares as follows:
<TABLE>
<CAPTION>
Date on or after which Number of shares as
Option installment may to which Option
be exercised is exercisable
<S> <C>
December 30, 1997 1/5
December 30, 1998 1/5
December 30, 1999 1/5
December 30, 2000 1/5
December 30, 2001 1/5
</TABLE>
provided, however, that the Option may not be exercised as to less than 100
shares at any one time unless the number of shares purchased is the total
number at the time available for purchase under an installment of the Option,
and provided further that the Option is not exercisable for at least six months
after the Award Date. If the Optionee does not, in any given installment
period, purchase all of the shares which he is entitled to purchase in such
installment period, the Optionee's right to purchase any shares not so
purchased shall continue until the Expiration Date, unless theretofore
terminated in accordance with the provisions hereof. The Option may be
exercised only as to whole shares; fractional share interests shall be
disregarded except that they may be accumulated.
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4. METHOD OF EXERCISE AND PAYMENT. Each exercise of an
installment of the Option shall be by means of written notice of exercise duly
delivered to the Corporation, specifying the number of whole shares with
respect to which the Option is being exercised, together with any written
statements required pursuant to Section 11(a)(1) below and either payment of
the Price in full in cash or by check payable to the order of the Corporation
or, with the permission of the Board, and in its sole discretion, by delivery
of an acceptable secured promissory note promising to pay the Corporation the
Price in full. Said promissory note shall provide for interest at a rate at
least equal to the applicable Federal rate specified in Section 1274 of the
Code. The Optionee may also deliver in payment of a portion or all of the
Price, certificates for Common Stock, which shall be valued at the Fair Value
Market Value of such Common Stock on the date of exercise of the Option.
5. CONTINUANCE OF EMPLOYMENT. Nothing contained in this
Award Agreement shall confer upon the Optionee any right to continue in the
employ of the Corporation or constitute any contract or agreement of
employment. The Optionee acknowledges that the Corporation has the right to
terminate the Optionee at will. Nothing contained in this Award Agreement
shall interfere in any way with the right of the Corporation to (a) terminate
the employment of the Optionee at any time for any reason whatsoever, with or
without cause, or (b) reduce the compensation received by the Optionee from the
rate in existence on the Award Date.
6. EFFECT OF TERMINATION OF RELATIONSHIP. The Option and all
other rights hereunder, to the extent such rights shall not have been exercised
prior to the date the Optionee ceases to be employed by the Corporation, shall
terminate and become null and void on such date; provided, however, that the
Optionee may, to the extent the Option shall have become exercisable prior to
such date, exercise the Option at any time (1) up to three months after
termination of employment other than termination for Retirement, Total
Disability, death or Termination for Cause; (2) up to twelve months after such
termination if such termination occurs by reason of Retirement or Total
Disability; or (3) until the Expiration Date, if the Optionee dies while in the
employ of the Corporation or during the period referred to in clause (2) of
this Section 6. During the period after death, the Option may, to the extent
exercisable on the date of death (or earlier termination), be exercised by the
person or persons to which the Optionee's rights under this Award Agreement
shall pass by will or by the applicable laws of descent and distribution.
Unless sooner terminated, the Option shall expire at the end of the applicable
period specified in clauses (1), (2) or (3) above, to the extent not exercised
within that period. In no event may the Option be exercised by any person
after the Expiration Date.
7. NON-ASSIGNABILITY OF OPTION. Amounts payable pursuant to
the Award shall be paid only to the Optionee or the Optionee's Beneficiary or
Personal Representative, as the case may be. Amounts payable under and
interests in Awards shall not be subject to sale, transfer, pledge, assignment
or alienation other than by will or the laws of descent and distribution
regardless of any community property or other interest therein of the
Optionee's spouse or such spouse's successor in interest. In the event that
the spouse of the Optionee shall have acquired a community property interest in
the Option, the Optionee, or such transferees, may exercise it on behalf of the
spouse of the Optionee or such spouse's successor in interest.
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8. ADJUSTMENTS UPON SPECIFIED CHANGES. If the outstanding
shares of the Corporation of the class subject to this Option are increased or
decreased, or are changed into or exchanged for a different number or kind of
shares or securities as a result of one or more reorganizations,
recapitalizations, stock splits, reverse stock splits, stock dividends or
similar transaction, appropriate adjustments, to be conclusively determined by
and subject to the absolute discretion of the Board, shall be made in the
number and/or type of shares or securities subject to the Option and the Price,
so that the total exercise price of the shares then subject to the Option shall
remain unchanged.
9. ACCELERATION. Upon the occurrence of certain Events (as
defined above), this Option shall become immediately exercisable to the full
extent theretofore not exercisable unless prior to an Event the Board
determines otherwise. However, no Option shall be accelerated to a date less
than six months after the Award Date.
10. OPTIONEE NOT A STOCKHOLDER. Neither the Optionee nor any
other person entitled to exercise the Option shall have any of the rights or
privileges of a stockholder of the Corporation as to any shares of Common Stock
not actually issued and delivered to him or her. No adjustment will be made
for dividends or other rights for which the record date is prior to the date on
which such stock certificate or certificates are issued even if such record
date is subsequent to the date upon which notice of exercise was delivered and
the tender of payment was accepted.
11. APPLICATION OF SECURITIES LAWS.
(a) No shares of Common Stock may be purchased pursuant
to the Option unless and until any then applicable requirements of the
Securities and Exchange Commission (the "Commission"), the California
Commissioner of Corporations and any other regulatory agencies, including any
other state securities law commissioners having jurisdiction over the
Corporation or such issuance, and any exchanges upon which the Common Stock may
be listed, shall have been fully satisfied. The Optionee represents, agrees
and certifies that:
(1) If the Optionee exercises the Option in whole
or in part at a time when there is not in effect under the Securities
Act of 1933, as amended (the "Securities Act"), a registration
statement relating to the Common Stock issuable upon exercise and
available for delivery to him a prospectus meeting the requirements of
Section 10(a)(3) of the Securities Act ("Prospectus"), the Optionee
will acquire the Common Stock issuable upon such exercise for the
purpose of investment and not with a view to resale or distribution
and that, as a condition to each such exercise, he will furnish to the
Corporation a written statement to such effect, satisfactory in form
and substance to the Corporation; and
(2) If and when the Optionee proposes to offer or
sell the Common Stock issued to him upon exercise of the Option, the
Optionee will notify the Corporation prior to any such offering or
sale and will abide by the opinion of counsel to the Corporation as to
whether and under what conditions and circumstances, if any, he may
offer and sell such shares, but such procedure need not be followed if
a Prospectus was
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delivered to the Optionee with the shares of Common Stock and the
Common Stock was and is listed on a national securities exchange.
(b) The Optionee understands that the certificates
representing the Common Stock acquired pursuant to the Option may bear a legend
referring to the foregoing matters and any limitations under the Securities Act
and state securities laws with respect to the transfer of such Common Stock,
and the Corporation may impose stop transfer instructions to implement such
limitations, if applicable. Any person or person entitled to exercise the
Option under the provisions of Section 6 above shall be bound by and obligated
under the provisions of this Section 11 to the same extent as is the Optionee.
(c) The Board may impose such conditions on an Award or
on its exercise or acceleration or on the payment of any withholding obligation
(including without limitation restricting the time of exercise to specified
periods) as may be required to satisfy applicable regulatory requirements,
including, without limitation, Rule 16b-3 (or any successor rule) promulgated
by the Commission pursuant to the Securities Exchange Act of 1934, as amended.
12. NOTICES. Any notice to be given to the Corporation under
the terms of this Award Agreement shall be in writing and addressed to the
Secretary of the Corporation at its principal office and any notice to be given
to the Optionee shall be addressed to him at the address given beneath the
Optionee's signature hereto, or at such other address as either party may
hereafter designate in writing to the other party. Any such notice shall be
deemed to have been duly given when enclosed in a properly sealed envelope
addressed as afore-said, registered or certified, and deposited (postage and
registry or certification fee prepaid) in a post office or branch post office
regularly maintained by the United States Government. Notice given by any
other means is deemed given upon actual receipt by the addressee.
13. EFFECT OF AWARD AGREEMENT. This Award Agreement shall be
assumed by, be binding upon and inure to the benefit of any successor or
successors of the Corporation.
14. TAX WITHHOLDINGS. If the Corporation becomes obligated
to withhold an amount on account of any tax imposed as a result of the exercise
of the Option, including, without limitation, any Federal, state, local or
other income tax, or any F.I.C.A., state disability insurance tax or other
employment tax, then Optionee shall, on the first day upon which the
Corporation becomes obligated to pay such amount to the appropriate taxing
authority, pay such amount to the Corporation in cash or by check payable to
the Corporation.
