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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 the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
METRICOM, INC.
(Name of Registrant as Specified In Its Charter)
Not applicable
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
6. Amount Previously Paid:
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9. Date Filed:
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Preliminary Copy
METRICOM, INC.
980 UNIVERSITY AVENUE
LOS GATOS, CALIFORNIA 95030-2375
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 26, 2000
TO THE STOCKHOLDERS OF METRICOM, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
METRICOM, INC., a Delaware corporation (the "Company"), will be held on Monday,
June 26, 2000, at 1:30 p.m., local time, at the San Jose Museum of Art located
at 110 South Market Street, San Jose, California, for the following purposes:
1. To elect two directors to hold office until the 2003 Annual Meeting
of Stockholders.
2. To approve the Company's 1997 Equity Incentive Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized for issuance
under such plan by 3,000,000 shares.
3. To approve the Company's 1991 Employee Stock Purchase Plan, as
amended, to increase the aggregate number of shares of Common Stock authorized
for issuance under such plan by 300,000 shares.
4. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of Common Stock from
150,000,000 to 500,000,000.
5. To ratify the selection of Arthur Andersen LLP as independent
auditors of the Company for its fiscal year ending December 31, 2000.
6. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 28,
2000, as the record date for the determination of stockholders entitled to
notice of and to vote at this Annual Meeting and at any adjournment or
postponement thereof.
By Order of the Board of Directors
/s/ DALE W. MARQUART
Dale W. Marquart
Secretary
Los Gatos, California
May 22, 2000
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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METRICOM, INC.
980 UNIVERSITY AVENUE
LOS GATOS, CALIFORNIA 95030-2375
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PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 26, 2000
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Metricom, Inc., a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held on Monday, June 26, 2000, at 1:30 p.m. local
time (the "Annual Meeting"), or at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at the San Jose Museum of Art located at 110
South Market Street, San Jose, California. The Company intends to mail this
proxy statement and accompanying proxy card on or about May 22, 2000, to all
stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy statement,
the proxy and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April
28, 2000 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 28, 2000, the Company had outstanding and entitled to
vote _______ shares of Common Stock. Each holder of record of Common Stock on
such date will be entitled to one vote for each share held on all matters to be
voted upon at the Annual Meeting. At the close of business on April 28, 2000,
the Company also had outstanding, 60,000,000 shares of Preferred Stock. These
shares have voting rights only to the limited extent provided in the Company's
Restated Certificate of Incorporation or as required by law.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but, except with respect to Proposal 4, are not counted for any purpose
in determining whether a matter has been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 980
University Avenue, Los Gatos, California 95030-2375, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the meeting and voting in person. Attendance at the meeting will
not by itself revoke a proxy.
STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2001 Annual
Meeting of Stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission (the "SEC"), as well as the deadline for submitting a stockholder
proposal or a nomination for director that is not to be included in such proxy
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statement and proxy, is January 23, 2001. Stockholders are advised to review the
Company's By-laws, which contain additional requirements with respect to advance
notice of stockholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and By-laws provide
that the Board of Directors will be divided into three classes, each class
consisting, as nearly as possible, of one-third of the total number of
directors, with each class having a three-year term. Vacancies on the Board may
be filled only by persons elected by a majority of the remaining directors. A
director elected by the Board to fill a vacancy (including a vacancy created by
an increase in the Board of Directors) will serve for the remainder of the full
term of the class of directors in which the vacancy occurred and until such
director's successor is elected and qualified.
The Board of Directors is presently composed of seven members. There are
two directors in the class whose term of office expires in 2000: David Moore and
William Savoy. Each of the nominees for election to this class is currently a
director of the Company. Mr. Savoy was previously elected by the stockholders
and Mr. Moore was elected by the Board.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote on the matter at the meeting. Under
the Company's Restated Certificate of Incorporation, the holders of outstanding
shares of Preferred Stock are not entitled to vote those shares with respect to
these nominees. Shares represented by executed proxies will be voted, if
authority to do so is not withheld, for the election of all of the nominees
named below. In the event that any nominee should be unavailable for election as
a result of an unexpected occurrence, such shares will be voted for the election
of such substitute nominee as management may propose. Each person nominated for
election has agreed to serve if elected, and management has no reason to believe
that any nominee will be unable to serve.
Set forth below is biographical information for each director nominated.
NOMINEES FOR ELECTION FOR A TERM EXPIRING AT THE 2003 ANNUAL MEETING
DAVID M. MOORE
David M. Moore, 45, has served as a director of the Company since
January 1999. Mr. Moore has served as Business Development Director of Vulcan
Northwest, Inc., a venture capital firm affiliated with Vulcan Ventures
Incorporated ("Vulcan"), the Company's largest stockholder, since November 1998.
Prior to joining Vulcan Northwest, Mr. Moore served as President of Paralex
Corporation, a provider of technical due diligence and consulting services, from
October 1997 to November 1998; Director of Development Microsoft Corporation
from June 1996 to October 1997; and Director of Development for the Worldwide
Product Group of Microsoft Corporation from September 1988 to June 1996. Mr.
Moore is also a director of BSQUARE Corporation.
WILLIAM D. SAVOY
William D. Savoy, 35, has served as a director of the Company since
January 1998. Mr. Savoy has served as President of Vulcan Northwest, Inc., since
November 1990 and Vice President and a director of Vulcan since November 1990.
Mr. Savoy is a director of Charter Communications, Inc., CNET, Inc., Go2Net,
Inc., Harbinger Corporation, High Speed Access Corp., Telescan, Inc.,
Ticketmaster Online-City Search, Inc., USA Networks, Inc. and Value America.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING
RALPH DERRICKSON
Ralph Derrickson, 41, has served as a director of the Company since
April 1998. Mr. Derrickson has been a partner of Watershed Capital, LLC, a
private equity investment firm, since September 1998. Previously, Mr. Derrickson
was employed at Vulcan Northwest, Inc. from December 1996 to September 1998 and
as a Vice President of Product Development at Starwave Corporation, an internet
technology company and creator and producer of online sports, news and
entertainment services, from June 1993 to December 1996. He has held engineering
and management positions with NeXT Computer, Sun Microsystems and Digital
Research, Inc.
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ROBERT P. DILWORTH
Robert P. Dilworth, 58, has served as a director since August 1987.
Since September 1999, Mr. Dilworth has been an independent consultant. From May
1998 through September 1999, Mr. Dilworth served as an Executive Vice President
and a director of VLSI Technology, Inc., a semi-conductor manufacturer. Mr.
Dilworth also served as President of the Company from September 1987 to March
1997 and as Chief Executive Officer of the Company from August 1987 to May 1998.
Prior to joining the Company, he served as President of Zenith Data Systems
Corp., a microcomputer manufacturer and a wholly owned subsidiary of Zenith
Electronics Corp., from May 1985 to November 1987. Mr. Dilworth is also a
director of GraphOn Corporation and eOn Communications Corporation.
TIMOTHY A. DREISBACH
Timothy A. Dreisbach, 50, has served as President and Chief Executive
Officer and a director of the Company since May 1998 and has served as Chairman
of the Board since February 2000. From January 1997 through January 1998, Mr.
Dreisbach served as President and Chief Executive Officer of Premenos Technology
Corporation, an electronic commerce software company that merged with Harbinger
Corp. in December 1997. From April 1992 to December 1996, Mr. Dreisbach served
as Senior Vice President, North American Sales and Service, for Boole & Babbage
Inc., an enterprise management software company.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2002 ANNUAL MEETING
ROBERT S. CLINE
Robert S. Cline, 62, has served as a director of the Company since
January 1994. He currently serves as Chairman and Chief Executive Officer of
Airborne Freight Corp., an air express company. Mr. Cline has been employed by
Airborne Freight Corp. since 1968. In addition to Airborne Freight Corp., Mr.
Cline is also a director of SAFECO Corp. and Esterline Technologies Corp.
JUSTIN L. JASCHKE
Justin L. Jaschke, 42, has served as a director of the Company since
June 1996. Mr. Jaschke has served as Chief Executive Officer and a Director of
Verio Inc., an Internet service provider since March 1996. Prior to forming
Verio, Mr. Jaschke served as Chief Operating Officer of Nextel Communications, a
telecommunications company, following its merger in July 1995 with OneComm
Corporation, a telecommunications company, from July 1995 to March 1996. From
April 1993 to July 1995, he served as OneComm's president and a member of its
Board of Directors. From May 1990 to April 1993, he served as President and
Chief Executive Officer of Bay Area Cellular Telephone Company, a provider of
cellular service in the San Francisco Bay Area and, from November 1987 to May
1990, as Vice President of Corporate Development for PacTel Cellular, a
telecommunications company. Mr. Jaschke is also a director of Verio and Dobson
Communications.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1999, the Board of Directors
held eight meetings. The Board has an Audit Committee, a Compensation Committee
and a Non-Officer Stock Option Administration Committee. The Board does not have
a nominating committee or any committee that functions as a nominating
committee.
The Audit Committee meets with the Company's independent auditors at
least annually to review the results of the annual audit and discuss the
financial statements, recommends to the Board the independent auditors to be
retained, and receives and considers the accountants' comments as to controls,
adequacy of staff and management performance and procedures in connection with
audit and financial controls. During fiscal 1999, the Audit Committee was
composed of two non-employee directors: Messrs. Jaschke and Savoy. It met one
time during such fiscal year.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. During fiscal 1999, the Compensation Committee was composed of two
non-employee directors: Messrs. Cline and Moore. It met twice during such fiscal
year.
The Non-Officer Stock Option Administration Committee administers the
Company's stock option plans for non-officer employees only and makes stock
option grants to such employees not in excess of 25,000 shares. All option
grants in excess of this limit and all
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option grants to officers must be approved by the Compensation Committee. The
Non-Officer Stock Option Administration Committee is composed of Mr. Dreisbach,
who is the Chief Executive Officer of the Company.
During fiscal 1999, each Board member except Mr. Derrickson attended 75%
or more of the aggregate of the meetings of the Board and of the committees on
which he served, held during the period for which he was a director or committee
member, respectively.
PROPOSAL 2
APPROVAL OF 1997 EQUITY INCENTIVE PLAN, AS AMENDED
The Company's 1997 Equity Incentive Plan (the "Incentive Plan") was
adopted by the Board of Directors in March 1997 and approved by the stockholders
in May 1997. As of February 15, 2000, there were 2,275,000 shares authorized for
issuance under the Incentive Plan.
As of February 15, 2000, options (net of cancelled or expired options)
covering an aggregate of approximately 2,322,577 shares had been granted under
the Incentive Plan and zero shares (plus any shares that might in the future be
returned to the Incentive Plan as a result of cancellations or expiration of
options) remained available for future grant under the Incentive Plan. On
February 18, 2000, the Board approved an amendment to the Incentive Plan,
subject to stockholder approval, to increase the number of shares authorized for
issuance under the Incentive Plan by 3,000,000 shares, from 2,275,000 to
5,275,000.
Stockholders are requested in this Proposal 1 to approve the Incentive
Plan, as amended. The affirmative vote of the holders of a majority of the
shares of Common Stock present in person or represented by proxy and entitled to
vote on the matter at the meeting will be required to approve the Incentive
Plan, as amended. Abstentions will be counted toward the tabulation of votes
cast on the proposals and will have the same effect as negative votes. Broker
non-votes are counted toward a quorum, but are not counted for any purpose in
determining whether this matter has been approved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Incentive Plan, as amended, are outlined
below:
GENERAL
The Incentive Plan provides for the grant of incentive stock options,
nonstatutory stock options, restricted stock purchase awards and stock bonuses
(collectively, "Stock Awards") to employees, directors and consultants.
Incentive stock options granted under the Incentive Plan are intended to qualify
as "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock options
granted under the Incentive Plan are not intended to qualify as incentive stock
options under the Code. See "Federal Income Tax Information" for a discussion of
the tax treatment of the various awards included in the Incentive Plan. To date,
the Company has granted only stock options under the Plan.
