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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 1)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MICROTEST, INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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.
1) Amount previously paid:
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2) Form Schedule or Registration No.
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4) Date filed:
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MICROTEST, INC.
4747 North 22nd Street
Phoenix, Arizona 85016-4715
NOTICE AND PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 30, 2000
To our Shareholders:
The 2000 Annual Meeting of Shareholders (the "Annual Meeting") of
Microtest, Inc. (the "Company") will be held at 10:00 A.M., Arizona time, on
Monday, May 30, 2000 at the Doubletree La Posada Resort, 4949 East Lincoln
Drive, Paradise Valley, Arizona, for the following purposes:
1. To elect two class I directors to the Board of Directors to serve for a
three-year term;
2. To vote to amend the Microtest, Inc. Long-term Incentive Plan by (i)
increasing the number of shares by 600,000; (ii) authorizing
non-employee director option grants under the Plan; and (iii) making
other changes to update the Plan under current law.
3. To transact such other business as may properly come before the Annual
Meeting.
Each outstanding share of the Company's common stock entitles the
holder of record at the close of business on April 7, 2000 to vote at the Annual
Meeting or any adjournment thereof. Shares can be voted at the Annual Meeting
only if the holder is present or represented by proxy. A copy of the Company's
1999 Annual Report to shareholders (which includes the Company's Form 10-K for
the year ended December 31, 1999 and audited financial statements) is enclosed.
Management cordially invites you to attend the Annual Meeting.
By Order of the Board of Directors
/s/William R. Crowell
----------------------------------
Phoenix, Arizona William R. Crowell
April 10, 2000 Secretary
IMPORTANT
SHAREHOLDERS ARE REQUESTED TO SIGN, DATE AND MAIL THE ENCLOSED PROXY. A
POSTAGE-PAID ENVELOPE IS PROVIDED FOR MAILING IN THE UNITED STATES.
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MICROTEST, INC.
4747 North 22nd Street
Phoenix, Arizona 85016-4715
PROXY STATEMENT
This Proxy Statement is furnished to the shareholders of Microtest,
Inc. (the "Company") in connection with the solicitation of proxies to be used
in voting at the Annual Meeting of Shareholders (the "Annual Meeting") to be
held on May 30, 2000. THE ENCLOSED PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF THE COMPANY. The proxy materials were mailed on or about April 14, 2000, to
shareholders of record at the close of business on April 7, 2000.
A person giving the enclosed proxy has the power to revoke it at any
time before it is exercised by either: (i) attending the Annual Meeting and
voting in person; (ii) duly executing and delivering a proxy bearing a later
date; or (iii) sending written notice of revocation to the Secretary of the
Company at 4747 North 22nd Street, Phoenix, Arizona 85016.
We will pay the costs of this solicitation. In addition, we may
reimburse brokerage firms and others for forwarding solicitation material to
beneficial owners of the outstanding common stock of the Company. In addition to
the use of the mails, proxies may be solicited by certain of our directors and
officers, personally or by telephone, without additional compensation.
VOTING SECURITIES OUTSTANDING
Only holders of record of common stock at the close of business on
April 7, 2000, will be entitled to vote at the Annual Meeting. As of March 20,
2000, there were 8,672,125 shares of common stock outstanding. Each share of
common stock is entitled to one vote on all matters on which shareholders may
vote. There is no cumulative voting in the election of directors.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the inspector of elections appointed for the meeting and such
inspector will determine whether or not a quorum is present. The inspector of
elections will treat abstentions as shares that are present and entitled to vote
for purposes of determining the presence of a quorum, but as unvoted for
purposes of determining the approval of any matter submitted to the shareholders
for a vote. If a broker indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will not be considered as present and entitled to vote with respect
to that matter.
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ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
Our board of directors currently consists of six members. The present
term of William C. Turner and Dianne C. Walker, who are Class I incumbent
directors, will expire at the Annual Meeting. Both Mr. Turner and Ms. Walker
have been nominated for re-election as Class I directors and, unless otherwise
noted thereon, the shares represented by the enclosed proxy will be voted for
the election of Mr. Turner and Ms. Walker. If either of them becomes unavailable
for any reason, or if a vacancy should occur before election (which events are
not anticipated), the shares represented by the enclosed proxy may be voted for
such other person or persons as may be determined by the holders of such proxy.