15. LAWS APPLICABLE TO CONSTRUCTION. The Option has been
granted, executed and delivered as of the day and year first above written, and
the interpretation, performance and enforcement of the Award and this Award
Agreement shall be governed by the laws of the State of California.
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IN WITNESS WHEREOF, the Corporation has caused this Award Agreement to be
executed on its behalf by a duly authorized officer and the Optionee has
hereunto set his hand as of the date and year first above written.
SPECIAL DEVICES, INCORPORATED
By:_________________________________
Thomas F. Treinen
President
OPTIONEE
____________________________________
(Signature)
____________________________________
(Print Name)
____________________________________
(Street Address)
____________________________________
(City, State, Zip Code)
____________________________________
(Social Security Number)
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ANNEX D
1996 KEY EMPLOYEE STOCK OPTION
AWARD AGREEMENT
THIS AWARD AGREEMENT is dated as of December 30, 1996, by and
between Special Devices, Incorporated, a Delaware corporation (the
"Corporation"), and Thomas J. Treinen, Jr. (the "Optionee").
W I T N E S S E T H
WHEREAS, on December 30, 1996 the Compensation Committee of
the Board of Directors (the "Board") has granted to the Optionee, as a key
employee of the Corporation, effective as of December 30, 1996 (the "Award
Date") a stock option (the "Option" or "Award") to purchase all or any part of
25,000 shares of Common Stock, $.01 par value, of the Corporation (the "Common
Stock") upon the terms and conditions hereinafter set forth; provided, however,
that such Option grant is subject to ratification by the stockholders of the
Corporation at its upcoming 1997 Annual Meeting of Stockholders;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. DEFINITIONS.
"Beneficiary" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the
benefits specified under this Award Agreement in the event of the Optionee's
death.
"Change in Control" shall be deemed to have occurred if (A)
there occurs a change of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A under the Exchange Act,
or, if Item 6(e) is no longer in effect, any regulations issued by the
Commission which serve a similar purpose; (B) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding securities, unless
such person was, on the date hereof, such a beneficial owner of securities
representing 20% or more of such voting power; or (C) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Corporation's
stockholders, of each new Board member was approved by a vote of at least
three-fourths of the Board members then still in office who were Board members
at the beginning of such period.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
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"Commission" shall mean the Securities and Exchange
Commission.
"Event" shall mean any of the following:
(1) Approval by the stockholders of the
Corporation of the dissolution or liquidation
of the Corporation;
(2) Approval by the stockholders of the
Corporation of an agreement to merge or consolidate, or otherwise reorganize,
with or into one or more entities which are not Subsidiaries, as a result of
which less than 50% of the outstanding voting securities of the surviving or
resulting entity are, or are to be, owned by former stockholders of the
Corporation;
(3) Approval by the stockholders of the
Corporation of the sale of substantially all of the Corporation's business
and/or assets to a person or entity which is not a Subsidiary; or
(4) A Change in Control.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean the closing sale price (or, if
no closing sale price is reported, the closing bid price) of the Common Stock
in the over-the-counter market, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or, if the Common
Stock is not quoted on NASDAQ, as reported by the National Quotation Bureau
Incorporated. In the event that the stock is hereafter listed for trading on
one or more United States national or regional securities exchanges, "Fair
Market Value" shall mean the closing price on the exchange or system designated
by the Board as the principal United States market in which the Common Stock is
traded; provided, however, that if the Common Stock is not listed or admitted
to trade on a national securities exchange, the Board may designate such other
exchange, market or source of data as it deems appropriate for determining such
value for purposes of this Award Agreement.
"Personal Representative" shall mean the person or persons
who, upon the disability or incompetence of the Optionee, shall have acquired
on behalf of the Optionee by legal proceeding or otherwise the power to
exercise the rights and receive the benefits specified in this Award Agreement.
"Retirement" shall mean retirement from active service as an
employee or officer of the Corporation on or after attaining age 65.
"Subsidiary" shall mean any corporation or other entity a
majority or more of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Corporation.
"Termination for Cause" shall mean (i) conviction of a felony
involving moral turpitude, (ii) gross and willful misconduct by Optionee that
results in a material injury to the Corporation, (iii) a finding of gross
dishonesty of Optionee that results in a material injury to the
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Corporation, (iv) willful malfeasance or willful non-feasance by Optionee,
provided that such malfeasance or non-feasance in fact has a material adverse
effect on the Corporation or (v) continued insubordination or refusal to
perform assigned duties which duties are commensurate with the Optionee's
position or the terms of any employment agreement to which Optionee is a party
(provided that Optionee shall have an opportunity to cure any act or failure to
act pursuant to clause (v) within 15 days of receipt of a written notice
specifically setting forth the basis for the purported termination).
"Total Disability" shall mean a "permanent and total
disability" within the meaning of Section 22(e)(3) of the Code.
2. GRANT OF OPTION. The Corporation has granted to the
Optionee as a matter of separate inducement and agreement in connection with
the determination by the Board of Optionee being a key employee of the
Corporation, and not in lieu of any salary or other compensation for his
services, the right and option to purchase, in accordance with the terms and
conditions hereinafter set forth, all or any part of an aggregate of 25,000
shares of Common Stock at the price of $17.00 per share (the "Price"), the Fair
Market Value on the date of grant, exercisable from time to time subject to the
provisions of this Award Agreement prior to the close of business on December
30, 2006 (the "Expiration Date").
3. EXERCISABILITY OF OPTION. Except as otherwise provided in
this Award Agreement, the Option may be exercised from time to time and for the
number of shares as follows:
<TABLE>
<CAPTION>
Date on or after which Number of shares as
Option installment may to which Option
be exercised is exercisable
<S> <C>
December 30, 1997 1/5
December 30, 1998 1/5
December 30, 1999 1/5
December 30, 2000 1/5
December 30, 2001 1/5
</TABLE>
provided, however, that the Option may not be exercised as to less than 100
shares at any one time unless the number of shares purchased is the total
number at the time available for purchase under an installment of the Option,
and provided further that the Option is not exercisable for at least six months
after the Award Date. If the Optionee does not, in any given installment
period, purchase all of the shares which he is entitled to purchase in such
installment period, the Optionee's right to purchase any shares not so
purchased shall continue until the Expiration Date, unless theretofore
terminated in accordance with the provisions hereof. The Option may be
exercised only as to whole shares; fractional share interests shall be
disregarded except that they may be accumulated.
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4. METHOD OF EXERCISE AND PAYMENT. Each exercise of an
installment of the Option shall be by means of written notice of exercise duly
delivered to the Corporation, specifying the number of whole shares with
respect to which the Option is being exercised, together with any written
statements required pursuant to Section 11(a)(1) below and either payment of
the Price in full in cash or by check payable to the order of the Corporation
or, with the permission of the Board, and in its sole discretion, by delivery
of an acceptable secured promissory note promising to pay the Corporation the
Price in full. Said promissory note shall provide for interest at a rate at
least equal to the applicable Federal rate specified in Section 1274 of the
Code. The Optionee may also deliver in payment of a portion or all of the
Price, certificates for Common Stock, which shall be valued at the Fair Value
Market Value of such Common Stock on the date of exercise of the Option.
5. CONTINUANCE OF EMPLOYMENT. Nothing contained in this
Award Agreement shall confer upon the Optionee any right to continue in the
employ of the Corporation or constitute any contract or agreement of
employment. The Optionee acknowledges that the Corporation has the right to
terminate the Optionee at will. Nothing contained in this Award Agreement
shall interfere in any way with the right of the Corporation to (a) terminate
the employment of the Optionee at any time for any reason whatsoever, with or
without cause, or (b) reduce the compensation received by the Optionee from the
rate in existence on the Award Date.
6. EFFECT OF TERMINATION OF RELATIONSHIP. The Option and all
other rights hereunder, to the extent such rights shall not have been exercised
prior to the date the Optionee ceases to be employed by the Corporation, shall
terminate and become null and void on such date; provided, however, that the
Optionee may, to the extent the Option shall have become exercisable prior to
such date, exercise the Option at any time (1) up to three months after
termination of employment other than termination for Retirement, Total
Disability, death or Termination for Cause; (2) up to twelve months after such
termination if such termination occurs by reason of Retirement or Total
Disability; or (3) until the Expiration Date, if the Optionee dies while in the
employ of the Corporation or during the period referred to in clause (2) of
this Section 6. During the period after death, the Option may, to the extent
exercisable on the date of death (or earlier termination), be exercised by the
person or persons to which the Optionee's rights under this Award Agreement
shall pass by will or by the applicable laws of descent and distribution.
Unless sooner terminated, the Option shall expire at the end of the applicable
period specified in clauses (1), (2) or (3) above, to the extent not exercised
within that period. In no event may the Option be exercised by any person
after the Expiration Date.