PURPOSE
The Incentive Plan provides a means by which selected employees of and
consultants to the Company, and its affiliates, and directors of the Company may
be given an opportunity to purchase Common Stock of the Company. The Company, by
means of the Incentive Plan, seeks to retain the services of persons who are now
employees of or consultants to the Company, or its affiliates, and directors of
the Company to secure and retain the services of new employees, directors and
consultants, and to provide incentives for such persons to exert maximum efforts
for the success of the Company and its affiliates. Approximately 85% of the
Company's approximately 523 employees are eligible to participate in the
Incentive Plan.
ADMINISTRATION
The Board administers the Incentive Plan. Subject to the provisions of
the Incentive Plan, the Board has the power to construe and interpret the
Incentive Plan and the Stock Awards granted under it and to determine from time
to time which of the persons eligible under the Incentive Plan will be granted
awards, the type of awards to be granted, when and how each award will be
granted, and to
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establish, amend and revoke rules and regulations for the Incentive Plan's
administration. The Board may correct any defect in the Incentive Plan or in any
award agreement to make the Incentive Plan fully effective.
The Board has the power to delegate administration of the Incentive Plan
to a committee composed of one or more Board members. In the discretion of the
Board, a committee may consist solely of non-employee directors (as defined
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) or
two or more outside directors (as defined under the Code). If administration is
delegated to a committee, the committee will have, in connection with the
administration of the Incentive Plan, the powers possessed by the Board,
subject, however, to such resolutions, not inconsistent with the provisions of
the Incentive Plan, as may be adopted from time to time by the Board. The
committee may delegate to a subcommittee any of the administrative powers the
committee is authorized to exercise. The Board may abolish a committee or
subcommittee at any time and revest in the Board the administration of the
Incentive Plan. The Board has generally delegated the administration of the
Incentive Plan to the Compensation Committee and, to a limited extent, the
Non-Officer Stock Option Administration Committee. The Board has the authority
to revest in itself the administration of the Incentive Plan at any time or for
any purpose. See "Proposal 1 -- Election of Directors -- Board Committees and
Meetings." As used herein, with respect to the Incentive Plan, the "Board"
refers to the Compensation Committee, and where applicable, the Non-Officer
Stock Option Administration Committee, as well as to the Board itself.
SHARES SUBJECT TO THE PLAN
Subject to approval of this proposal, the Common Stock that may be
issued pursuant to awards under the Incentive Plan may not exceed in the
aggregate 5,275,000 shares of the Company's Common Stock. If any award expires
or terminates, in whole or in part, without having been exercised in full, the
stock not purchased under such award will revert to and again become available
for issuance under the Incentive Plan. The Common Stock subject to the Incentive
Plan may be unissued shares or reacquired shares, bought on the market or
otherwise.
ELIGIBILITY
Incentive stock options may be granted only to employees (including
officers) of the Company and its affiliates. Nonstatutory stock options,
restricted stock purchase awards and stock bonuses may be granted to employees
of or consultants to the Company, and its affiliates, and directors of the
Company.
No person is eligible for the grant of an incentive stock option if, at
the time of grant, such person owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company unless the exercise
price of such option is at least 110% of the fair market value of such Common
Stock subject to the option at the date of grant and the option is not
exercisable after the expiration of five years from the date of grant. No person
is eligible to be granted Stock Awards covering more than 400,000 shares of the
Company's Common Stock in any calendar year.
TERM AND TERMINATION
The maximum term of options under the Incentive Plan is 10 years, except
that in certain cases (see "Eligibility") the maximum term is five years.
Options under the Incentive Plan generally terminate three months after
termination of the optionee's status as an employee, director or consultant
unless (i) termination is due to the optionee's permanent and total disability
(as defined in the Code), in which case the option may be exercised (to the
extent the option was exercisable at the time of the termination of service) at
any time within 12 months of such termination; (ii) the optionee dies before the
optionee's service has terminated, or within three months after termination of
service, in which case the option may be exercised (to the extent the option was
exercisable at the time of the optionee's death) within 18 months of the
optionee's death by the person or persons to whom the rights to such option pass
by will or by the laws of descent and distribution; or (iii) the option by its
terms specifically provides otherwise. An optionee may designate a beneficiary
who may exercise the option following the optionee's death. Individual option
grants by their terms may provide for exercise within longer or shorter periods
of time following termination of service.
An optionee's option agreement may also provide that, if the exercise of
the option following the termination of the optionee's continuous status as an
employee, director or consultant would result in liability under Section 16(b)
of the Exchange Act, then the option will terminate on the earlier of (a) the
expiration of the term of the option set forth in the option agreement and (b)
the tenth day after the last date on which the exercise would result in such
liability under Section 16(b) of the Exchange Act. Finally, an optionee's option
agreement may also provide that, if the exercise of the option following the
termination of the optionee's continuous status as an employee, director or
consultant would be prohibited at any time solely because the issuance of shares
would violate the registration requirements under the Securities Act of 1933, as
amended (the "Securities Act"), then the option will terminate on the
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earlier of (a) the expiration of the term of the option as set forth in the
immediately preceding paragraph and (b) the expiration of a period of three
months after the termination of the optionee's continuous status as an employee,
director or consultant during which the exercise of the option would not be in
violation of such registration requirements.
In the event a stock bonus or restricted stock recipient's continuous
status as an employee, director or consultant terminates, the Company may
repurchase or otherwise reacquire any or all of the shares of stock held by that
person that have not vested as of the date of termination under the terms of the
stock bonus or restricted stock purchase agreement between the Company and such
person.
EXERCISE/PURCHASE PRICE
The exercise price of each incentive stock option will not be less than
100% of the fair market value of the Company's Common Stock on the date of
grant. The exercise price of each nonstatutory stock option will not be less
than 85% of the fair market value on the date of grant. The purchase price of
restricted stock will not be less than 85% of the fair market value of the
Company's Common Stock on the date the award is made. Stock bonuses may be
awarded in consideration of past services actually rendered to the Company or
for its benefit. If options are granted with exercise prices below market value,
deductions for compensation attributable to the exercise of such options could
be limited by Section 162(m) of the Code. See "Federal Tax Information." At
March 15, 2000, the closing price of the Company's Common Stock as reported on
the Nasdaq National Market was $60.375 per share.
CONSIDERATION
The purchase price of stock acquired pursuant to a Stock Award is paid
either in cash at the time of exercise or purchase, or (if determined by the
Board at the time of grant for an option) by deferred payment or other
arrangement or in any other form of legal consideration that may be acceptable
to the Board. Additionally, in the case of an option and in the discretion of
the Board at the time of the grant of an option, by delivery to the Company of
other Common Stock of the Company. In the case of any deferred payment
arrangement, interest will be payable at least annually and will be charged at
the minimum rate of interest necessary to avoid the treatment as interest of
amounts that are not stated to be interest.
TRANSFERABILITY
An incentive stock option is not transferable except by will or by the
laws of descent and distribution, and is exercisable during the lifetime of the
person to whom the incentive stock option is granted only by such person. A
stock bonus or restricted stock award is not transferable except by will or by
the laws of descent and distribution or pursuant to a domestic relations order.
A nonstatutory stock option is transferable only to the extent specifically
provided for in the option agreement evidencing the nonstatutory stock option,
provided that if the nonstatutory stock option agreement does not provide for
transferability, then the option is not transferable except by will or by the
laws of descent and distribution or pursuant to a domestic relations order. A
holder of a stock award may designate a beneficiary who may exercise his or her
award after death.
VESTING
The total number of shares of stock subject to an option may, but need
not, be allotted in periodic installments. The option agreement may provide that
from time to time during each of such installment periods, the option may become
exercisable ("vest") with respect to some or all of the shares allotted to that
period, and may be exercised with respect to some or all of the shares allotted
to such period or any prior period as to which the option became vested but was
not fully exercised. The option agreement may also provide that an optionee may
exercise an option prior to full vesting, provided that the Company may have a
repurchase right with respect to any unvested shares.
Restricted stock purchase awards and stock bonuses granted under the
Incentive Plan may be granted pursuant to a repurchase option in favor of the
Company in accordance with a vesting schedule determined by the Board.
ADJUSTMENTS UPON CHANGES IN STOCK
If any change is made in the Common Stock subject to the Incentive Plan,
or subject to any Stock Award, without receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or otherwise), the class(es) and maximum number of shares subject to
the Incentive Plan, the maximum annual award applicable under
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the Incentive Plan and the class(es) and number of shares and price per share of
stock subject to outstanding Stock Awards will be appropriately adjusted.
In the event of a merger, consolidation, liquidation, dissolution or the
sale of substantially all of the Company's assets or a reverse merger in which
the Company is the surviving corporation but the shares of the Company's Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, any surviving corporation will assume any Stock Awards outstanding
under the Incentive Plan or will substitute similar awards for those outstanding
under the Incentive Plan. In the event a surviving corporation refuses to assume
the Stock Awards or substitute similar awards, then, with respect to Stock
Awards held by persons then performing services as employees, directors or
consultants, the time during which the Stock Awards may be exercised will be
accelerated prior to completion of such transaction and the Stock Awards
terminated if not exercised prior to such transaction. In addition, with respect
to any person who was providing services as an employee, director or consultant
immediately prior to such transaction, the time during which Stock Awards may be
exercised will be accelerated and any repurchase right of the Company with
respect to the Stock Awards will lapse if such person is terminated without
cause within 12 months following such transaction. The acceleration of a Stock
Award in the event of an acquisition or similar corporate event may be viewed as
an antitakeover provision, which may have the effect of discouraging a proposal
to acquire or otherwise obtain control of the Company.
AMENDMENT OF THE INCENTIVE PLAN
The Board at any time, and from time to time, may amend the Incentive
Plan. However, no amendment will be effective unless approved by the
stockholders of the Company within 12 months before or after the adoption of the
amendment, where the amendment will increase the number of shares reserved for
issuance under the Incentive Plan, modify the requirements as to eligibility for
participation or in any other way if such modification requires stockholder
approval in order for the Incentive Plan to satisfy the requirements of Section
422 of the Code or to comply with the requirements of Rule 16b-3 of the Exchange
Act. The Board may in its sole discretion submit any other amendment to the
Incentive Plan for stockholder approval.
TERMINATION OR SUSPENSION OF THE INCENTIVE PLAN
The Board may suspend or terminate the Incentive Plan at any time.
Unless sooner terminated, the Incentive Plan will terminate in March 2007. No
Stock Awards may be granted under the Incentive Plan while the Incentive Plan is
suspended or after it is terminated.
FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax
rates than ordinary income or short-term capital gains. The maximum long-term
capital gains rate for federal income tax purposes is currently 20% while the
maximum ordinary income rate and short-term capital gains rate is effectively
39.6%. Slightly different rules may apply to participants who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
INCENTIVE STOCK OPTIONS. Incentive stock options under the Incentive
Plan are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee
or the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive
stock option for more than two years from the date on which the option is
granted and more than one year from the date on which the shares are transferred
to the optionee upon exercise of the option, any gain or loss on a disposition
of such stock will be capital gain or loss. Generally, if the optionee disposes
of the stock before the expiration of either of these holding periods (a
"disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price and
(b) the optionee's actual gain, if any, on the purchase and sale. The optionee's
additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term or short-term depending on whether
the optionee held the stock for more than one year.
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<PAGE> 10
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, Code Section 162(m) and the satisfaction of a
tax reporting obligation) to a corresponding business expense deduction in the
tax year in which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options generally have
the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason
of the grant of a nonstatutory stock option. Upon exercise of a nonstatutory
stock option, the optionee normally will recognize taxable ordinary income equal
to the excess of the stock's fair market value on the date of exercise over the
option exercise price. With respect to employees, the Company is generally
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, Code Section 162(m) and the satisfaction of a tax reporting
obligation, the Company will be entitled to a business expense deduction equal
to the taxable ordinary income realized by the optionee. Upon disposition of the
stock, the optionee will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon exercise of the option.