The nominees receiving the highest number of votes cast at the Annual Meeting
will be elected. The directors elected will serve for three years and until
their successors are duly elected and qualified.
BOARD OF DIRECTORS RECOMMENDATION
The board of directors with each respective director abstaining as to his
nomination, unanimously recommends a vote "FOR" the election of Mr. Turner and
Ms. Walker as directors.
APPROVAL OF AMENDED AND RESTATED
MICROTEST, INC. LONG-TERM INCENTIVE PLAN
(PROPOSAL NO. 2)
Effective March 14, 1995, our board of directors approved the adoption
of the Microtest, Inc. Long-Term Incentive Plan. We adopted the Long-Term
Incentive Plan to encourage our employees, non-employee directors, and
consultants to remain in our employment or service and to enhance our ability to
attract new employees, non-employee directors, and consultants by providing an
opportunity to have a vested interest in our success.
Our board of directors has approved, and recommends that the
stockholders approve, an amendment to the Long-Term Incentive Plan. The
amendment to the Long-Term Incentive Plan would (i) increase the number of
shares available under the Long-Term Incentive Plan from 600,000 to 1,200,000;
(ii) require that the Long-Term Incentive Plan's administrative committee
members be non-employee, outside directors; and (iii) authorize both formula and
discretionary non-employee director option grants under the Long-Term Incentive
Plan. This feature is designed to replace the non-employee director option grant
provisions of our 1998 Director Stock Plan, which will terminate, except for
outstanding options, if the Plan amendments are approved.
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VOTE REQUIRED; BOARD OF DIRECTORS RECOMMENDATION
The proposal to amend the Long-Term Incentive Plan will be approved if
a majority of the votes cast at the Annual Meeting are cast in its favor.
The board of directors unanimously recommends a vote "FOR" approval of
the amendment to the Long-Term Incentive Plan.
DESCRIPTION OF THE PLAN
The Amended and Restated Long-Term Incentive Plan (the "Incentive
Plan") is set forth in full as Appendix A to this proxy statement. The following
description of the material features of the Plan is qualified in its entirety by
reference to Appendix A.
The Incentive Plan authorizes grants of Incentive Stock Options
("ISOs"), Non-Qualified Stock Options ("NQSOs"), Stock Appreciation Rights
("SARs"), Performance Shares, and Restricted Stock to Non-Employee Directors,
employees, and consultants or advisors of Microtest and our subsidiaries. Our
board of directors believes that the Incentive Plan will promote the success and
enhance the value of Microtest by linking the personal interests of participants
to those of our stockholders and providing participants with an incentive for
outstanding performance.
Our board of directors administers the Incentive Plan, although the
board may delegate some or all of its administrative duties to a committee
appointed by the board. If the board appoints a committee, each member of the
committee must qualify as both a non-employee director and an outside director
under Section 16 of the Securities Exchange Act of 1934 and under Section 162(m)
of the Internal Revenue Code. The board or committee has authority to
administer, interpret and apply the Incentive Plan, and make final
determinations under the Incentive Plan, which are binding on all participants.
On April 3, 2000, the last reported sale price of our common stock on the NASDAQ
Stock Market was $13.00 per share.
DESCRIPTION OF THE AVAILABLE AWARDS
Incentive Stock Options--
An ISO is a stock option that satisfies the requirements specified in
Section 422 of the Internal Revenue Code (the "Code"). Under the Code, ISOs may
only be granted to employees. In order for an option to qualify as an ISO, the
price payable to exercise the option must equal or exceed the fair market value
of the stock at the date of the grant, the option must lapse no later than 10
years from the date of the grant, and the stock subject to ISOs that are first
exercisable by an employee in any calendar year must not have a fair market
value of more than $100,000 as of the date of grant. Certain other requirements
must also be met.
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With respect to an ISO, an employee is not taxed for regular income tax
purposes either at the time of the award or the time of exercise of the option.
The difference between the exercise price and the fair market value of the stock
at the time of exercise, however, constitutes income for alternative minimum tax
purposes, assuming the stock is either transferable or is not subject to a
substantial risk of forfeiture. Generally, the issuing corporation is not
entitled to a deduction with respect to an ISO.