7. NON-ASSIGNABILITY OF OPTION. Amounts payable pursuant to
the Award shall be paid only to the Optionee or the Optionee's Beneficiary or
Personal Representative, as the case may be. Amounts payable under and
interests in Awards shall not be subject to sale, transfer, pledge, assignment
or alienation other than by will or the laws of descent and distribution
regardless of any community property or other interest therein of the
Optionee's spouse or such spouse's successor in interest. In the event that
the spouse of the Optionee shall have acquired a community property interest in
the Option, the Optionee, or such transferees, may exercise it on behalf of the
spouse of the Optionee or such spouse's successor in interest.
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8. ADJUSTMENTS UPON SPECIFIED CHANGES. If the outstanding
shares of the Corporation of the class subject to this Option are increased or
decreased, or are changed into or exchanged for a different number or kind of
shares or securities as a result of one or more reorganizations,
recapitalizations, stock splits, reverse stock splits, stock dividends or
similar transaction, appropriate adjustments, to be conclusively determined by
and subject to the absolute discretion of the Board, shall be made in the
number and/or type of shares or securities subject to the Option and the Price,
so that the total exercise price of the shares then subject to the Option shall
remain unchanged.
9. ACCELERATION. Upon the occurrence of certain Events (as
defined above), this Option shall become immediately exercisable to the full
extent theretofore not exercisable unless prior to an Event the Board
determines otherwise. However, no Option shall be accelerated to a date less
than six months after the Award Date.
10. OPTIONEE NOT A STOCKHOLDER. Neither the Optionee nor any
other person entitled to exercise the Option shall have any of the rights or
privileges of a stockholder of the Corporation as to any shares of Common Stock
not actually issued and delivered to him or her. No adjustment will be made
for dividends or other rights for which the record date is prior to the date on
which such stock certificate or certificates are issued even if such record
date is subsequent to the date upon which notice of exercise was delivered and
the tender of payment was accepted.
11. APPLICATION OF SECURITIES LAWS.
(a) No shares of Common Stock may be purchased pursuant
to the Option unless and until any then applicable requirements of the
Securities and Exchange Commission (the "Commission"), the California
Commissioner of Corporations and any other regulatory agencies, including any
other state securities law commissioners having jurisdiction over the
Corporation or such issuance, and any exchanges upon which the Common Stock may
be listed, shall have been fully satisfied. The Optionee represents, agrees
and certifies that:
(1) If the Optionee exercises the Option in whole
or in part at a time when there is not in effect under the Securities
Act of 1933, as amended (the "Securities Act"), a registration
statement relating to the Common Stock issuable upon exercise and
available for delivery to him a prospectus meeting the requirements of
Section 10(a)(3) of the Securities Act ("Prospectus"), the Optionee
will acquire the Common Stock issuable upon such exercise for the
purpose of investment and not with a view to resale or distribution
and that, as a condition to each such exercise, he will furnish to the
Corporation a written statement to such effect, satisfactory in form
and substance to the Corporation; and
(2) If and when the Optionee proposes to offer or
sell the Common Stock issued to him upon exercise of the Option, the
Optionee will notify the Corporation prior to any such offering or
sale and will abide by the opinion of counsel to the Corporation as to
whether and under what conditions and circumstances, if any, he may
offer and sell such shares, but such procedure need not be followed if
a Prospectus was
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delivered to the Optionee with the shares of Common Stock and the
Common Stock was and is listed on a national securities exchange.
(b) The Optionee understands that the certificates
representing the Common Stock acquired pursuant to the Option may bear a legend
referring to the foregoing matters and any limitations under the Securities Act
and state securities laws with respect to the transfer of such Common Stock,
and the Corporation may impose stop transfer instructions to implement such
limitations, if applicable. Any person or person entitled to exercise the
Option under the provisions of Section 6 above shall be bound by and obligated
under the provisions of this Section 11 to the same extent as is the Optionee.
(c) The Board may impose such conditions on an Award or
on its exercise or acceleration or on the payment of any withholding obligation
(including without limitation restricting the time of exercise to specified
periods) as may be required to satisfy applicable regulatory requirements,
including, without limitation, Rule 16b-3 (or any successor rule) promulgated
by the Commission pursuant to the Securities Exchange Act of 1934, as amended.
12. NOTICES. Any notice to be given to the Corporation under
the terms of this Award Agreement shall be in writing and addressed to the
Secretary of the Corporation at its principal office and any notice to be given
to the Optionee shall be addressed to him at the address given beneath the
Optionee's signature hereto, or at such other address as either party may
hereafter designate in writing to the other party. Any such notice shall be
deemed to have been duly given when enclosed in a properly sealed envelope
addressed as afore-said, registered or certified, and deposited (postage and
registry or certification fee prepaid) in a post office or branch post office
regularly maintained by the United States Government. Notice given by any
other means is deemed given upon actual receipt by the addressee.
13. EFFECT OF AWARD AGREEMENT. This Award Agreement shall be
assumed by, be binding upon and inure to the benefit of any successor or
successors of the Corporation.
14. TAX WITHHOLDINGS. If the Corporation becomes obligated
to withhold an amount on account of any tax imposed as a result of the exercise
of the Option, including, without limitation, any Federal, state, local or
other income tax, or any F.I.C.A., state disability insurance tax or other
employment tax, then Optionee shall, on the first day upon which the
Corporation becomes obligated to pay such amount to the appropriate taxing
authority, pay such amount to the Corporation in cash or by check payable to
the Corporation.
15. LAWS APPLICABLE TO CONSTRUCTION. The Option has been
granted, executed and delivered as of the day and year first above written, and
the interpretation, performance and enforcement of the Award and this Award
Agreement shall be governed by the laws of the State of California.
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IN WITNESS WHEREOF, the Corporation has caused this Award Agreement to be
executed on its behalf by a duly authorized officer and the Optionee has
hereunto set his hand as of the date and year first above written.
SPECIAL DEVICES, INCORPORATED
By:_________________________________
Thomas F. Treinen
President
OPTIONEE
____________________________________
(Signature)
____________________________________
(Print Name)
____________________________________
(Street Address)
____________________________________
(City, State, Zip Code)
____________________________________
(Social Security Number)
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ANNEX E
1996 PERFORMANCE STOCK OPTION
AWARD AGREEMENT
THIS AWARD AGREEMENT is dated as of December 30, 1996, by and
between Special Devices, Incorporated, a Delaware corporation (the
"Corporation"), and Jack B. Watson (the "Optionee").
W I T N E S S E T H
WHEREAS, on December 30, 1996 the Compensation Committee of
the Board of Directors (the "Board") has granted to the Optionee, as an
inducement to Optionee's performance as an employee and/or consultant to the
Corporation, effective as of December 30, 1996 (the "Award Date") a stock option
(the "Option" or "Award") to purchase all or any part of 154,000 shares of
Common Stock, $.01 par value, of the Corporation (the "Common Stock") upon the
terms and conditions hereinafter set forth; provided, however, that such Option
grant is subject to ratification by the stockholders of the Corporation at its
upcoming 1997 Annual Meeting of Stockholders;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. DEFINITIONS.
"Beneficiary" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the
benefits specified under this Award Agreement in the event of the Optionee's
death.
"Change in Control" shall be deemed to have occurred if (A)
there occurs a change of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A under the Exchange Act,
or, if Item 6(e) is no longer in effect, any regulations issued by the
Commission which serve a similar purpose; (B) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding securities, unless
such person was, on the date hereof, such a beneficial owner of securities
representing 20% or more of such voting power; or (C) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Corporation's
stockholders, of each new Board member was approved by a vote of at least
three-fourths of the Board members then still in office who were Board members
at the beginning of such period.
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"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Commission" shall mean the Securities and Exchange
Commission.
"Event" shall mean any of the following:
(1) Approval by the stockholders of the
Corporation of the dissolution or liquidation of the Corporation;
(2) Approval by the stockholders of the
Corporation of an agreement to merge or consolidate, or otherwise reorganize,
with or into one or more entities which are not Subsidiaries, as a result of
which less than 50% of the outstanding voting securities of the surviving or
resulting entity are, or are to be, owned by former stockholders of the
Corporation;
(3) Approval by the stockholders of the
Corporation of the sale of substantially all of the Corporation's business
and/or assets to a person or entity which is not a Subsidiary; or
(4) A Change in Control.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean the closing sale price (or, if
no closing sale price is reported, the closing bid price) of the Common Stock
in the over-the-counter market, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or, if the Common
Stock is not quoted on NASDAQ, as reported by the National Quotation Bureau
Incorporated. In the event that the stock is hereafter listed for trading on
one or more United States national or regional securities exchanges, "Fair
Market Value" shall mean the closing price on the exchange or system designated
by the Board as the principal United States market in which the Common Stock is
traded; provided, however, that if the Common Stock is not listed or admitted
to trade on a national securities exchange, the Board may designate such other
exchange, market or source of data as it deems appropriate for determining such
value for purposes of this Award Agreement.