Such gain or loss will be short-term or long-term depending on whether the stock
was held for more than one year. Slightly different rules may apply to optionees
who acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
RESTRICTED STOCK PURCHASE AWARDS AND STOCK BONUSES. Restricted stock
purchase awards and stock bonuses granted under the Incentive Plan generally
have the following federal income tax consequences:
Upon acquisition of the stock, the recipient normally will recognize
taxable ordinary income equal to the excess of the stock's fair market value
over the purchase price, if any. However, to the extent the stock is subject to
certain types of vesting restrictions, the taxable event will be delayed until
the vesting restrictions lapse unless the recipient elects to be taxed on
receipt of the stock. With respect to employees, the Company is generally
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, Code Section 162(m) and the satisfaction of a tax reporting
obligation, the Company will be entitled to a business expense deduction equal
to the taxable ordinary income realized by the optionee. Upon disposition of the
stock, the optionee will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon acquisition (or
vesting) of the stock. Such gain or loss will be long-term or short-term
depending on whether the stock was held for more than one year. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange Act.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid to
certain covered employees in a taxable year to the extent that compensation
exceeds $1 million for a covered employee. It is possible that compensation
attributable to awards granted in the future under the Incentive Plan, when
combined with all other types of compensation received by a covered employee
from the Company, may cause this limitation to be exceeded in any particular
year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that the option is granted by a committee comprised solely of "outside
directors" and either: (a) the option plan contains a per-employee limitation on
the number of shares for which options may be granted during a specified period,
the per-employee limitation is approved by the stockholders, and the exercise
price of the option is no less than the fair market value of the stock on the
date of grant or (b) the option is granted (or exercisable) only upon the
achievement (as certified in writing by the committee) of an objective
performance goal established in writing by the committee while the outcome is
substantially uncertain, and the option is approved by stockholders.
Compensation attributable to restricted stock will qualify as
performance-based compensation, provided that: (i) the award is granted by a
committee composed solely of "outside directors" and (ii) the purchase price of
the award is no less than the fair market value of the stock on the date of
grant. Stock bonuses qualify as performance-based compensation under the
Treasury regulations only if: (i) the award is granted by a committee comprised
solely of "outside directors;" (ii) the award is granted (or exercisable) only
upon the achievement of an objective performance goal established in writing by
the committee while the outcome is substantially uncertain; (iii) the committee
certifies in writing prior to the granting (or exercisability) of the award that
the performance goal has been satisfied and (iv) prior to the granting (or
exercisability) of the award stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business
9
<PAGE> 11
criteria on which the performance goal is based, and the maximum amount (or
formula used to calculate the amount) payable upon attainment of the performance
goal).
PROPOSAL 3
APPROVAL OF 1991 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
The 1991 Employee Stock Purchase Plan (the "Purchase Plan") was adopted
by the Board of Directors and approved by the Company's stockholders in November
1991. As of February 15, 2000, 750,000 shares were authorized for issuance under
the Purchase Plan. At February 15, 2000, an aggregate 558,533 shares had been
issued under the Purchase Plan and 191,467 shares remained for the grant of
future rights under the Plan. On February 18, 2000, the Board of Directors
adopted an amendment to the Purchase Plan, subject to stockholder approval, to
increase the number of shares authorized for issuance under the Purchase Plan
from 750,000 shares to 1,050,000 shares.
During the last fiscal year, shares were purchased by the executive
officers and other employees of the Company in the amounts and at the weighted
average prices per share under the Purchase Plan as follows: Timothy Dreisbach,
1,983 shares ($6.003), Dale Marquart, 624 shares ($6.003), all current executive
officers as a group, 2,607 shares ($6.003) and all employees (excluding
executive officers) as a group, 85,549 shares ($6.014).
Stockholders are requested in this Proposal 3 to approve the Purchase
Plan, as amended. The affirmative vote of the holders of a majority of the
shares of Common Stock present in person or represented by proxy and entitled to
vote on the matter at the meeting will be required to approve the Purchase Plan,
as amended. Abstentions will be counted toward the tabulation of votes cast on
the proposal and will have the same effect as negative votes. Broker non-votes
are counted toward a quorum, but are not counted for any purpose in determining
whether this matter has been approved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the Purchase Plan, as amended, are outlined
below:
PURPOSE
The purpose of the Purchase Plan is to provide a means by which
employees of the Company (and any parent or subsidiary of the Company designated
by the Board of Directors to participate in the Purchase Plan) may be given an
opportunity to purchase Common Stock of the Company through payroll deductions,
to assist the Company in retaining the services of its employees, to secure and
retain the services of new employees, and to provide incentives for such persons
to exert maximum efforts for the success of the Company. Approximately 57% of
the Company's approximately 523 employees are currently eligible to participate
in the Purchase Plan.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan" as
that term is defined in Section 423(b) of the Code.
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors, which has
the final power to construe and interpret the Purchase Plan and the rights
granted under it. The Board has the power, subject to the provisions of the
Purchase Plan, to determine when and how rights to purchase Common Stock of the
Company will be granted, the provisions of each offering of such rights (which
need not be identical), and whether the employee of any parent or subsidiary of
the Company will be eligible to participate in such plan. The Board has the
power, which it has not exercised, to delegate administration of such plan to a
committee of not less than two Board members. The Board may abolish any such
committee at any time and revest in the Board the administration of the Purchase
Plan.
OFFERINGS
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board. For each offering, the Board may
determine the term and other provisions (which need not be identical), within
the limitations of the Purchase Plan. Such offerings may have a term of up to 27
months. To date, the Board has authorized offerings of one year duration and are
divided into two shorter "purchase periods" of approximately six months
duration. In the future, the Board may authorize offerings with terms different
than those described here.
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<PAGE> 12
ELIGIBILITY
The Board may establish certain eligibility requirements for
participation under the offerings it authorizes. For example, the Board
may require that employees complete a period of service of up to two years
before they become eligible to participate in an offering.
In addition, as required by the Code, no employee is eligible for the
grant of any rights under the Purchase Plan if, immediately after such grant,
the employee would own, directly or indirectly, stock possessing 5% or more of
the total combined voting power or value of all classes of stock of the Company
or of any parent or subsidiary of the Company (including any stock which such
employee may purchase under all outstanding rights and options), nor will any
employee be granted rights that would permit him to buy more than $25,000 worth
of stock (determined at the fair market value of the shares at the time such
rights are granted) under all employee stock purchase plans of the Company in
any calendar year.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the Purchase Plan by
delivering to the Company, prior to the date selected by the Board as the
offering date for an offering, an agreement authorizing payroll deductions of
up to 15% of such employees' base salary compensation during the offering.
PURCHASE PRICE
The Board may authorize the purchase price per share at which shares of
Common Stock will be sold in an offering under the Purchase Plan. The purchase
price shall not be less than the lower of (a) 85% of the fair market value of a
share of Common Stock on the date of commencement of the offering and (b) 85% of
the fair market value of a share of Common Stock on the last day of the
offering.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions
over each offering that is authorized under the Purchase Plan. At any time
during the offering, a participant may reduce or terminate his or her payroll
deductions (See "Withdrawal" below). Under each offering, the Board may
establish the time or times at which participants may increase or decrease their
payroll deductions. All payroll deductions made for a participant are credited
to his or her account under the Purchase Plan and deposited with the general
funds of the Company. Unless authorized under an offering, participants may not
make any additional payments into such accounts.
PURCHASE OF STOCK
By executing an agreement to participate in the Purchase Plan, the
employee is entitled to purchase shares under such plan. In connection with
offerings made under the Purchase Plan, the Board may specify a maximum number
of shares any employee may be granted the right to purchase and the maximum
aggregate number of shares which may be purchased pursuant to such offering by
all participants. If the aggregate number of shares to be purchased upon
exercise of rights granted in the offering would exceed the maximum aggregate
number, the Board would make a pro rata allocation of shares available in a
uniform and equitable manner. Unless the employee's participation is
discontinued, his right to purchase shares is exercised automatically at the end
of the offering at the applicable price. See "Withdrawal" below.
WITHDRAWAL
While each participant in the Purchase Plan is required to sign an
agreement authorizing payroll deductions, the participant may withdraw from a
given offering by delivering to the Company a notice of withdrawal from the
Purchase Plan. Such withdrawal may be elected at any time prior to the end of
the applicable offering.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, less any accumulated deductions previously applied to the purchase of
stock on the employee's behalf during such offering, and such employee's
interest in the offering will be automatically terminated. The employee will not
be entitled to again participate in such offering. An employee's withdrawal from
an offering will not have any effect upon such employee's eligibility to
participate in subsequent offerings under the Purchase Plan.
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<PAGE> 13
TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the Purchase Plan
terminate immediately upon cessation of an employee's employment for any reason.
Upon any such termination, the Company will distribute to the employee all of
his or her accumulated payroll deductions, without interest.
RESTRICTIONS ON TRANSFER
Rights granted under the Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Purchase Plan at any time.
The Board may amend the Purchase Plan at any time. Any amendment of the
Purchase Plan must be approved by the stockholders within 12 months of its
adoption by the Board if the amendment would (a) increase the number of shares
of Common Stock reserved for issuance under the Purchase Plan or (b) modify the
requirements relating to eligibility for participation in the Purchase Plan.
Rights granted before amendment or termination of the Purchase Plan will
not be altered or impaired by any amendment or termination of such plan without
the consent of the person to whom such rights were granted.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution, liquidation or specified type of merger
of the Company, the surviving corporation either will assume the rights under
the Purchase Plan or substitute similar rights, or the exercise date of any
ongoing offering will be accelerated such that the outstanding rights may be
exercised immediately prior to, or concurrent with, any such event.
SHARES SUBJECT TO PURCHASE PLAN
Subject to approval of this proposal, an aggregate of 1,050,000 shares
of Common Stock is authorized for issuance under the Purchase Plan. If rights
granted under the Purchase Plan expire, lapse or otherwise terminate without
being exercised, the Common Stock not purchased under such rights will again
become available for issuance under the Purchase Plan.
FEDERAL INCOME TAX INFORMATION
Rights granted under the Purchase Plan are intended to qualify for
favorable federal income tax treatment associated with rights granted under an
employee stock purchase plan which qualifies under provisions of Section 423 of
the Code.
A participant will be taxed on amounts withheld for the purchase of
shares as if such amounts were actually received. Other than this, except as
described below with respect to possible FICA and FUTA liability, no income
will be taxable to a participant until disposition of the shares acquired, and
the method of taxation will depend upon the holding period of the purchased
shares.
If the stock is disposed of more than two years after the beginning of
the offering and more than one year after the stock is transferred to the
participant, then the lesser of (a) the excess of the fair market value of the
stock at the time of such disposition over the exercise price and (b) the excess
of the fair market value of the stock as of the beginning of the offering over
the exercise price (determined as of the beginning of the offering) will be
treated as ordinary income. Any further gain or any loss will be taxed as a
long-term capital gain or loss. Such capital gains currently are generally
subject to lower tax rates than ordinary income.
If the stock is sold or disposed of before the expiration of either of
the holding periods described above, then the excess of the fair market value of
the stock on the exercise date over the exercise price will be treated as
ordinary income at the time of such disposition. The balance of any gain will be
treated as capital gain. Even if the stock is later disposed of for less than
its fair market value on the exercise date, the same amount of ordinary income
will be attributed to the participant and a capital loss may be recognized equal
to the difference between the sales price and the fair market value of the stock
on such exercise date. Any capital gain or loss will be short-term or long-term
depending on whether the stock has been held for more than one year.
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<PAGE> 14
There are no federal income tax consequences to the Company by reason of
the grant or exercise of rights under the Purchase Plan. The Company is entitled
to a deduction to the extent amounts are taxed as ordinary income to a
participant (subject to the requirement of reasonableness and the satisfaction
of a tax reporting obligation).
PROPOSAL 4
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
GENERAL
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Restated Certificate of Incorporation to increase the
authorized number of shares of capital stock from 230,000,000 shares to
580,000,000 shares of capital stock and to increase the Company's authorized
number of shares of Common Stock from 150,000,000 to 500,000,000.
The additional Common Stock to be authorized by adoption of the
amendment would have rights identical to the currently outstanding Common Stock
of the Company. Adoption of the proposed amendment and issuance of the Common
Stock would not affect the rights of current stockholders, except for the
effects incidental to increasing the number of shares of the Company's Common
Stock outstanding, such as dilution of the earnings per share and voting rights
of current stockholders. If the amendment is adopted, it will become effective
upon filing of a Certificate of Amendment of the Company's Restated Certificate
of Incorporation with the Secretary of State of the State of Delaware.
In addition to the 30,598,518 shares of Common Stock outstanding at
March 15, 2000, the Board has reserved an aggregate of approximately 67,025,252
shares of Common Stock for issuance upon (a) exercise of outstanding options
granted under the Company's stock option plans, (b) exercise of outstanding
warrants, (c) exercise of rights under the Company's employee stock purchase
plan, and (d) conversion of the Company's outstanding Preferred Stock.
Although, at present, the Board of Directors has no other plans to issue
the additional shares of Common Stock, it desires to have such shares available
to provide additional flexibility to use its capital stock for business and
financial purposes in the future. The additional shares may be used, without
further stockholder approval, for various purposes including, without
limitation, raising capital, providing equity incentives to employees, officers
or directors, establishing strategic relationships with other companies and
expanding the Company's business or product lines through the acquisition of
other businesses or products.
The additional shares of capital stock that would become available for
issuance if this Proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. For example, without further stockholder approval,
the Board of Directors could adopt a "poison pill" which would, under certain
circumstances related to an acquisition of shares not approved by the Board,
give certain holders the right to acquire additional shares of capital stock at
a low price, or the Board could strategically sell shares of capital stock in a
private transaction to persons or entities that would oppose a takeover or favor
the current Board. Although this Proposal to increase the authorized capital
stock has been prompted by business and financial considerations and not by the
threat of any hostile takeover attempt (nor is the Board currently aware of any
such attempts directed at the Company), nevertheless, stockholders should be
aware that approval of the Proposal could facilitate future efforts by the
Company to deter or prevent changes in control of the Company, including
transactions in which the stockholders might otherwise receive a premium for
their shares over then current market prices.
STOCKHOLDER APPROVAL
A copy of the Amendment to the Restated Certificate, as approved by the
Board of Directors, is attached to this Proxy Statement as Appendix A.
Stockholders are requested in this Proposal 4 to approve the amendment to the
Restated Certificate, as amended. The affirmative vote of the holders of a
majority of the shares of both the Common Stock and Preferred Stock, voting
together as a class, and the affirmative vote of the holders of a majority of
the outstanding shares of Common Stock, voting as a single class, will be
required to approve this amendment to the Company's Restated Certificate of
Incorporation. As a result, abstentions and broker non-votes will have the same
effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
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<PAGE> 15
PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Arthur Andersen LLP
has audited the Company's financial statements since its inception in 1988.
Representatives of Arthur Andersen LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Stockholder ratification of the selection of Arthur Andersen LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Arthur Andersen LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares of
Common Stock present in person or represented by proxy and entitled to vote on
the matter at the Annual Meeting will be required to ratify the selection of
Arthur Andersen LLP. Abstentions will be counted toward the tabulation of votes
cast on proposals presented to the stockholders and will have the same effect
as negative votes. Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 5.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of March 15, 2000, by: (a) each
current director and nominee for director; (b) each of the executive officers
named in the Summary Compensation Table under the caption "Executive
Compensation" below; (c) all current executive officers and directors of the
Company as a group; and (d) all those known by the Company to be beneficial
owners of more than five percent of its Common Stock.
In addition to the outstanding Common Stock reflected in the table
below, Vulcan holds 30,000,000 shares of the Company's Series A2 Redeemable
Convertible Preferred Stock and MCI WorldCom holds 30,000,000 shares of the
Company's Series A1 Redeemable Convertible Preferred Stock. The shares held by
Vulcan are convertible on a one-for-one basis into shares of the Company's
Common Stock at Vulcan's option at any time. Accordingly, as required by
applicable regulations of the Securities and Exchange Commission (the "SEC"),
the shares of Common Stock shown in the following table as being beneficially
owned by Vulcan include the 30,000,000 shares of Common Stock issuable upon
conversion of Vulcan's Preferred Stock. The shares of Preferred Stock held by
MCI WorldCom are convertible into shares of the Company's Common Stock, on a
one-for-one basis, beginning in May 2002. Because these shares are not
convertible into Common Stock within 60 days of March 15, 2000, MCI WorldCom is
not deemed to beneficially own the underlying Common Stock for purposes of the
following table. If all of the Company's outstanding shares of preferred stock
were converted into common stock, the percentages of common stock beneficially
owned by Vulcan and MCI WorldCom, respectively, would be approximately 43% and
33%.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------------------
NAME NUMBER OF SHARES PERCENT OF TOTAL
---- ---------------- ----------------
<S> <C> <C>
Vulcan Ventures Incorporated(2) .................... 39,121,745 64.6%
110-110th Avenue NE, Suite 550
Bellevue, WA 98004
FMR Corporation(3) ................................. 3,853,330 12.6%
82 Devonshire Street
Boston, MA 02109
Robert S. Cline(4) ................................. 62,999 *
Ralph Derrickson(4) ................................ 2,333 *
Robert P. Dilworth(4) .............................. 17,333 *
Timothy A. Dreisbach(4) ............................ 292,982 *
Lee M. Gopadze(4) .................................. 37,808 *
Justin L. Jaschke(4) ............................... 49,499 *
Dale W. Marquart(4) ................................ 39,730 *
David Moore(4)(5) .................................. 39,124,078 64.6%
Robert W. Mott(4) .................................. 28,812 *
William D. Savoy(4)(5) ............................. 39,128,744 64.6%
Robert H. Schellman ................................ -- *
James E. Wall ...................................... -- *
John G. Wernke(4) .................................. 9,376 *
Directors and executive officers as a group (12
persons)(6) ...................................... 39,634,141 64.9%
</TABLE>
- ----------
- - Less than one percent.
(1) This table is based upon information supplied by directors, executive
officers and principal stockholders and Schedules 13D and 13G filed with
the SEC. Unless otherwise indicated below, the persons named in the
table have sole voting and investment power with respect to all shares
beneficially owned by them, subject to community property laws where
applicable. For purposes of this table, shares held by stockholders
include any shares held as tenants in common or joint tenants with
spouses. Percentages are based on a total of shares of common stock
outstanding on March 15, 2000, adjusted in accordance with the rules
promulgated by the SEC. In computing the number of shares beneficially
owned by a person and the percentage ownership of that person, shares of
common stock subject to options held by that person that are exercisable
within 60 days of the date of this table and shares of common stock
issuable to that person upon conversion of convertible preferred stock
that is convertible within 60 days of the date of this table are also
deemed outstanding. These shares, however, are not deemed outstanding
for the purpose of computing the percentage ownership of any other
person.
(2) Based on a Schedule 13D filed with the SEC on October 28, 1993, and most
recently amended on November 30, 1999. Includes 25,000 shares held by
Paul Allen, the sole stockholder of Vulcan. Also includes 30,000,000
shares of redeemable convertible preferred stock held by Vulcan.
Vulcan's preferred shares are convertible into shares of the Company's
common stock, on a one-for-one basis, at Vulcan's option at any time.
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<PAGE> 17
(3) Based on a Schedule 13G filed with the SEC on February 11, 2000, and
most recently amended on March 10, 2000. Fidelity Management Research
Company ("FM&RC"), a wholly-owned subsidiary of FMR Corp. and a
registered investment advisor, beneficially owns 3,853,330 of such
shares as the result of acting as an investment advisor to several
registered investment companies ("Funds") FMR Corp., through its control
of FM&RC, has sole investment power with respect to these shares. Voting
power over these shares resides with each respective Fund's Board of
Trustees. Fidelity Growth Company Fund ("FGCF"), beneficially owns
2,090,200 of such shares as a result of its serving as investment
manager of several institutional accounts. Edward C. Johnson III and FMR
Corp., through its control of FM&RC and the Funds has sole investment
and voting power over these shares.
(4) Includes shares of common stock subject to options exercisable within 60
days of the date of this table as follows: 62,999 for Mr. Cline, 2,333
for Mr. Derrickson, 2,333 for Mr. Dilworth, 272,999 for Mr. Dreisbach,
37,808 for Mr. Gopadze, 49,499 for Mr. Jaschke, 39,730 for Mr. Marquart,
2,333 for Mr. Moore, 28,812 for Mr. Mott, 6,999 for Mr. Savoy and 9,376
for Mr. Wernke.
(5) Includes 39,096,745 shares owned directly by Vulcan. Messrs. Moore and
Savoy are affiliated with Vulcan Northwest, Inc., a venture capital fund
affiliated with Vulcan. Messrs. Moore and Savoy disclaim beneficial
ownership of these shares within the meaning of Rule 13d-3 under the
Exchange Act. The addresses of Messrs. Moore and Savoy are the same as
that of Vulcan.
(6) Includes the information reflected in the notes above, as applicable.
Excludes shares beneficially owned by Lee M. Gopadze, a former executive
officer.
16
<PAGE> 18
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the SEC initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than 10% stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with, except that three
reports, covering an aggregate of 30 transactions, were inadvertently filed
late by Mr. Dilworth.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives an annual retainer of
$6,000 and a per meeting fee of $1,000 (plus $250 for each committee meeting
attended by committee members). In the fiscal year ended December 31, 1999, the
total compensation paid to non-employee directors was $41,500. Members of the
Board of Directors are also eligible for reimbursement for their expenses
incurred in connection with attendance at Board of Directors and committee
meetings in accordance with Company policy.
Each non-employee director of the Company also receives stock option grants
under the 1993 Non-Employee Directors' Stock Option' Plan (the "Directors'
Plan"). Only non-employee directors of the Company or an affiliate of such
directors (as defined in the Code) are eligible to receive options under the
Directors' Plan. Options granted under the Directors' Plan are intended by the
Company not to qualify as incentive stock options under the Code.
Option grants under the Directors' Plan are non-discretionary. On
January 1 of each year (or the next business day should such date be a legal
holiday), each member of the Company's Board of Directors who is not an employee
of the Company, is automatically granted under the Directors' Plan, without
further action by the Company, the Board of Directors or the stockholders of the
Company, an option to purchase 7,000 shares of Common Stock of the Company. No
other options may be granted at any time under the Directors' Plan. The exercise
price of options granted under the Directors' Plan is 100% of the fair market
value of the Common Stock subject to the option on the date of the option grant.
Options granted under the Directors' Plan may not be exercised until the date
upon which the optionee has provided one year of continuous service as a
non-employee director following the date of grant of the option. At that time,
the option will become exercisable as to one-third of the option shares and one
third of the option shares will become exercisable each year thereafter in
accordance with its terms. The term of options granted under the Directors' Plan
is 10 years. In the event of a merger of the Company with or into another
corporation or a consolidation, acquisition of assets or other change-in-control
transaction involving the Company, the vesting of each option will accelerate
and the option will terminate if not exercised prior to the consummation of the
transaction.
During the last fiscal year, the Company granted options covering 7,000
shares to each of Messrs. Cline, Derrickson, Jaschke, Moore and Savoy, at
exercise prices of $4.878 per share, except for the option granted to Mr. Moore,
which had an exercise price of $6.00 per share. The exercise prices were equal
to the respective fair market values of such Common Stock on the date of grant
(based on the closing sale price reported on the Nasdaq National Market for the
date of grant). During 1999, Mr. Derrickson exercised an option under the
Directors' Plan for 2,333 shares. Upon sale of the shares, Mr. Derrickson
realized proceeds of $39,150. During 1999, Mr. Cline exercised options under the
Directors' Plan for an aggregate of 5,000 shares. Upon sale of the shares, Mr.
Cline realized proceeds of $159,124. In addition, during fiscal 1999, Mr.
Dilworth received payments from the Company under the Key Employee Severance
Plan in the amount of $409,512. See "Change in Control and Severance
Arrangements" for a detailed description of the Key Employee Severance Plan.
Directors who are employees of the Company do not receive separate
compensation for their services as directors.