"Personal Representative" shall mean the person or persons
who, upon the disability or incompetence of the Optionee, shall have acquired
on behalf of the Optionee by legal proceeding or otherwise the power to
exercise the rights and receive the benefits specified in this Award Agreement.
"Retirement" shall mean retirement from active service as an
employee or officer of the Corporation on or after attaining age 65.
"Subsidiary" shall mean any corporation or other entity a
majority or more of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Corporation.
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"Termination for Cause" shall mean (i) conviction of a felony
involving moral turpitude, (ii) gross and willful misconduct by Optionee that
results in a material injury to the Corporation, (iii) a finding of gross
dishonesty of Optionee that results in a material injury to the Corporation,
(iv) willful malfeasance or willful non-feasance by Optionee, provided that
such malfeasance or non-feasance in fact has a material adverse effect on the
Corporation or (v) continued insubordination or refusal to perform assigned
duties which duties are commensurate with the Optionee's position or the terms
of any employment or consultant agreement to which Optionee is a party
(provided that Optionee shall have an opportunity to cure any act or failure to
act pursuant to clause (v) within 15 days of receipt of a written notice
specifically setting forth the basis for the purported termination).
"Total Disability" shall mean a "permanent and total
disability" within the meaning of Section 22(e)(3) of the Code.
2. GRANT OF OPTION. The Corporation has granted to the
Optionee as a matter of separate inducement and agreement as to Optionee's
performance as a key employee and/or consultant of the Corporation, and not in
lieu of any salary or other compensation for his services, the right and option
to purchase, in accordance with the terms and conditions hereinafter set forth,
all or any part of an aggregate of 154,000 shares of Common Stock at the price
of $17.00 per share (the "Price"), the Fair Market Value on the date of grant,
exercisable subject to the provisions of this Award Agreement prior to the
close of business on December 30, 2006 (the "Expiration Date").
3. EXERCISABILITY OF OPTION. Except as otherwise provided in
this Award Agreement, the Option may be exercised in whole or in part on and
after December 30, 2004; provided, however, that if during the period commencing
on the Award Date and ending on December 30, 1999 (the "Accelerated Vesting
Period"), the closing sale price of the Common Stock on the Nasdaq National
Market, as reported by NASDAQ, is at least $30.00 per share (the "Accelerated
Vesting Price") on fifteen (15) trading days within any thirty (30)
consecutive-trading-day period (which period falls completely within the
Accelerated Vesting Period), then, in such event, the Option shall vest in full
upon close of the Nasdaq National Market on such fifteenth (15th) trading day
(unless the Option has vested prior to such date pursuant to Section 9 hereof).
The Option may not be exercised as to less than 100 shares at any one time, and
in no event is exercisable for at least six months after the Award Date. The
Option may be exercised only as to whole shares; fractional share interests
shall be disregarded except that they may be accumulated.
4. METHOD OF EXERCISE AND PAYMENT. Exercise of the Option in
whole or in part shall be by means of written notice of exercise duly delivered
to the Corporation, specifying the number of whole shares with respect to which
the Option is being exercised, together with any written statements required
pursuant to Section 11(a)(1) below and either payment of the Price in full in
cash or by check payable to the order of the Corporation or, with the
permission of the Board, and in its sole discretion, by delivery of an
acceptable secured promissory note promising to pay the Corporation the Price
in full. Said promissory note shall provide for interest at a rate at least
equal to the applicable Federal rate specified in Section 1274 of the Code.
The Optionee
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may also deliver in payment of a portion or all of the Price, certificates for
Common Stock, which shall be valued at the Fair Value Market Value of such
Common Stock on the date of exercise of the Option.
5. CONTINUANCE OF EMPLOYMENT OR CONSULTING ARRANGEMENT.
Nothing contained in this Award Agreement shall confer upon the Optionee any
right to continue in the employ of the Corporation or constitute any contract
or agreement of employment or consultation. Nothing contained in this Award
Agreement shall interfere in any way with the right of the Corporation to (a)
terminate the employment or retention of Optionee (either as an employee of, or
a consultant to, the Corporation) at any time for any reason whatsoever, with
or without cause, or (b) reduce the compensation received by the Optionee
(either as an employee of, or a consultant to, the Corporation) from the rate
in existence on the Award Date.
6. EFFECT OF TERMINATION OF RELATIONSHIP. The Option and all
other rights hereunder, to the extent such rights shall not have been exercised
prior to the later of the date on which the Optionee ceases to be either (i)
employed by the Corporation or (ii) retained as a consultant to the
Corporation, shall terminate and become null and void on the later of such
dates (the later of such dates shall be referred to as the "Termination Date"
for purposes of this Section 6); provided, however, that the Optionee may, to
the extent the Option shall have become exercisable prior to such date,
exercise the Option at any time (1) up to three months after the Termination
Date, other than where termination of Optionee's employment or consultation
relationship with the Corporation is the result of Retirement, Total
Disability, death or Termination for Cause; (2) up to twelve months after the
Termination Date if such termination occurs by reason of Retirement or Total
Disability; or (3) until the Expiration Date, if the Optionee dies while in the
employ of, or in a consulting relationship with, the Corporation or during the
period referred to in clause (2) of this Section 6. During the period after
death, the Option may, to the extent exercisable on the date of death (or
earlier termination), be exercised by the person or persons to which the
Optionee's rights under this Award Agreement shall pass by will or by the
applicable laws of descent and distribution. Unless sooner terminated, the
Option shall expire at the end of the applicable period specified in clauses
(1), (2) or (3) above, to the extent not exercised within that period. In no
event may the Option be exercised by any person after the Expiration Date.
7. NON-ASSIGNABILITY OF OPTION. Amounts payable pursuant to
the Award shall be paid only to the Optionee or the Optionee's Beneficiary or
Personal Representative, as the case may be. Amounts payable under and
interests in Awards shall not be subject to sale, transfer, pledge, assignment
or alienation other than by will or the laws of descent and distribution
regardless of any community property or other interest therein of the
Optionee's spouse or such spouse's successor in interest. In the event that
the spouse of the Optionee shall have acquired a community property interest in
the Option, the Optionee, or such transferees, may exercise it on behalf of the
spouse of the Optionee or such spouse's successor in interest.
8. ADJUSTMENTS UPON SPECIFIED CHANGES. If the outstanding
shares of the Corporation of the class subject to this Option are increased or
decreased, or are changed into or exchanged for a different number or kind of
shares or securities as a result of one or more reorganizations,
recapitalizations, stock splits, reverse stock splits, stock dividends or
similar
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transaction, appropriate adjustments, to be conclusively determined by and
subject to the absolute discretion of the Board, shall be made in the number
and/or type of shares or securities subject to the Option, the Price and the
Accelerated Vesting Price, so that the total exercise price of the shares then
subject to the Option shall remain unchanged.
9. ACCELERATION. In addition to the vesting acceleration
provided for in Section 3, upon the occurrence of certain Events (as defined
above), this Option shall immediately become fully exercisable unless prior to
an Event the Board determines otherwise. However, the Option shall not be
accelerated to a date less than six months after the Award Date.
10. OPTIONEE NOT A STOCKHOLDER. Neither the Optionee nor any
other person entitled to exercise the Option shall have any of the rights or
privileges of a stockholder of the Corporation as to any shares of Common Stock
not actually issued and delivered to him or her. No adjustment will be made
for dividends or other rights for which the record date is prior to the date on
which such stock certificate or certificates are issued even if such record
date is subsequent to the date upon which notice of exercise was delivered and
the tender of payment was accepted.
11. APPLICATION OF SECURITIES LAWS.
(a) No shares of Common Stock may be purchased pursuant
to the Option unless and until any then applicable requirements of the
Securities and Exchange Commission (the "Commission"), the California
Commissioner of Corporations and any other regulatory agencies, including any
other state securities law commissioners having jurisdiction over the
Corporation or such issuance, and any exchanges upon which the Common Stock may
be listed, shall have been fully satisfied. The Optionee represents, agrees
and certifies that:
(1) If the Optionee exercises the Option in whole
or in part at a time when there is not in effect under the Securities
Act of 1933, as amended (the "Securities Act"), a registration
statement relating to the Common Stock issuable upon exercise and
available for delivery to him a prospectus meeting the requirements of
Section 10(a)(3) of the Securities Act ("Prospectus"), the Optionee
will acquire the Common Stock issuable upon such exercise for the
purpose of investment and not with a view to resale or distribution
and that, as a condition to each such exercise, he will furnish to the
Corporation a written statement to such effect, satisfactory in form
and substance to the Corporation; and
(2) If and when the Optionee proposes to offer or
sell the Common Stock issued to him upon exercise of the Option, the
Optionee will notify the Corporation prior to any such offering or
sale and will abide by the opinion of counsel to the Corporation as to
whether and under what conditions and circumstances, if any, he may
offer and sell such shares, but such procedure need not be followed if
a Prospectus was delivered to the Optionee with the shares of Common
Stock and the Common Stock was and is listed on a national securities
exchange.
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(b) The Optionee understands that the certificates
representing the Common Stock acquired pursuant to the Option may bear a legend
referring to the foregoing matters and any limitations under the Securities Act
and state securities laws with respect to the transfer of such Common Stock,
and the Corporation may impose stop transfer instructions to implement such
limitations, if applicable. Any person or person entitled to exercise the
Option under the provisions of Section 6 above shall be bound by and obligated
under the provisions of this Section 11 to the same extent as is the Optionee.
(c) The Board may impose such conditions on an Award or
on its exercise or acceleration or on the payment of any withholding obligation
(including without limitation restricting the time of exercise to specified
periods) as may be required to satisfy applicable regulatory requirements,
including, without limitation, Rule 16b-3 (or any successor rule) promulgated
by the Commission pursuant to the Securities Exchange Act of 1934, as amended.
12. NOTICES. Any notice to be given to the Corporation under
the terms of this Award Agreement shall be in writing and addressed to the
Secretary of the Corporation at its principal office and any notice to be given
to the Optionee shall be addressed to him at the address given beneath the
Optionee's signature hereto, or at such other address as either party may
hereafter designate in writing to the other party. Any such notice shall be
deemed to have been duly given when enclosed in a properly sealed envelope
addressed as afore-said, registered or certified, and deposited (postage and
registry or certification fee prepaid) in a post office or branch post office
regularly maintained by the United States Government. Notice given by any
other means is deemed given upon actual receipt by the addressee.
13. EFFECT OF AWARD AGREEMENT. This Award Agreement shall be
assumed by, be binding upon and inure to the benefit of any successor or
successors of the Corporation.
14. TAX WITHHOLDINGS. If the Corporation becomes obligated
to withhold an amount on account of any tax imposed as a result of the exercise
of the Option, including, without limitation, any Federal, state, local or
other income tax, or any F.I.C.A., state disability insurance tax or other
employment tax, then Optionee shall, on the first day upon which the
Corporation becomes obligated to pay such amount to the appropriate taxing
authority, pay such amount to the Corporation in cash or by check payable to
the Corporation.
15. LAWS APPLICABLE TO CONSTRUCTION. The Option has been
granted, executed and delivered as of the day and year first above written, and
the interpretation, performance and enforcement of the Award and this Award
Agreement shall be governed by the laws of the State of California.
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IN WITNESS WHEREOF, the Corporation has caused this Award
Agreement to be executed on its behalf by a duly authorized officer and the
Optionee has hereunto set his hand as of the date and year first above written.
SPECIAL DEVICES, INCORPORATED
By:_________________________________
Thomas F. Treinen
President
OPTIONEE
____________________________________
(Signature)
____________________________________
(Print Name)
____________________________________
(Street Address)
____________________________________
(City, State, Zip Code)
____________________________________
(Social Security Number)
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ANNEX F
1996 PERFORMANCE STOCK OPTION
AWARD AGREEMENT
THIS AWARD AGREEMENT is dated as of December 30, 1996, by and
between Special Devices, Incorporated, a Delaware corporation (the
"Corporation"), and John M. Cuthbert (the "Optionee").
W I T N E S S E T H
WHEREAS, on December 30, 1996 the Compensation Committee of
the Board of Directors (the "Board") has granted to the Optionee, as an
inducement to Optionee's performance as a key employee of the Corporation,
effective as of December 30, 1996 (the "Award Date") a stock option (the
"Option" or "Award") to purchase all or any part of 100,000 shares of Common
Stock, $.01 par value, of the Corporation (the "Common Stock") upon the terms
and conditions hereinafter set forth; provided, however, that such Option grant
is subject to ratification by the stockholders of the Corporation at its
upcoming 1997 Annual Meeting of Stockholders;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. DEFINITIONS.
"Beneficiary" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the
benefits specified under this Award Agreement in the event of the Optionee's
death.
"Change in Control" shall be deemed to have occurred if (A)
there occurs a change of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A under the Exchange Act,
or, if Item 6(e) is no longer in effect, any regulations issued by the
Commission which serve a similar purpose; (B) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding securities, unless
such person was, on the date hereof, such a beneficial owner of securities
representing 20% or more of such voting power; or (C) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Corporation's
stockholders, of each new Board member was approved by a vote of at least
three-fourths of the Board members then still in office who were Board members
at the beginning of such period.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
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"Commission" shall mean the Securities and Exchange
Commission.
"Event" shall mean any of the following:
(1) Approval by the stockholders of the
Corporation of the dissolution or liquidation of the Corporation;
(2) Approval by the stockholders of the
Corporation of an agreement to merge or consolidate, or otherwise reorganize,
with or into one or more entities which are not Subsidiaries, as a result of
which less than 50% of the outstanding voting securities of the surviving or
resulting entity are, or are to be, owned by former stockholders of the
Corporation;
(3) Approval by the stockholders of the
Corporation of the sale of substantially all of the Corporation's business
and/or assets to a person or entity which is not a Subsidiary; or
(4) A Change in Control.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean the closing sale price (or, if
no closing sale price is reported, the closing bid price) of the Common Stock
in the over-the-counter market, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or, if the Common
Stock is not quoted on NASDAQ, as reported by the National Quotation Bureau
Incorporated. In the event that the stock is hereafter listed for trading on
one or more United States national or regional securities exchanges, "Fair
Market Value" shall mean the closing price on the exchange or system designated
by the Board as the principal United States market in which the Common Stock is
traded; provided, however, that if the Common Stock is not listed or admitted
to trade on a national securities exchange, the Board may designate such other
exchange, market or source of data as it deems appropriate for determining such
value for purposes of this Award Agreement.
"Personal Representative" shall mean the person or persons
who, upon the disability or incompetence of the Optionee, shall have acquired
on behalf of the Optionee by legal proceeding or otherwise the power to
exercise the rights and receive the benefits specified in this Award Agreement.
"Retirement" shall mean retirement from active service as an
employee or officer of the Corporation on or after attaining age 65.
"Subsidiary" shall mean any corporation or other entity a
majority or more of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Corporation.
"Termination for Cause" shall mean (i) conviction of a felony
involving moral turpitude, (ii) gross and willful misconduct by Optionee that
results in a material injury to the Corporation, (iii) a finding of gross
dishonesty of Optionee that results in a material injury to the
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Corporation, (iv) willful malfeasance or willful non-feasance by Optionee,
provided that such malfeasance or non-feasance in fact has a material adverse
effect on the Corporation or (v) continued insubordination or refusal to
perform assigned duties which duties are commensurate with the Optionee's
position or the terms of any employment agreement to which Optionee is a party
(provided that Optionee shall have an opportunity to cure any act or failure to
act pursuant to clause (v) within 15 days of receipt of a written notice
specifically setting forth the basis for the purported termination).
"Total Disability" shall mean a "permanent and total
disability" within the meaning of Section 22(e)(3) of the Code.
2. GRANT OF OPTION. The Corporation has granted to the
Optionee as a matter of separate inducement and agreement as to Optionee's
performance as a key employee of the Corporation, and not in lieu of any salary
or other compensation for his services, the right and option to purchase, in
accordance with the terms and conditions hereinafter set forth, all or any part
of an aggregate of 100,000 shares of Common Stock at the price of $17.00 per
share (the "Price"), the Fair Market Value on the date of grant, exercisable
subject to the provisions of this Award Agreement prior to the close of
business on December 30, 2006 (the "Expiration Date").
3. EXERCISABILITY OF OPTION. Except as otherwise provided in
this Award Agreement, the Option may be exercised in whole or in part on and
after December 30, 2004; provided, however, that if during the period commencing
on the Award Date and ending on December 30, 1999 (the "Accelerated Vesting
Period"), the closing sale price of the Common Stock on the Nasdaq National
Market, as reported by NASDAQ, is at least $30.00 per share (the "Accelerated
Vesting Price") on fifteen (15) trading days within any thirty (30)
consecutive-trading-day period (which period falls completely within the
Accelerated Vesting Period), then, in such event, the Option shall vest in full
upon close of the Nasdaq National Market on such fifteenth (15th) trading day
(unless the Option has vested prior to such date pursuant to Section 9 hereof).