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<PAGE> 19
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended December 31, 1999,
1998 and 1997 compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer, Chief Financial Officer and the five other most highly
compensated executive officers, in addition to the Chief Executive Officer and
Chief Financial Officer ("Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
AWARDS
----------------
ANNUAL COMPENSATION SHARES OF COMMON
------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY(2) BONUS(3) OPTIONS(4) COMPENSATION(5)
- ------------------------------ ----- -------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Timothy A. Dreisbach ......... 1999 $253,349 $111,035 75,000 $ 1,578
President and Chief 1998 148,616 90,756 550,000 2,578
Executive Officer
Lee M. Gopadze ............... 1999 198,977 100,646 75,000 578
Former Senior Vice 1998 166,179 88,906 65,000 2,966
President of Field 1997 122,950 49,317 20,000 --
Operations
Dale W. Marquart ............. 1999 166,291 90,578 75,000 1,251
General Counsel, Senior 1998 83,654 45,000 75,000 258
Vice President of
Administration
and Secretary
Robert W. Mott ............... 1999 187,361 98,124 75,000 1,226
Senior Vice President of 1998 53,846 85,000 75,000 1,220
Engineering and
Manufacturing
Robert H. Schellman .......... 1999 79,478 41,922 125,000 1,321
Senior Vice President of
Network Operations and
Services
James E. Wall ................ 1999 86,993 45,726 125,000 449
Chief Financial Officer
John G. Wernke ............... 1999 168,254 128,315 75,000 1,251
Senior Vice President of 1998 54,808 36,562 75,000 349
Marketing and Sales
</TABLE>
- ----------
(1) Mr. Dreisbach joined the Company in May 1998, Mr. Gopadze in February
1997, Mr. Marquart in June 1998, Mr. Mott and Mr. Wernke in August 1998,
Mr. Schellman in July 1999 and Mr. Wall in August 1999. Mr. Gopadze
resigned from the Company in March 2000.
(2) In accordance with the rules of the SEC, the compensation described in
this table does not include medical or group life insurance or other
benefits that are generally available to all salaried employees or
certain perquisites and other personal benefits received by the named
executive officers that do not exceed the lesser of $50,000 or 10% of
any such officer's salary and bonus disclosed in this table.
(3) For 1998 and 1997, includes shares of stock issued in connection with
the Company's annual bonuses paid in cash and stock. In 1997, Mr.
Gopadze received stock valued at $9,367, based on a per share value of
$11.31, the fair market value of the Company's Common Stock on the date
bonuses were paid (based on the average of the previous day's high and
low sales price reported in the Nasdaq National Market). In 1998,
Messrs. Gopadze and Marquart received stock valued at $13,151 and
$1,667, respectively, based on a per share value of $8.25, the fair
market value of the Company's Common Stock on the date bonuses were paid
(based on the average of the previous day's high and low sales reported
in the Nasdaq National Market). Included in Mr. Mott's bonus in 1998 is
an advance payment of $37,500. In 1998, Mr. Wernke received an
automobile allowance of $1,662. Mr. Dreisbach received stock valued at
$90,756, based on a per share value of $7.56, the fair market value of
the Company's Common Stock on the date the bonus was paid (based on the
average of the previous day's high and low sales reported in the Nasdaq
National Market). In 1999, Messrs. Gopadze and Wernke received
automobile allowances of $3,250 and $4,200, respectively.
(4) In August 1997, the Board approved the replacement of each outstanding
option held by an employee with a per share exercise price of $7.00 per
share or greater, upon the timely request of the optionee, with a
nonstatutory stock option having an exercise
18
<PAGE> 20
price of $4.53 per share and certain delayed exercise provisions.
Amounts for 1997 include 20,000 shares subject to repriced options for
Mr. Gopadze.
(5) For 1998, includes the Company's matching payment of $1,000 for each
executive officer under the Company's 401(k) plan, except for Messrs.
Gopadze, Marquart, Mott and Wernke, who received $0, $0, $942 and $0 in
matching payments, respectively. For 1999, includes the Company's
matching payment of $1,000 for each executive officer under the
Company's 401(k) plan, except for Messrs. Gopadze and Wall. For 1998,
includes payments for term life insurance in the amounts of $1,578,
$2,966, $258, $278 and $349 for Messrs. Dreisbach, Gopadze, Marquart,
Mott and Wernke, respectively. For 1999, includes payments for term life
insurance in the amounts of $578, $578, $251, $226, $321, $449 and $251
for Messrs. Dreisbach, Gopadze, Marquart, Mott, Schellman, Wall and
Wernke, respectively.
COMPENSATION PURSUANT TO PLANS
Generally, the Company grants options to its executive officers under
the Incentive Plan. The following tables show, for the fiscal year ended
December 31, 1999, certain information regarding options granted to, exercised
by and held at year end by the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL AT ASSUMED ANNUAL RATES
SHARES OF OPTIONS OF STOCK PRICE
COMMON STOCK GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(3)
OPTIONS IN FISCAL PRICE PER EXPIRATION --------------------------
GRANTED(1) YEAR(2) SHARE DATE 5% 10%
----------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mr. Dreisbach .. 75,000 3.9% $ 29.25 10/18/09 $1,379,637 $3,496,272
Mr. Gopadze .... 75,000 3.9% $ 29.25 10/18/09 $1,379,637 $3,496,272
Mr. Marquart ... 75,000 3.9% $ 29.25 10/18/09 $1,379,637 $3,496,272
Mr. Mott ....... 75,000 3.9% $ 29.25 10/18/09 $1,379,637 $3,496,272
Mr. Schellman .. 125,000 6.5% $ 26.34 08/02/09 $2,070,934 $5,248,153
Mr. Wall ....... 125,000 6.5% $ 22.53 08/06/09 $1,770,849 $4,487,679
Mr. Wernke ..... 75,000 3.9% $ 29.25 10/18/09 $1,379,637 $3,496,272
</TABLE>
- ----------
(1) Options granted under the Company's employee stock option plans
typically vest at the rate of 25% after one year and approximately two
percent per month thereafter, such that the options are fully vested in
four years.
(2) Based on options covering a total of 1,921,770 shares of Common Stock
granted to employees in 1999.
(3) For new grants, the potential realizable value is calculated based on
the term of the option at the time of grant (10 years). Potential
realizable value is calculated by assuming that the stock price on the
date of grant appreciates at the indicated annual rate compounded
annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price. The 5% and 10% assumed rates of appreciation are derived from the
rules of the SEC and do not represent the Company's estimate or
projection of future Common Stock price. No gain to the optionee is
possible unless the stock price increases over the option term, which
will benefit all stockholders.
19
<PAGE> 21
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OF OPTIONS AT IN-THE-MONEY OPTIONS AT
COMMON STOCK VALUE FISCAL YEAR-END FISCAL YEAR-END(2)
ACQUIRED REALIZED ---------------------------- ----------------------------
ON EXERCISE (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Dreisbach ... 2,000 $ 87,785 215,708 407,292 $14,722,071 $26,382,054
Mr. Gopadze ..... 5,000 $ 249,568 30,103 124,897 $ 2,183,263 $ 7,315,642
Mr. Marquart .... 3,000 $ 139,379 24,083 122,917 $ 1,685,241 $ 7,061,955
Mr. Mott ........ 5,000 $ 272,786 19,999 125,001 $ 1,439,928 $ 7,303,197
Mr. Schellman ... -- $ -- -- 125,000 $ -- $ 6,535,150
Mr. Wall ........ -- $ -- -- 125,000 $ -- $ 7,012,313
Mr. Wernke ...... 25,936 $ 1,221,080 1,563 125,001 $ 110,192 $ 7,228,196
</TABLE>
- ----------
(1) Value realized is based on the fair market value of the Company's Common
Stock on the date of exercise (the closing sale price reported on the
Nasdaq National Market on that date) minus the exercise price, and does
not necessarily indicate that the optionee sold the stock.
(2) Value of unexercised options at fiscal year-end is based on the fair
market value of the Company's Common Stock at December 31, 1999 of
$78.63 (based on the closing sale price reported on the Nasdaq National
Market on that date) minus the exercise price of the option.
CHANGE OF CONTROL AND SEVERANCE ARRANGEMENTS
KEY EMPLOYEE SEVERANCE PLAN. In October 1997, in light of the
transactions being negotiated with Vulcan, the Compensation Committee of the
Board adopted the Company's Key Employee Severance Plan (the "Severance Plan").
An employee is eligible to participate in the Severance Plan if (a) the employee
is notified in writing that he or she is eligible to participate in the
Severance Plan and (b) the employee's employment with the Company is terminated
due to an involuntary termination or a constructive termination (generally, a
voluntary termination following an adverse change in the employee's position,
circumstances or compensation) within 12 months following a Designated Event
(other than for cause). The 12-month period may be extended to 18 months for
executive officers who are so notified in writing. "Designated Event" means any
transaction or series of transactions having a significant effect on the ability
of any person or group to direct or cause the direction of the Company's
management and policies that is specifically declared by the Board to be a
Designated Event. The Board declared the sale of Common Stock to Vulcan in
January 1998 as the "Designated Event" for the Severance Plan. Certain
employees, including certain executive officers who were employed by the Company
as of January 1998, were notified of their eligibility to participate in the
Severance Plan. Approximately 16 employees , including Mr. Dilworth, received
benefits under the Severance Plan in fiscal 1999.
The benefits provided by the Severance Plan are: (a) continuation of
salary for 12 months following termination of employment; (b) payment of any
bonus to which the employee would have been entitled under the Company's
incentive bonus plan for the 12 months following termination of employment,
assuming the employee's full employment with the Company during the 12-month
period and the achievement of certain incentive targets by the Company and the
employee; (c) continuation of health, life and other insurance benefits for the
employee (and any dependents covered as of the date of termination) for 12
months following the termination of employment (or five years for health
benefits, if the employee is age 55 or older upon termination of employment,
subject to earlier termination if the employee and his or her dependents become
covered by another group insurance plan providing similar benefits); and (d)
amendment of all stock options held by the employee upon termination of
employment so that (i) the options become vested for an additional 12 months on
the date of termination and (ii) the employee may exercise the options for 12
months following termination of employment. To receive the benefits provided by
the Severance Plan, an eligible employee must execute a release of claims in
favor of the Company, and the release must become effective in accordance with
its terms.
KEY EMPLOYEE RETENTION INCENTIVE PLAN. In October 1997, the Compensation
Committee of the Board also adopted the Company's Key Employee Retention
Incentive Plan (the "Retention Plan"). Approximately 32 employees of the
Company, including executive officers who were employed by the Company as of
January 1998, were eligible to participate in the Retention Plan.
20
<PAGE> 22
The Retention Plan provides the following benefits: (a) if an eligible
employee is employed by the Company on the date that is six months after the
Designated Event (as defined above), the employee will receive a lump sum
payment equal to 50% of the Bonus Amount (as defined below); and (b) if the
employee is also employed by the Company on the date that is 12 months after the
Designated Event, the employee will receive a lump sum payment for the
remaining 50% of the Bonus Amount.
For purposes of the Retention Plan, bonus amount means the bonus to
which an eligible employee would be entitled under the Company's incentive bonus
plan if (a) the Company's incentive bonus plan for the 12 months following a
Designated Event were the same as during the full year most recently completed
prior to the Designated Event; (b) the eligible employee were to remain
continuously employed by the Company for 12 months following the Designated
Event and to the bonus payment date in the same capacity in which such employee
was employed on the date of the Designated Event; and (c) the employee and the
Company were to achieve 100% of any objectives affecting individual bonus
amounts under such incentive bonus plan.
EMPLOYMENT ARRANGEMENTS. In May 1998, the Company entered into an
employment agreement with Mr. Dreisbach, which provided for salary, bonus and
option grants for the ensuing year. In addition, under the agreement, in the
event that the Company were to terminate Mr. Dreisbach's employment other than
for cause (as defined in the agreement) at any time or if Mr. Dreisbach were to
voluntarily terminate his employment for good reason (as defined in the
agreement) within 90 days prior to or 180 days after a change in control of the
Company, the Company would pay to Mr. Dreisbach, for a period of 12 months, the
base compensation and health benefits to which he was entitled on the date of
his termination. In addition, under Mr. Dreisbach's non-plan option, in the
event of a change in control, the option would come fully vested if, within 90
days prior to or 180 days following such change in control, his employment were
terminated for any reason other than for cause or if he terminated his
employment for good reason. In addition, under the non-plan option, if Mr.
Dreisbach were terminated without cause or voluntarily terminated his employment
for good reason, he could exercise his options (to the extent exercisable) for
up to two years following such termination.