The Option may not be exercised as to less than 100 shares at any one time, and
in no event is exercisable for at least six months after the Award Date. The
Option may be exercised only as to whole shares; fractional share interests
shall be disregarded except that they may be accumulated.
4. METHOD OF EXERCISE AND PAYMENT. Exercise of the Option in
whole or in part shall be by means of written notice of exercise duly delivered
to the Corporation, specifying the number of whole shares with respect to which
the Option is being exercised, together with any written statements required
pursuant to Section 11(a)(1) below and either payment of the Price in full in
cash or by check payable to the order of the Corporation or, with the
permission of the Board, and in its sole discretion, by delivery of an
acceptable secured promissory note promising to pay the Corporation the Price
in full. Said promissory note shall provide for interest at a rate at least
equal to the applicable Federal rate specified in Section 1274 of the Code.
The Optionee may also deliver in payment of a portion or all of the Price,
certificates for Common Stock, which shall be valued at the Fair Value Market
Value of such Common Stock on the date of exercise of the Option.
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5. CONTINUANCE OF EMPLOYMENT. Nothing contained in this
Award Agreement shall confer upon the Optionee any right to continue in the
employ of the Corporation or constitute any contract or agreement of
employment. Nothing contained in this Award Agreement shall interfere in any
way with the right of the Corporation to (a) terminate the employment of
Optionee at any time for any reason whatsoever, with or without cause, or (b)
reduce the compensation received by the Optionee from the rate in existence on
the Award Date.
6. EFFECT OF TERMINATION OF RELATIONSHIP. The Option and all
other rights hereunder, to the extent such rights shall not have been exercised
prior to the date the Optionee ceases to be employed by the Corporation, shall
terminate and become null and void on such date; provided, however, that the
Optionee may, to the extent the Option shall have become exercisable prior to
such date, exercise the Option at any time (1) up to three months after
termination of employment other than termination for Retirement, Total
Disability, death or Termination for Cause; (2) up to twelve months after such
termination if such termination occurs by reason of Retirement or Total
Disability; or (3) until the Expiration Date, if the Optionee dies while in the
employ of the Corporation or during the period referred to in clause (2) of
this Section 6. During the period after death, the Option may, to the extent
exercisable on the date of death (or earlier termination), be exercised by the
person or persons to which the Optionee's rights under this Award Agreement
shall pass by will or by the applicable laws of descent and distribution.
Unless sooner terminated, the Option shall expire at the end of the applicable
period specified in clauses (1), (2) or (3) above, to the extent not exercised
within that period. In no event may the Option be exercised by any person
after the Expiration Date.
7. NON-ASSIGNABILITY OF OPTION. Amounts payable pursuant to
the Award shall be paid only to the Optionee or the Optionee's Beneficiary or
Personal Representative, as the case may be. Amounts payable under and
interests in Awards shall not be subject to sale, transfer, pledge, assignment
or alienation other than by will or the laws of descent and distribution
regardless of any community property or other interest therein of the
Optionee's spouse or such spouse's successor in interest. In the event that
the spouse of the Optionee shall have acquired a community property interest in
the Option, the Optionee, or such transferees, may exercise it on behalf of the
spouse of the Optionee or such spouse's successor in interest.
8. ADJUSTMENTS UPON SPECIFIED CHANGES. If the outstanding
shares of the Corporation of the class subject to this Option are increased or
decreased, or are changed into or exchanged for a different number or kind of
shares or securities as a result of one or more reorganizations,
recapitalizations, stock splits, reverse stock splits, stock dividends or
similar transaction, appropriate adjustments, to be conclusively determined by
and subject to the absolute discretion of the Board, shall be made in the
number and/or type of shares or securities subject to the Option, the Price and
the Accelerated Vesting Price, so that the total exercise price of the shares
then subject to the Option shall remain unchanged.
9. ACCELERATION. In addition to the vesting acceleration
provided for in Section 3, upon the occurrence of certain Events (as defined
above), this Option shall immediately become fully exercisable unless prior to
an Event the Board determines otherwise. However, the Option shall not be
accelerated to a date less than six months after the Award Date.
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10. OPTIONEE NOT A STOCKHOLDER. Neither the Optionee nor any
other person entitled to exercise the Option shall have any of the rights or
privileges of a stockholder of the Corporation as to any shares of Common Stock
not actually issued and delivered to him or her. No adjustment will be made
for dividends or other rights for which the record date is prior to the date on
which such stock certificate or certificates are issued even if such record
date is subsequent to the date upon which notice of exercise was delivered and
the tender of payment was accepted.
11. APPLICATION OF SECURITIES LAWS.
(a) No shares of Common Stock may be purchased pursuant
to the Option unless and until any then applicable requirements of the
Securities and Exchange Commission (the "Commission"), the California
Commissioner of Corporations and any other regulatory agencies, including any
other state securities law commissioners having jurisdiction over the
Corporation or such issuance, and any exchanges upon which the Common Stock may
be listed, shall have been fully satisfied. The Optionee represents, agrees
and certifies that:
(1) If the Optionee exercises the Option in whole
or in part at a time when there is not in effect under the Securities
Act of 1933, as amended (the "Securities Act"), a registration
statement relating to the Common Stock issuable upon exercise and
available for delivery to him a prospectus meeting the requirements of
Section 10(a)(3) of the Securities Act ("Prospectus"), the Optionee
will acquire the Common Stock issuable upon such exercise for the
purpose of investment and not with a view to resale or distribution
and that, as a condition to each such exercise, he will furnish to the
Corporation a written statement to such effect, satisfactory in form
and substance to the Corporation; and
(2) If and when the Optionee proposes to offer or
sell the Common Stock issued to him upon exercise of the Option, the
Optionee will notify the Corporation prior to any such offering or
sale and will abide by the opinion of counsel to the Corporation as to
whether and under what conditions and circumstances, if any, he may
offer and sell such shares, but such procedure need not be followed if
a Prospectus was delivered to the Optionee with the shares of Common
Stock and the Common Stock was and is listed on a national securities
exchange.
(b) The Optionee understands that the certificates
representing the Common Stock acquired pursuant to the Option may bear a legend
referring to the foregoing matters and any limitations under the Securities Act
and state securities laws with respect to the transfer of such Common Stock,
and the Corporation may impose stop transfer instructions to implement such
limitations, if applicable. Any person or person entitled to exercise the
Option under the provisions of Section 6 above shall be bound by and obligated
under the provisions of this Section 11 to the same extent as is the Optionee.
(c) The Board may impose such conditions on an Award or
on its exercise or acceleration or on the payment of any withholding obligation
(including without limitation restricting the time of exercise to specified
periods) as may be required to satisfy applicable
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regulatory requirements, including, without limitation, Rule 16b-3 (or any
successor rule) promulgated by the Commission pursuant to the Securities
Exchange Act of 1934, as amended.
12. NOTICES. Any notice to be given to the Corporation under
the terms of this Award Agreement shall be in writing and addressed to the
Secretary of the Corporation at its principal office and any notice to be given
to the Optionee shall be addressed to him at the address given beneath the
Optionee's signature hereto, or at such other address as either party may
hereafter designate in writing to the other party. Any such notice shall be
deemed to have been duly given when enclosed in a properly sealed envelope
addressed as afore-said, registered or certified, and deposited (postage and
registry or certification fee prepaid) in a post office or branch post office
regularly maintained by the United States Government. Notice given by any
other means is deemed given upon actual receipt by the addressee.
13. EFFECT OF AWARD AGREEMENT. This Award Agreement shall be
assumed by, be binding upon and inure to the benefit of any successor or
successors of the Corporation.
14. TAX WITHHOLDINGS. If the Corporation becomes obligated
to withhold an amount on account of any tax imposed as a result of the exercise
of the Option, including, without limitation, any Federal, state, local or
other income tax, or any F.I.C.A., state disability insurance tax or other
employment tax, then Optionee shall, on the first day upon which the
Corporation becomes obligated to pay such amount to the appropriate taxing
authority, pay such amount to the Corporation in cash or by check payable to
the Corporation.
15. LAWS APPLICABLE TO CONSTRUCTION. The Option has been
granted, executed and delivered as of the day and year first above written, and
the interpretation, performance and enforcement of the Award and this Award
Agreement shall be governed by the laws of the State of California.
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IN WITNESS WHEREOF, the Corporation has caused this Award
Agreement to be executed on its behalf by a duly authorized officer and the
Optionee has hereunto set his hand as of the date and year first above written.