In addition, the Company's employment arrangements with each of the
current executive officers, other than Mr. Dreisbach, provide that upon a change
in control of the Company that results in the elimination of, or a material
reduction in, the scope of the officers' responsibilities, they would be
entitled to severance benefits consisting of six months' salary and continuation
of benefits as well as the acceleration of vesting of their options for periods
ranging from one to two years.
ACCELERATION OF VESTING UNDER STOCK OPTION PLANS. Two of the Company's
three stock option plans for the benefit of employees and consultants, the 1997
Equity Incentive Plan and the 1997 Non-Officer Equity Incentive Plan, provide
for acceleration of vesting under certain circumstances. Options to purchase
approximately 2,030,657 and 827,513 shares of common stock, respectively, were
outstanding under these plans as of December 31, 1999. The 1997 Equity Incentive
Plan and the 1997 Non-Officer Equity Incentive Plan provide that, in the event
an optionee is terminated other than for cause within 12 months after a change
in control, as defined in the plans, the options held by the optionee under the
plans will become fully vested.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION(1)
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. The Committee currently
consists of Robert S. Cline, who is Chairman of the Committee, and David M.
Moore, neither of whom is an employee of the Company. The Compensation Committee
is responsible for establishing the Company's compensation programs for all
employees, including executives. The Company applies a consistent methodology to
compensation for all employees, including executive officers. It is based on the
premise that the Company's results are achieved through the coordinated efforts
of all individuals working toward meeting customer and stockholder expectations.
The goals of the Company's compensation program are to align
compensation with business objectives and performance while enabling the Company
to attract, retain and reward employees who contribute to the long-term success
of the Company. In all cases, attention is given to fairness in the
administration of compensation and to assuring that all employees understand the
related performance evaluation and administrative process. The Company has taken
careful steps to make executive compensation consistent with that of other
similar companies in the electronics and communications industries and, where
appropriate, while being contingent upon the Company's achievement of near- and
long-term objectives and goals. For fiscal 1999, the principal measures the
Compensation Committee looked
- --------
(1) The material in this report is not "soliciting material" is not deemed
"filed" with the SEC, and is not to be incorporated by reference into any filing
of the Company under the Securities Act or the Exchange Act, whether made before
or after the date hereof and irrespective of any general incorporation language
contained in such filing.
21
<PAGE> 23
to in evaluating the Company's progress towards these objectives and goals were
(1) completion of the development and testing of the Company's high-speed
network, (2) the extent of completion of right-of-way agreements, utility
agreements and other network site agreements in both new and existing areas
where the Company's service will be offered, (3) achieving certain financial
performance levels and (4) increasing the Company's subscriber base.
For 1999, the Company's executive compensation program included the
following components: (i) base salary, (ii) merit increases, (iii) annual
incentives in the form of cash bonuses and (iii) options to purchase shares of
Common Stock of the Company.
BASE SALARY
Base salary is targeted toward the middle of the range established by
surveys of comparable companies in the electronics and communications
industries. Base salaries are reviewed annually to ensure that the Company's
salaries are competitive within the target range. For the purpose of
establishing these levels for fiscal 1999, the Company relied in part on an
executive compensation survey of U.S.-based high technology companies conducted
by a nationally recognized compensation consulting firm and on data obtained
from executive search firms that place executives with Silicon Valley companies.
The companies in the above-mentioned survey and data sources include a broad
range of companies because the Company competes for talented executives with a
wide range of companies in various industries. The Company believes the highly
competitive employment environment of Silicon Valley has the greatest impact on
base salary levels.
MERIT INCREASE
Merit increases are designed to encourage management to perform at
consistently high levels. Salaries for executives are reviewed by the
Compensation Committee on an annual basis and may be increased at that time
based on the Compensation Committee's agreement that the individual's overall
contribution to the Company deserves recognition. The base salaries paid to the
Company's executive officers were increased in 1999 by amounts ranging from 8%
to 20%, reflecting primarily changed responsibilities and their contributions to
the Company's near- and long-term strategic objectives set forth above.
CASH BONUSES
Bonuses for executives are considered to be "pay at risk" and as such
are used as an incentive to encourage management to perform at a high level or
to recognize a particular contribution by an employee or exceptional Company
performance. Generally, the higher the employee's level of job responsibility,
the larger the portion of the individual's compensation package that is
represented by a bonus. Whether a bonus will be given, and the amount of any
such bonus, is determined on a yearly basis.
For fiscal 1999, the Compensation Committee established an annual
incentive bonus plan for all full-time or part-time non-commission employees of
the Company. The bonus plan has the following three objectives: (i) to recognize
and reward team and individual performance, (ii) to encourage employees to
continually improve performance in order for the Company to meet and exceed its
objectives, and (iii) to ensure that the Company's compensation remains
competitive to enable the Company to hire and retain top-performing employees.
At the beginning of 1999, the Compensation Committee and the Board of Directors
reviewed and approved the annual performance objectives for the Company and
individual officers. The actual cash bonus earned in 1999 by an executive
officer depended upon the extent to which the Company and individual performance
objectives were achieved.
For 1999, in awarding cash bonuses to executive officers, the
Compensation Committee evaluated each officer's individual performance and the
Company's performance against the objectives set forth above as follows: In
fiscal 1999, the Company completed the development and testing of the Company's
high-speed network and, prior to the end of the year, began the initial phases
of the network deployment. The Company increased the overall subscriber base
during fiscal 1999 and entered into an agreement with MCI WorldCom to sell
subscriptions to the Company's service. The Company also made substantial
progress in obtaining right-of-way agreements with municipalities, pole
attachment agreements and supply agreements with utility companies and lease
agreements with the owners of buildings or radio towers governing the lease of
space for the deployment of the networks wired access points. In light of the
Company's success in achieving important objectives in fiscal 1999, the
Compensation Committee decided to award bonuses to executives at 125.8% of their
target levels, prorated for the time each executive had been with the Company
during the year. The Company's executive officers received bonuses ranging from
40% to 60% of their base salaries. Bonus awards are approved by the Chief
Executive Officer and the Compensation Committee in the case of executives other
than the Chief Executive Officer and by the Compensation Committee alone in the
case of the Chief Executive Officer.
22
<PAGE> 24
STOCK OPTIONS
The Compensation Committee believes that stock ownership by management
is beneficial in aligning the interests of management and stockholders with
respect to enhancing stockholder value. Stock options are also used to retain
executives and motivate them to improve long-term Stockholder value. Stock
options are granted at the prevailing market value and will only have future
value if the Company's stock price increases. Generally, stock option grants
vest 25% after the first year and monthly thereafter in 36 equal amounts over
three years.
The Compensation Committee determines the number of options to be
granted based upon the competitive marketplace, with a particular focus on
determining what level of equity incentive is necessary to retain a particular
individual. Outstanding historical performance by an individual is additionally
recognized through larger than normal option grants. The Company's executive
officers received options to purchase Common Stock at levels ranging from 75,000
to 125,000 shares.
CHIEF EXECUTIVE OFFICER
The Compensation Committee uses the same philosophy described above with
respect to other executive officers in setting the compensation for its Chief
Executive Officer, Mr. Dreisbach. For 1999, the base salary of Mr. Dreisbach was
increased by 12.5%, largely reflecting his contributions toward the Company's
near- and long-term strategic objectives set forth above. In addition, Mr.
Dreisbach was eligible to receive a bonus for 1999 equal to 50% of his base
salary if the Company achieved a targeted level of certain performance
objectives. In light of the progress made towards the Company's objectives
during the year, the Compensation Committee approved a cash bonus award to Mr.
Dreisbach of 125.8% of his targeted bonus of 50% of his increased base salary
pro rated for 1999. In addition, the Compensation Committee approved a grant of
an option to purchase 75,000 shares of Common Stock.
SECTION 162(m)
Section 162(m) of the Code, generally imposes on the Company an annual
corporate deduction limitation of $1 million on the compensation paid to certain
executive officers. Compensation in excess of $1 million may be deducted if it
is performance-based compensation within the meaning of the Code. The
Compensation Committee has not yet adopted a policy with respect to the
treatment of all forms of compensation under Section 162(m); however, the
Committee has determined that stock options granted under the Company's 1997
Equity Incentive Plan with an exercise price at least equal to the fair market
value of the Company's Common Stock on the date of grant should, where
practicable, be treated as "performance-based compensation," and the 1997 Equity
Incentive Plan contains provisions designed to allow compensation recognized by
an executive as a result of the grant of a stock option to be deductible by the
Company.
1999 COMPENSATION COMMITTEE
Robert S. Cline, Chairman
David Moore
23
<PAGE> 25
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For 1999, the compensation committee was composed of Messrs. Cline and
Moore. Mr. Moore is affiliated with Vulcan. In October 1998, the Company entered
into a $30 million line of credit agreement with Vulcan, and in June 1999, the
Company entered into a $30 million bridge loan with Vulcan. On November 15,
1999, the Company sold 30 million shares of series A1 preferred stock to MCI
WorldCom and 30 million shares of series A2 preferred stock to Vulcan at a price
of $10 per share to each purchaser. The net proceeds of the sale of preferred
stock to Vulcan were used to repay outstanding indebtedness to Vulcan of
approximately $60.5 million, including accrued interest, of which approximately
$50 million, plus accrued interest, was outstanding at September 30, 1999.
24
<PAGE> 26
PERFORMANCE MEASUREMENT COMPARISON(1)
The following table shows the total stockholder return of an investment
of $100 in cash on December 31, 1994 for (a) the Company's Common Stock, (b) the
Nasdaq Stock Market (U.S.) Index, and (b) the Nasdaq Telecommunications Index
("Nasdaq Telecommunications"). All values assume reinvestment of the full amount
of all dividends and are calculated as of December 31 of each year:
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*
AMONG METRICOM, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ TELECOMMUNICATIONS INDEX
<TABLE>
<CAPTION>
NASDAQ STOCK NASDAQ
METRICOM, INC. MARKET (U.S.) TELECOMMUNICATIONS
-------------- ------------- ------------------
<S> <C> <C> <C>
12/94 100 100 100
12/95 91 141 131
12/96 100 174 134
12/97 64 213 195
12/98 35 300 324
12/99 524 556 572
</TABLE>
* $100 Invested on 12/31/94 in stock or index, including reinvestment of
dividends. Fiscal year ending December 31.
- --------
(1) The material in this section is not "soliciting material" is not deemed
"filed" with the SEC, and is not to be incorporated by reference into any filing
of the Company under the Securities Act or the Exchange Act, whether made before
or after the date hereof and irrespective of any general incorporation language
contained in such filing.
CERTAIN TRANSACTIONS
The Company's By-laws provide that the Company will indemnify its
directors and executive officers and may indemnify its other officers, employees
and other agents to the fullest extent permitted by Delaware law. The Company is
also empowered under its By-laws to enter into indemnification agreements with
its directors and officers and to purchase insurance on behalf of any person
whom it is required or permitted to indemnify. Pursuant to these provisions, the
Company has entered into indemnification agreements with each of its directors
and officers and has obtained director and officer liability insurance.
On November 15, 1999, the Company sold 30 million shares of Series A1
Preferred Stock to MCI WorldCom at a price of $10 per share. In connection with
the purchase of shares of Series A1 Preferred Stock, MCI WorldCom was given the
right to elect one member of the Company's Board of Directors. As of April 1,
2000, MCI WorldCom had not elected a director to the Company's Board of
Directors. In addition, the Company has entered into a Reseller Agreement with
MCI WorldCom dated June 20, 1999, as amended, pursuant to which MCI WorldCom
would sell subscriptions to the Ricochet service. Pursuant to this agreement,
MCI WorldCom has agreed to pay the Company at least $388 million in revenue over
the five years following the launch of the Company's service, subject to the
timely deployment of the Company's network, the Company's ability to meet agreed
upon performance standards and the ability of the Company to attract a
significant number of subscribers through other partners. MCI WorldCom and or
its subsidiaries have also entered into ordinary course agreements with the
Company regarding the provisioning of circuits for the Company's network and
other services. In addition, during 1999, the Company paid MCI WorldCom and its
subsidiaries a total of approximately $2.9 million for the purchase of
telecommunications services in the ordinary course of business.
See "Compensation Committee Interlocks and Insider Participation" for
information regarding certain transactions with Vulcan.
By Order of the Board of Directors
/s/ DALE W. MARQUART
Dale W. Marquart
Secretary
May 22, 2000
25
<PAGE> 27
COPIES OF THE COMPANY'S ANNUAL REPORT TO THE SEC ON FORM 10-K FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1999 IS AVAILABLE WITHOUT CHARGE (EXCLUDING
CERTAIN EXHIBITS) UPON WRITTEN OR ORAL REQUEST OF ANY PERSON TO WHOM A PROXY
STATEMENT IS DELIVERED. REQUESTS SHOULD BE DIRECTED TO: CORPORATE SECRETARY,
METRICOM, INC., 980 UNIVERSITY AVENUE, LOS GATOS, CALIFORNIA 95030-2375 OR
TELEPHONE: (408) 399-8200.
26
<PAGE> 28
ANNEX A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
METRICOM, INC.
(A DELAWARE CORPORATION)
METRICOM, INC., a Delaware corporation (the "Corporation"), does hereby
certify:
FIRST: The original name of the Corporation is METRICOM (DELAWARE), INC.
SECOND:The date on which the Corporation's original Certificate of
Incorporation was filed with the Delaware Secretary of State is October 24,
1991.
THIRD: The Board of Directors of the Corporation, acting in accordance
with Sections 141 and 242 of the General Corporation Law of the State of
Delaware, adopted resolutions to amend Paragraph A of Article IV of the Restated
Certificate of Incorporation of the Corporation to read in its entirety as
follows:
"A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is five hundred eighty
million (580,000,000) shares, five hundred million (500,000,000) shares of which
shall be Common Stock (the "Common Stock") and eighty million (80,000,000)
shares of which shall be Preferred Stock (the "Preferred Stock"). The Preferred
Stock shall have a par value of one tenth of one cent ($0.001) per share and the
Common Stock shall have a par value of one tenth of one cent ($0.001) per
share."
FOURTH:Thereafter, pursuant to a resolution of the Board of Directors,
this Certificate of Amendment was submitted to the stockholders of the
Corporation for their approval, and was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FIFTH: All other provisions of the Restated Certificate of Incorporation
shall remain in full force and effect.
A-1
<PAGE> 29
IN WITNESS WHEREOF, METRICOM, INC. has caused this Certificate of
Amendment to be signed by its President and attested to by its Secretary in Los
Gatos, California this ___ day of __________, 2000.
METRICOM, INC.
-------------------------------
Timothy A. Dreisbach
President
ATTEST:
- -------------------------------
Dale W. Marquart
Secretary
A-2
<PAGE> 30
ANNEX B
METRICOM, INC.
1997 EQUITY INCENTIVE PLAN
ADOPTED MARCH 14, 1997
APPROVED BY STOCKHOLDERS MAY 1, 1997
AMENDED BY THE BOARD OF DIRECTORS ON APRIL 29, 1998
APPROVED BY STOCKHOLDERS ON JUNE 26, 1998
AMENDED BY THE BOARD OF DIRECTORS ON AUGUST 16, 1999
APPROVED BY STOCKHOLDERS ON OCTOBER 15, 1999
AMENDED BY THE BOARD OF DIRECTORS ON FEBRUARY 18, 2000
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates may
be given an opportunity to benefit from increases in value of the common stock
of the Company ("Common Stock") through the granting of (i) Incentive Stock
Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to
purchase restricted stock, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means Metricom, Inc., a Delaware corporation.
B-1
<PAGE> 31
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(h) "DIRECTOR" means a member of the Board.
(i) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(i) If the Common Stock is listed on any established stock
exchange, or traded on the Nasdaq National Market or The Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in Common Stock) on the last market trading day prior to
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(n) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is
B-2
<PAGE> 32
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(p) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "OPTION" means a stock option granted pursuant to the Plan.
(r) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(s) "OPTIONEE" means a person to whom an Option is granted pursuant to
the Plan.
(t) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(u) "PLAN" means this 1997 Equity Incentive Plan.
(v) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(w) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(x) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.
(y) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
B-3
<PAGE> 33
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
or a combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person shall
be permitted to receive stock pursuant to a Stock Award; and the number of
shares with respect to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in
Section 12.
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee or
committees ("Committee") of one (1) or more members of the Board. In the
discretion of the Board, a Committee may consist solely of two (2) or more
Outside Directors, in accordance with Code Section 162(m), or solely of two (2)
or more Non-Employee Directors, in accordance with Rule 16b-3. If administration
is delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board,
including the power to delegate to a subcommittee any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to
the Board shall thereafter be to the Committee or such a subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 11 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate five million two hundred seventy-five thousand
(5,275,000) shares of Common Stock. If any Stock Award shall for any reason
expire or otherwise terminate, in whole or in part, without having been
exercised in full (or vested in the case of Restricted Stock), the stock not
acquired under such Stock Award shall revert to and again become available for
issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Stock
Awards other than Incentive Stock Options may be granted only to Employees,
Directors or Consultants.
B-4
<PAGE> 34
(b) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise price of such Option is at least one
hundred ten percent (110%) of the Fair Market Value of such stock at the date of
grant and the Option is not exercisable after the expiration of five (5) years
from the date of grant.
(c) Subject to the provisions of Section 11 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Stock Awards
covering more than four hundred thousand (400,000) shares of Common Stock in any
calendar year.
(d) A Consultant shall not be eligible for the grant of a Stock Award
if, at the time of grant, a Form S-8 Registration Statement under the Securities
Act ("Form S-8") is not available to register either the offer or the sale of
the Company's securities to such Consultant because of the nature of the
services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (e.g.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, and the exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other Common Stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other Common Stock of the
Company) with the person
B-5
<PAGE> 35
to whom the Option is granted or to whom the Option is transferred pursuant to
subsection 6(d), or (C) in any other form of legal consideration that may be
acceptable to the Board; provided, however, that at any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be payable at
least annually and shall be charged at the minimum rate of interest necessary to
avoid the treatment as interest, under any applicable provisions of the Code, of
any amounts other than amounts stated to be interest under the deferred payment
arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option may be transferred
to the extent provided in the Option Agreement; provided that if the Option
Agreement does not expressly permit the transfer of a Nonstatutory Stock Option,
the Nonstatutory Stock Option shall not be transferable except by will, by the
laws of descent and distribution or pursuant to a domestic relations order
satisfying the requirements of Rule 16b-3, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person or any
transferee pursuant to a domestic relations order. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
Disability), the Optionee may exercise his or her Option within such period of
time designated by the Board, which shall in no event be later than the
expiration of the term of the Option as set forth in the Option Agreement (the
"Post-Termination Exercise Period") and only to the extent that the Optionee was
entitled to exercise the Option on the date Optionee's Continuous Status as an
Employee, Director or Consultant terminates. In the case of an Incentive Stock
Option, the Board shall determine the Post-Termination Exercise Period at the
time the Option is granted, and the term of such Post-Termination Exercise
Period shall in no event exceed three (3) months from the date of termination,
and may, in the event Optionee's Continuous Status as an Employee, Director or
Consultant terminates for Cause (as defined in subsection 11(b)), terminate of
the date of such Optionee's termination. In addition, the Board may at any time,
with the consent of the Optionee, extend the Post-Termination Exercise Period
and provide for continued vesting; provided however, that any extension of such
B-6
<PAGE> 36
period by the Board in excess of three (3) months from the date of termination
shall cause an Incentive Stock Option so extended to become a Nonstatutory Stock
Option, effective as of the date of Board action. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement or as otherwise
determined above, the Option shall terminate, and the shares covered by such
Option shall revert to the Plan. Notwithstanding the foregoing, the Board shall
have the power to permit an Option to continue to vest during the
Post-Termination Exercise Period.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
Disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or Disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in the first paragraph of this
subsection 6(f), or (ii) the expiration of a period of three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant during which the exercise of the Option would not be in violation of
such registration requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a three (3)-month period after the termination of, the Optionee's
Continuous Status as an Employee, Director or Consultant, the Option may be
exercised to the extent vested by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date eighteen (18) months following the date of death (or such longer or shorter
period specified in the Option Agreement), or (ii) the expiration of the term of
such Option as set forth in the Option
B-7
<PAGE> 37
Agreement. If, at the time of death, the Optionee was not entitled to exercise
his or her entire Option, the shares covered by the unexercisable portion of the
Option shall revert to and again become available for issuance under the Plan.
If, after death, the Option is not exercised within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option Agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option which is an Incentive Stock Option and which is
granted to a 10% stockholder (as described in subsection 5(b)), shall have an
exercise price which is equal to one hundred ten percent (110%) of the Fair
Market Value of the stock subject to the Re-Load Option on the date of exercise
of the original Option and shall have a term which is no longer than five (5)
years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollars ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 10(d) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any
such Re-Load Option shall be subject to the availability of sufficient shares
under subsection 4(a) and shall be subject to such other terms and conditions as
the Board or Committee may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or Committee shall
deem appropriate. The terms and conditions of stock bonus or restricted stock
purchase agreements need not be identical, but each stock bonus or restricted
stock purchase agreement shall include (through incorporation of provisions
hereof by reference in the agreement or otherwise) the substance of each of the
following provisions as appropriate:
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(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or, if the agreement so provides, pursuant to a domestic
relations order satisfying the requirements of Rule 16b-3, so long as stock
awarded under such agreement remains subject to the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or Committee in its discretion; provided, however, that at any time that
the Company is incorporated in Delaware payment of the Common Stock's "par
value," as defined in the Delaware General Corporation Law, shall not be made by
deferred payment. Notwithstanding the foregoing, the Board or Committee to which
administration of the Plan has been delegated may award stock pursuant to a
stock bonus agreement in consideration for past services actually rendered to
the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or Committee.
(e) TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have not
vested as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.
8. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or
any stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance
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and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such Stock Awards
unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
(b) Neither an Employee, Director nor a Consultant nor any person to
whom a Stock Award is transferred in accordance with the Plan shall be deemed to
be the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or any
Affiliate, or to continue serving as a Consultant and Director, or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without notice and with or without cause, or the right to
terminate the relationship of any Consultant pursuant to the terms of such
Consultant's agreement with the Company or Affiliate or service as a Director
pursuant to the Company's Bylaws.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred in accordance with the Plan,
as a condition of exercising or acquiring stock under any Stock Award, (1) to
give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing
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requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act, or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the Common Stock
of the Company. Notwithstanding the foregoing, the Company shall not be
authorized to withhold shares of Common Stock at rates in excess of the maximum
statutory withholding rates for federal and state tax purposes, including
payroll taxes.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan and the maximum number of shares subject to
award to any person during any calendar year, and the outstanding Stock Awards
will be appropriately adjusted in the class(es) and number of shares and price
per share of stock subject to such outstanding Stock Awards. Such adjustments
shall be made by the Board or Committee, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(b) In the event of a Change in Control, (i) any surviving or acquiring
corporation shall assume Stock Awards outstanding under the Plan or shall
substitute similar Stock Awards for those outstanding under the Plan, or (ii) in
the event any surviving or acquiring corporation refuses to assume such Stock
Awards or to substitute similar Stock Awards for those outstanding under the
Plan, (A) with respect to Stock Awards held by persons then performing services
as Employees, Directors or Consultants, the vesting of such Stock Awards and the
time during which such Stock Awards may be exercised shall be accelerated prior
to such event and the Stock Awards terminated if not exercised after such
acceleration and at or prior to such event, and (B) with respect to any other
Stock Awards outstanding under the Plan, such Stock Awards shall be terminated
if not exercised prior to such event.
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In addition, subject to the limitation set forth in subsection 11(c)
below, with respect to any person who was providing services as an Employee,
Director or Consultant immediately prior to the consummation of the Change in
Control, any Stock Awards held by such persons shall immediately become fully
vested and exercisable, and any repurchase right by the Company with respect to
shares acquired by such person under a Stock Award shall lapse, if such person's
Continuous Status as an Employee, Director or Consultant is terminated other
than for Cause within twelve (12) months following consummation of the Change in
Control.
For purposes of the Plan, "Cause" shall mean willful conduct that is
materially injurious to the business of the person's employer, whether financial
or otherwise.