SPECIAL DEVICES, INCORPORATED
By:_________________________________
Thomas F. Treinen
President
OPTIONEE
____________________________________
(Signature)
____________________________________
(Print Name)
____________________________________
(Street Address)
____________________________________
(City, State, Zip Code)
____________________________________
(Social Security Number)
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ANNEX G
1996 PERFORMANCE STOCK OPTION
AWARD AGREEMENT
THIS AWARD AGREEMENT is dated as of December 30, 1996, by and
between Special Devices, Incorporated, a Delaware corporation (the
"Corporation"), and Jack B. Watson (the "Optionee").
W I T N E S S E T H
WHEREAS, on December 30, 1996 the Compensation Committee of
the Board of Directors (the "Board") has granted to the Optionee, as an
inducement to Optionee's performance as an employee and/or consultant to the
Corporation, effective as of December 30, 1996 (the "Award Date") a stock option
(the "Option" or "Award") to purchase all or any part of 58,000 shares of Common
Stock, $.01 par value, of the Corporation (the "Common Stock") upon the terms
and conditions hereinafter set forth; provided, however, that such Option grant
is subject to ratification by the stockholders of the Corporation at its
upcoming 1997 Annual Meeting of Stockholders;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. DEFINITIONS.
"Beneficiary" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the
benefits specified under this Award Agreement in the event of the Optionee's
death.
"Board Resolutions" shall mean the resolutions of the
Compensation Committee of the Board of Directors authorizing this Option and
containing the Earnings Per Share target levels.
"Change in Control" shall be deemed to have occurred if (A)
there occurs a change of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A under the Exchange Act,
or, if Item 6(e) is no longer in effect, any regulations issued by the
Commission which serve a similar purpose; (B) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding securities, unless
such person was, on the date hereof, such a beneficial owner of securities
representing 20% or more of such voting power; or (C) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Corporation's
stockholders, of each new Board member was approved by a vote of at least
three-
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fourths of the Board members then still in office who were Board members at the
beginning of such period.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Commission" shall mean the Securities and Exchange
Commission.
"Event" shall mean any of the following:
(1) Approval by the stockholders of the
Corporation of the dissolution or liquidation of the Corporation;
(2) Approval by the stockholders of the
Corporation of an agreement to merge or consolidate, or otherwise reorganize,
with or into one or more entities which are not Subsidiaries, as a result of
which less than 50% of the outstanding voting securities of the surviving or
resulting entity are, or are to be, owned by former stockholders of the
Corporation;
(3) Approval by the stockholders of the
Corporation of the sale of substantially all of the Corporation's business
and/or assets to a person or entity which is not a Subsidiary; or
(4) A Change in Control.
"Earnings Per Share" shall mean the earnings per share of the
Corporation as determined in the manner set forth in the Board Resolutions
authorizing this Option.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the closing sale price (or, if
no closing sale price is reported, the closing bid price) of the Common Stock
in the over-the-counter market, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or, if the Common
Stock is not quoted on NASDAQ, as reported by the National Quotation Bureau
Incorporated. In the event that the stock is hereafter listed for trading on
one or more United States national or regional securities exchanges, "Fair
Market Value" shall mean the closing price on the exchange or system designated
by the Board as the principal United States market in which the Common Stock is
traded; provided, however, that if the Common Stock is not listed or admitted
to trade on a national securities exchange, the Board may designate such other
exchange, market or source of data as it deems appropriate for determining such
value for purposes of this Award Agreement.
"Personal Representative" shall mean the person or persons
who, upon the disability or incompetence of the Optionee, shall have acquired
on behalf of the Optionee by legal proceeding or otherwise the power to
exercise the rights and receive the benefits specified in this Award Agreement.
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"Retirement" shall mean retirement from active service as an
employee or officer of the Corporation on or after attaining age 65.
"Subsidiary" shall mean any corporation or other entity a
majority or more of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Corporation.
"Termination for Cause" shall mean (i) conviction of a felony
involving moral turpitude, (ii) gross and willful misconduct by Optionee that
results in a material injury to the Corporation, (iii) a finding of gross
dishonesty of Optionee that results in a material injury to the Corporation,
(iv) willful malfeasance or willful non-feasance by Optionee, provided that
such malfeasance or non-feasance in fact has a material adverse effect on the
Corporation or (v) continued insubordination or refusal to perform assigned
duties which duties are commensurate with the Optionee's position or the terms
of any employment or consultant agreement to which Optionee is a party
(provided that Optionee shall have an opportunity to cure any act or failure to
act pursuant to clause (v) within 15 days of receipt of a written notice
specifically setting forth the basis for the purported termination).
"Total Disability" shall mean a "permanent and total
disability" within the meaning of Section 22(e)(3) of the Code.
2. GRANT OF OPTION. The Corporation has granted to the
Optionee as a matter of separate inducement and agreement as to Optionee's
performance as a key employee and/or consultant of the Corporation, and not in
lieu of any salary or other compensation for his services, the right and option
to purchase, in accordance with the terms and conditions hereinafter set forth,
all or any part of an aggregate of 58,000 shares of Common Stock at the price
of $17.00 per share (the "Price"), the Fair Market Value on the date of grant,
exercisable subject to the provisions of this Award Agreement prior to the
close of business on December 30, 2006 (the "Expiration Date").
3. EXERCISABILITY OF OPTION. Except as otherwise provided in
this Award Agreement, the Option may be exercised in whole or in part on and
after December 30, 2004; provided, however, that if (i) during the period
commencing on the Award Date and ending on December 30, 1997 (the "Initial
Period"), Earnings Per Share is equal to or exceeds a certain target level set
forth in the Board Resolutions for such Initial Period or (ii) during the
period commencing on December 30, 1997 and ending on December 30, 1998 (the
"Subsequent Period"), Earnings Per Share is equal to or exceeds a certain
target level set forth in the Board Resolutions for such Subsequent Period,
then, in such event, the Option shall accelerate and vest in full upon the
achievement of either of the target levels for the Initial or Subsequent Periods
(unless the Option has vested prior to such date pursuant to Section 9 hereof).
The Option may not be exercised as to less than 100 shares at any one time, and
in no event is exercisable for at least six months after the Award Date. The
Option may be exercised only as to whole shares; fractional share interests
shall be disregarded except that they may be accumulated.
4. METHOD OF EXERCISE AND PAYMENT. Exercise of the Option in
whole or in part shall be by means of written notice of exercise duly delivered
to the Corporation, specifying the
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number of whole shares with respect to which the Option is being exercised,
together with any written statements required pursuant to Section 11(a)(1)
below and either payment of the Price in full in cash or by check payable to
the order of the Corporation or, with the permission of the Board, and in its
sole discretion, by delivery of an acceptable secured promissory note promising
to pay the Corporation the Price in full. Said promissory note shall provide
for interest at a rate at least equal to the applicable Federal rate specified
in Section 1274 of the Code. The Optionee may also deliver in payment of a
portion or all of the Price, certificates for Common Stock, which shall be
valued at the Fair Value Market Value of such Common Stock on the date of
exercise of the Option.
5. CONTINUANCE OF EMPLOYMENT OR CONSULTING ARRANGEMENT.
Nothing contained in this Award Agreement shall confer upon the Optionee any
right to continue in the employ of the Corporation or constitute any contract
or agreement of employment or consultation. Nothing contained in this Award
Agreement shall interfere in any way with the right of the Corporation to (a)
terminate the employment or retention of Optionee (either as an employee of, or
a consultant to, the Corporation) at any time for any reason whatsoever, with
or without cause, or (b) reduce the compensation received by the Optionee
(either as an employee of, or a consultant to, the Corporation) from the rate
in existence on the Award Date.
6. EFFECT OF TERMINATION OF RELATIONSHIP. The Option and all
other rights hereunder, to the extent such rights shall not have been exercised
prior to the later of the date on which the Optionee ceases to be either (i)
employed by the Corporation or (ii) retained as a consultant to the
Corporation, shall terminate and become null and void on the later of such
dates (the later of such dates shall be referred to as the "Termination Date"
for purposes of this Section 6); provided, however, that the Optionee may, to
the extent the Option shall have become exercisable prior to such date,
exercise the Option at any time (1) up to three months after the Termination
Date, other than where termination of Optionee's employment or consultation
relationship with the Corporation is the result of Retirement, Total
Disability, death or Termination for Cause; (2) up to twelve months after the
Termination Date if such termination occurs by reason of Retirement or Total
Disability; or (3) until the Expiration Date, if the Optionee dies while in the
employ of, or in a consulting relationship with, the Corporation or during the
period referred to in clause (2) of this Section 6. During the period after
death, the Option may, to the extent exercisable on the date of death (or
earlier termination), be exercised by the person or persons to which the
Optionee's rights under this Award Agreement shall pass by will or by the
applicable laws of descent and distribution. Unless sooner terminated, the
Option shall expire at the end of the applicable period specified in clauses
(1), (2) or (3) above, to the extent not exercised within that period. In no
event may the Option be exercised by any person after the Expiration Date.