For purposes of this Plan, "Change in Control" means: (1) a dissolution,
liquidation, or sale of all or substantially all of the assets of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's common shares outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4) the
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Exchange Act, or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored or maintained by the
Company or any Affiliate of the Company) of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty percent
(50%) of the combined voting power entitled to vote in the election of
directors.
(c) If any acceleration of the vesting of a Stock Award or lapse of a
repurchase right to which such Stock Award is subject or any other payment or
benefit the holder of such Stock Award would receive pursuant to a Change in
Control from the Company or otherwise ("Payment") would (i) constitute a
"parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), and (ii) but for this sentence, be
subject to the excise tax imposed by Section 4999 of the Code (the "Excise
Tax"), then such Payment shall be reduced to the Reduced Amount. The "Reduced
Amount" shall be either (x) the largest portion of the Payment that would result
in no portion of the Payment being subject to the Excise Tax or (y) the largest
portion, up to and including the total, of the Payment, whichever amount, after
taking into account all applicable federal, state and local employment taxes,
income taxes, and the Excise Tax (all computed at the highest applicable
marginal rate), results in the Stock Award holder's receipt, on an after-tax
basis, of the greater amount of the Payment notwithstanding that all or some
portion of the Payment may be subject to the Excise Tax. If a reduction in
payments or benefits constituting "parachute payments" is necessary so that the
Payment equals the Reduced Amount, reduction shall occur in the following order
unless the Stock Award holder elects in writing a different order (provided,
however, that such election shall be subject to Company approval if made on or
after the effective date of the Change in Control): reduction of cash payments;
cancellation of accelerated vesting of stock awards or lapse of repurchase
rights; reduction of employee benefits. In the event that acceleration of
vesting of stock award or lapse of repurchase right compensation is to be
reduced, such acceleration shall be cancelled in the reverse order of the date
of grant of the stock awards unless the Stock Award holder elect in writing a
different order for cancellation.
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The accounting firm engaged by the Company for general audit purposes as
of the day prior to the effective date of the Change in Control shall perform
the foregoing calculations. If the accounting firm so engaged by the Company is
serving as accountant or auditor for the individual, entity or group effecting
the Change in Control, the Company shall appoint a nationally recognized
accounting firm to make the determinations required hereunder. The Company shall
bear all expenses with respect to the determinations by such accounting firm
required to be made hereunder.
The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation, to
the Company and the Stock Award holder within fifteen (15) calendar days after
the date on which the Stock Award holder's right to a Payment is triggered (if
requested at that time by the Company or the Stock Award holder) or such other
time as requested by the Company or the Stock Award holder. If the accounting
firm determines that no Excise Tax is payable with respect to a Payment, either
before or after the application of the Reduced Amount, it shall furnish the
Company and the Stock Award holder with an opinion reasonably acceptable to the
Stock Award holder that no Excise Tax will be imposed with respect to such
Payment. Any good faith determinations of the accounting firm made hereunder
shall be final, binding and conclusive upon the Company and the Stock Award
holder.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 11 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award
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shall not be impaired by any such amendment unless (i) the Company requests the
consent of the person to whom the Stock Award was granted and (ii) such person
consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board or approved by the stockholders of the Company,
whichever is earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted.
14. EFFECTIVE DATE OF PLAN.
This Plan shall become effective on the date of adoption by the Board,
but no Stock Awards granted under the Plan shall be exercised unless and until
the Plan has been approved by the stockholders of the Company, which approval
shall be within twelve (12) months before or after the date the Plan is adopted
by the Board.
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ANNEX C
METRICOM, INC.
1991 EMPLOYEE STOCK PURCHASE PLAN
Adopted November 12, 1991
Approved March 19, 1992
Amended January 1996
Approved April 24, 1996
Amended November 1996
Amended April 29, 1998
Approved June 26, 1998
Amended August 16, 1999
Approved October 15, 1999
Amended February 18, 2000
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which employees of
Metricom, Inc., a California corporation (the "Company"), and its Affiliates, as
defined in subparagraph 1(b), which are designated as provided in subparagraph
2(b), may be given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock shall be
granted and the provisions of each offering of such rights (which need not be
identical).
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(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to rights granted under
the Plan shall not exceed in the aggregate one million fifty thousand
(1,050,000) shares of the Company's common stock (the "Common Stock"). If any
right granted under the Plan shall for any reason terminate without having been
exercised, the Common Stock not purchased under such right shall again become
available for the Plan.
4. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate. If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised. The provisions of
separate Offerings need not be identical, but each Offering shall include
(through incorporation of the provisions of this Plan by reference in the
Offering or otherwise) the substance of the provisions contained in paragraphs 5
through 8, inclusive.
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5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee, no employee of the Company or any Affiliate shall be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee's
customary employment with the Company or such Affiliate is at least twenty (20)
hours per week and at least five (5) months per calendar year.
(c) The Board or the Committee may provide that, each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the Offering Period for such right shall begin on its
Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person
first becomes an eligible employee within a specified period of time before the
end of the Offering, he or she will not receive any right under that Offering.
(c) No employees shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(d), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.
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6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase the number
of shares of Common Stock of the Company purchasable with up to fifteen percent
(15%) of such employee's Earnings (as defined in Section 7(a)) during the period
which begins on the Offering Date (or such later date as the Board determines
for a particular Offering) and ends on the date stated in the Offering, which
date shall be no more than twenty-seven (27) months after the Offering Date (the
"Offering Period"). In connection with each Offering made under this Plan, the
Board or the Committee shall specify a maximum number of shares which may be
purchased by any employee as well as a maximum aggregate number of shares which
may be purchased by all eligible employees pursuant to such Offering. In
addition, in connection with each such Offering, the Board or the Committee may
specify a maximum aggregate number of shares which may be purchased by all
eligible employees on any given Exercise Date (as defined in the Offering) under
the Offering. If the aggregate purchase of shares upon exercise of rights
granted under the Offering would exceed any such maximum aggregate number, the
Board or the Committee shall make a pro rata allocation of the shares available
in as nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(b) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Offering Date; or
(ii) an amount equal to eight-five percent (85%) of the fair
market value of the stock on the Exercise Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in an Offering by
delivering an agreement to the Company within the time specified in the
Offering, in such form as the Company provides. Each such agreement shall
authorize payroll deductions of up to fifteen percent (15%) of such employee's
Earnings during the Offering Period. "Earnings" is defined as base salary or
wages and including amounts elected to be deferred by the employee (that would
otherwise have been paid) under the Company's 401(k) Plan, and may include or
exclude bonuses, commissions, overtime pay, incentive pay, profit sharing, other
remuneration paid directly to the employee, the cost of employee benefits paid
for by the Company or an Affiliate, education or tuition reimbursements, imputed
income arising under any group insurance or benefit program, traveling expenses,
business and moving expense reimbursements, income received in connection with
stock options, contributions made by the Company or an Affiliate under any
employee benefit plan, and similar items of compensation as determined by the
Board or Committee and as set forth in the Offering. The payroll deductions made
for each participant shall be credited to an account for such participant under
the Plan and shall be deposited with the general funds of the Company. At any
time during the Offering a participant may terminate his or her payroll
deductions. A participant may reduce, increase or begin such payroll deductions
after the beginning of any Offering Period only as provided for in the Offering.
A participant
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may not make any additional payments into his or her account unless expressly
provided for in the Offering.
(b) If a participant terminates his or her payroll deductions, such
participant may withdraw from the Offering by delivering to the Company a notice
of withdrawal in such form as the Company provides. Such withdrawal may be
elected at any time prior to the end of the Offering Period. Upon such
withdrawal from the Offering by a participant, the Company shall distribute to
such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in other Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company or an Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), without interest; provided, however,
that subject to the right of the terminated employee to withdraw from the
Offering and receive a distribution of his or her accumulated payroll deductions
(as described in paragraph 7(b)), in the event that a participating employee's
employment ceases within three (3) months of the next Exercise Date, the balance
in such employee's account shall be held and used to purchase Common Stock for
the terminated employee on such Exercise Date pursuant to the terms of the
ongoing Offering.
(d) Rights granted under the Plan shall not be transferable, and shall
be exercisable only by the person to whom such rights are granted.
8. EXERCISE.
(a) On each exercise date, as defined in the relevant Offering (an
"Exercise Date"), each participant's accumulated payroll deductions (without any
increase for interest) will be applied to the purchase of whole shares of stock
of the Company, up to the maximum number of shares permitted pursuant to the
terms of the Plan and the applicable Offering, at the purchase price specified
in the Offering. No fractional shares shall be issued upon the exercise of
rights granted under the Plan. The amount, if any, of accumulated payroll
deductions remaining in each participant's account after the purchase of shares
which is less than the amount required to purchase one share of stock on the
final Exercise Date of an Offering shall be held in each such participant's
account for the purchase of shares under the next Offering under the Plan,
unless such participant withdraws from such next Offering, as provided in
subparagraph 7(b), or is no longer eligible to be granted rights under the Plan,
as provided in paragraph 5, in which case such amount shall be distributed to
such participant after such Exercise Date, without interest. The amount, if any,
of accumulated payroll deductions remaining in any participant's account after
the purchase of shares which is equal to the amount required to purchase whole
shares of
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<PAGE> 49
stock on the final Exercise Date of an Offering shall be distributed in full to
such participant after such Exercise Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the Plan (including rights granted thereunder) is covered by an effective
registration statement pursuant to the Securities Act of 1933, as amended. If,
on an Exercise Date of any Offering hereunder, the Plan is not so registered, no
rights granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated and not previously applied to the purchase of Common
Stock shall be distributed to the participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the rights granted under the
Plan. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such rights unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11. RIGHTS AS A SHAREHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until certificates representing such shares shall have
been issued.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Board shall make
appropriate adjustments in the maximum number of shares subject to the Plan and
the number of shares and price per share of stock subject to outstanding rights.
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) any other capital
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<PAGE> 50
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged, then, as determined by the Board in its
sole discretion, any surviving corporation shall assume outstanding rights or
substitute similar rights for those under the Plan, such rights shall continue
in full force and effect, or such rights shall be exercised immediately prior to
such event.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders of
the Company within 12 months before or after the adoption of the amendment,
where the amendment will:
(i) Increase the number of shares reserved for rights under the
Plan; or
(ii) Modify the provisions as to eligibility for participation in
the Plan or modify the Plan in any other way to the extent such modification
requires shareholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code.
It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to employee stock
purchase plans and/or to bring the Plan and/or rights granted under it into
compliance therewith.
(b) Rights and obligations under any rights granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. No rights
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom such rights were granted.
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PRELIMINARY COPY
METRICOM, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 26, 2000
The undersigned hereby appoints TIMOTHY A. DREISBACH and DALE W.
MARQUART, and each of them, as attorneys and proxies of the undersigned, with
full power of substitution, to vote all of the shares of stock of Metricom, Inc.
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of Metricom, Inc. to be held at the San Jose Museum of Art located
at 110 South Market Street, San Jose, California on Monday, June 26, 2000 at
1:30 p.m. (local time), and at any and all postponements, continuations and
adjournments thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4 AND 5 AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect David M. Moore and William D. Savoy to hold office until
the 2003 Annual Meeting of Stockholders.
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees
below). listed below.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)
BELOW:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2, 3, 4 AND 5.
PROPOSAL 2: To approve the Company's 1997 Equity Incentive Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized for issuance
under such plan by 3,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 3: To approve the Company's 1991 Employee Stock Purchase Plan, as
amended, to increase the aggregate number of shares of Common Stock authorized
for issuance under such plan by 300,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 52
PROPOSAL 4: To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of Common Stock from
150,000,000 to 500,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 5: To ratify the selection of Arthur Andersen LLP as independent
auditors of the Company for its fiscal year ending December 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
DATED
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----------------------------------------
SIGNATURE(S)
Please sign exactly as your name appears
hereon. If the stock is registered in
the names of two or more persons, each
should sign. Executors, administrators,
trustees, guardians and
attorneys-in-fact should add their
titles. If signer is a corporation,
please give full corporate name and have
a duly authorized officer sign, stating
title. If signer is a partnership,
please sign in partnership name by
authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