7. NON-ASSIGNABILITY OF OPTION. Amounts payable pursuant to
the Award shall be paid only to the Optionee or the Optionee's Beneficiary or
Personal Representative, as the case may be. Amounts payable under and
interests in Awards shall not be subject to sale, transfer, pledge, assignment
or alienation other than by will or the laws of descent and distribution
regardless of any community property or other interest therein of the
Optionee's spouse or such spouse's successor in interest. In the event that
the spouse of the Optionee shall have acquired a
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community property interest in the Option, the Optionee, or such transferees,
may exercise it on behalf of the spouse of the Optionee or such spouse's
successor in interest.
8. ADJUSTMENTS UPON SPECIFIED CHANGES. If the outstanding
shares of the Corporation of the class subject to this Option are increased or
decreased, or are changed into or exchanged for a different number or kind of
shares or securities as a result of one or more reorganizations,
recapitalizations, stock splits, reverse stock splits, stock dividends or
similar transaction, appropriate adjustments, to be conclusively determined by
and subject to the absolute discretion of the Board, shall be made in the
number and/or type of shares or securities subject to the Option, the Price and
the Earnings Per Share target figures as set forth in the resolutions of the
Board authorizing this Option, so that the total exercise price of the shares
then subject to the Option shall remain unchanged.
9. ACCELERATION. In addition to the vesting acceleration
provided for in Section 3, upon the occurrence of certain Events (as defined
above), this Option shall immediately become fully exercisable unless prior to
an Event the Board determines otherwise. However, the Option shall not be
accelerated to a date less than six months after the Award Date.
10. OPTIONEE NOT A STOCKHOLDER. Neither the Optionee nor any
other person entitled to exercise the Option shall have any of the rights or
privileges of a stockholder of the Corporation as to any shares of Common Stock
not actually issued and delivered to him or her. No adjustment will be made
for dividends or other rights for which the record date is prior to the date on
which such stock certificate or certificates are issued even if such record
date is subsequent to the date upon which notice of exercise was delivered and
the tender of payment was accepted.
11. APPLICATION OF SECURITIES LAWS.
(a) No shares of Common Stock may be purchased pursuant
to the Option unless and until any then applicable requirements of the
Securities and Exchange Commission (the "Commission"), the California
Commissioner of Corporations and any other regulatory agencies, including any
other state securities law commissioners having jurisdiction over the
Corporation or such issuance, and any exchanges upon which the Common Stock may
be listed, shall have been fully satisfied. The Optionee represents, agrees
and certifies that:
(1) If the Optionee exercises the Option in whole
or in part at a time when there is not in effect under the Securities
Act of 1933, as amended (the "Securities Act"), a registration
statement relating to the Common Stock issuable upon exercise and
available for delivery to him a prospectus meeting the requirements of
Section 10(a)(3) of the Securities Act ("Prospectus"), the Optionee
will acquire the Common Stock issuable upon such exercise for the
purpose of investment and not with a view to resale or distribution
and that, as a condition to each such exercise, he will furnish to the
Corporation a written statement to such effect, satisfactory in form
and substance to the Corporation; and
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(2) If and when the Optionee proposes to offer or
sell the Common Stock issued to him upon exercise of the Option, the
Optionee will notify the Corporation prior to any such offering or
sale and will abide by the opinion of counsel to the Corporation as to
whether and under what conditions and circumstances, if any, he may
offer and sell such shares, but such procedure need not be followed if
a Prospectus was delivered to the Optionee with the shares of Common
Stock and the Common Stock was and is listed on a national securities
exchange.
(b) The Optionee understands that the certificates
representing the Common Stock acquired pursuant to the Option may bear a legend
referring to the foregoing matters and any limitations under the Securities Act
and state securities laws with respect to the transfer of such Common Stock,
and the Corporation may impose stop transfer instructions to implement such
limitations, if applicable. Any person or person entitled to exercise the
Option under the provisions of Section 6 above shall be bound by and obligated
under the provisions of this Section 11 to the same extent as is the Optionee.
(c) The Board may impose such conditions on an Award or
on its exercise or acceleration or on the payment of any withholding obligation
(including without limitation restricting the time of exercise to specified
periods) as may be required to satisfy applicable regulatory requirements,
including, without limitation, Rule 16b-3 (or any successor rule) promulgated
by the Commission pursuant to the Securities Exchange Act of 1934, as amended.
12. NOTICES. Any notice to be given to the Corporation under
the terms of this Award Agreement shall be in writing and addressed to the
Secretary of the Corporation at its principal office and any notice to be given
to the Optionee shall be addressed to him at the address given beneath the
Optionee's signature hereto, or at such other address as either party may
hereafter designate in writing to the other party. Any such notice shall be
deemed to have been duly given when enclosed in a properly sealed envelope
addressed as afore-said, registered or certified, and deposited (postage and
registry or certification fee prepaid) in a post office or branch post office
regularly maintained by the United States Government. Notice given by any
other means is deemed given upon actual receipt by the addressee.
13. EFFECT OF AWARD AGREEMENT. This Award Agreement shall be
assumed by, be binding upon and inure to the benefit of any successor or
successors of the Corporation.
14. TAX WITHHOLDINGS. If the Corporation becomes obligated
to withhold an amount on account of any tax imposed as a result of the exercise
of the Option, including, without limitation, any Federal, state, local or
other income tax, or any F.I.C.A., state disability insurance tax or other
employment tax, then Optionee shall, on the first day upon which the
Corporation becomes obligated to pay such amount to the appropriate taxing
authority, pay such amount to the Corporation in cash or by check payable to
the Corporation.
15. LAWS APPLICABLE TO CONSTRUCTION. The Option has been
granted, executed and delivered as of the day and year first above written, and
the interpretation, performance and enforcement of the Award and this Award
Agreement shall be governed by the laws of the State of California.
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IN WITNESS WHEREOF, the Corporation has caused this Award Agreement to be
executed on its behalf by a duly authorized officer and the Optionee has
hereunto set his hand as of the date and year first above written.
SPECIAL DEVICES, INCORPORATED
By:_________________________________
Thomas F. Treinen
President
OPTIONEE
____________________________________
(Signature)
____________________________________
(Print Name)
____________________________________
(Street Address)
____________________________________
(City, State, Zip Code)
____________________________________
(Social Security Number)
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ANNEX H
PROXY
SPECIAL DEVICES, INCORPORATED
16830 PLACERITA CANYON ROAD
NEWHALL, CALIFORNIA 91321
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SPECIAL DEVICES, INCORPORATED.
The undersigned hereby appoints Thomas F. Treinen and John T. Vinke,
and each of them, as Proxies, each with the power to appoint his substitute,
and hereby authorizes each of them to represent and vote as designated below,
all the shares of Common Stock of Special Devices, Incorporated held of record
by the undersigned on February 4, 1997, at the Annual Meeting of Stockholders
to be held on March 19, 1997 and any postponements or adjournments thereof.
1. Election of Directors:
[ ] FOR both nominees listed below (except as marked to the
contrary below).
[ ] WITHHOLD AUTHORITY to vote for both nominees listed
below.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE STRIKE A LINE THROUGH THE NOMINEE'S
NAME IN THE LIST BELOW.
THOMAS F. TREINEN SAMUEL LEVIN
2. To ratify 1996 Key Employee Stock Option and 1996 Performance
Stock Option grants made to certain key employees of the
Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before such meeting
and any and all postponements or adjournments thereof.
PLEASE DATE, SIGN ON THE REVERSE SIDE AND RETURN IN THE ACCOMPANYING
ENVELOPE. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS
INDICATED; HOWEVER, IF NO INSTRUCTIONS ARE GIVEN, THE PROXIES WILL VOTE THE
SHARES FOR EACH OF THE NOMINEES FOR DIRECTOR LISTED IN ITEM 1, FOR ITEM 2 AND
IN THEIR DISCRETION ON THE MATTERS DESCRIBED IN ITEM 3.
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[Reverse Side of Proxy]
THIS PROXY when properly executed will be voted in the manner
directed herein by the undersigned stockholder. If no direction is made, this
proxy will be voted for each of the nominees listed above in Item 1, for Item 2
and in their discretion on the matters described in Item 3.
Do you plan to attend the meeting?
[ ] YES [ ] NO
Please sign exactly as your name appears on the
stock certificate(s). When shares are held by
joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give your full title as such. If
a corporation, please sign in full corporate name
by the president or other authorized officer. If
a partnership, please sign the partnership's name
by an authorized person.
DATED: _______________, 1997
_________________________________________________
Signature
_________________________________________________
Signature if held jointly
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