If an employee holds the stock acquired upon exercise of the ISO for at
least two (2) years from the date of the grant and at least one (1) year
following the date of exercise, the difference between the amount paid for the
stock and the subsequent sales price is treated as long-term capital gain or
loss. If these holding period requirements are not satisfied, the employee is
taxed, at ordinary income tax rates, on the difference between the exercise
price and the fair market value of the stock as of the date of exercise and the
issuer of the ISO is then entitled to a corresponding deduction.
Non-Qualified Stock Options--
An NQSO is any stock option other than an Incentive Stock Option. Such
options are referred to as "non-qualified" because they do not meet the
requirements of, and are not eligible for, the favorable tax treatment provided
by Section 422 of the Code.
If a participant is granted an NQSO, the grant itself does not produce
any taxable income for the participant, and the issuing corporation is not
entitled to a deduction at that time. On the date the NQSO is exercised, the
participant recognizes ordinary income in an amount equal to the difference
between the fair market value of the underlying stock at the date of exercise
and the exercise price set forth in the option agreement between the issuing
corporation and the employee. The issuing corporation is generally entitled to a
corresponding deduction in the same amount and in the same year in which the
participant recognizes such income.
When a participant sells the stock acquired through an NQSO, the
participant recognizes capital gain equal to the difference between the sales
price and the fair market value of the stock as of the date of exercise. If the
participant holds the stock for more than one (1) year following the exercise of
the option, the gain or loss is treated as a long-term capital gain or loss.
Under the non-employee director option grant feature of the plan, non-employee
directors are granted 5,000 shares as of the third business day following our
release of fiscal year end earnings information. These annual grant options are
fully vested when granted. Additionally, non-employee directors are entitled to
a 10,000 share grant upon first becoming a board member and on the third
anniversary and each third anniversary thereafter. These anniversary grants vest
over a four year period beginning on the date of grant.
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Stock Appreciation Rights (SAR) --
A SAR is the right granted to a participant to receive the appreciation
in the value of a share of common stock over a certain period of time. Under the
Incentive Plan, we may pay that amount in cash, or in common stock, or in a
combination of both.
If a participant receives the appreciation inherent in the SARs in
cash, the cash is compensation income, taxable to the participant. If the
participant receives the appreciation in the form of common stock, the stock
received is taxable to the participant to the extent of its fair market value.
An issuer of a SAR generally receives a deduction in the amount equal to the
amount that is taxable to the participant in the year in which the participant
recognizes taxable income with respect to the SAR.
Performance Shares--
Under the Incentive Plan, the board or administering committee may
grant performance share unit. Typically, each performance share unit will be
deemed to be the equivalent of one share of common stock. An award of
performance shares does not entitle a participant to any ownership, dividend,
voting or other rights of a shareholder until distribution is made in the form
of shares of stock, if the award is paid in stock. The value of the
participant's performance share units is generally measured by the fair market
value of an equivalent number of shares of the common stock. at the end of the
performance period, if the participant has satisfied certain performance
criteria established by the board or administering committee, the participant
will be entitled to payment in accordance with the terms of the award. The award
may be payable in either cash, common stock or a combination of both.
A participant who has been granted a performance share award of this
kind does not realize taxable income at the time of grant and the issuing
corporation is not entitled to a deduction at that time. However, the
participant will recognize income in the year the award is paid equal to the
amount of cash and the fair market value of the common stock issued to the
participant. The issuing corporation generally is entitled to a corresponding
deduction.
Restricted Stock Awards--
Under the Restricted Stock feature of the Incentive Plan, a participant
may be granted a specified number of shares of the common stock. However, vested
rights to such stock are subject to certain restrictions or are conditioned on
the attainment of certain performance goals. If the participant violates any of
the restrictions during the period specified by the board or administering
committee or the performance standards fail to be satisfied, the stock is
forfeited.
In the year in which the applicable restrictions lapse or the
applicable performance standard is satisfied, Section 83 of the Code requires a
participant to include in taxable
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income the excess of the fair market value of restricted stock received over the
amount, if any, paid for the restricted stock. The issuer of restricted stock
generally is entitled to a corresponding deduction at the same time, provided
that it satisfies applicable withholding tax liabilities.
Instead of postponing the tax consequences of a Restricted Stock award
until the applicable restrictions lapse or until the applicable performance
standard is satisfied, a participant may elect to include the fair market value
of the stock in income in the year of the award by filing an appropriate
election with the IRS within 30 days of the date of the award agreement. This
election is made under Section 83(b) of the Code.
Section 162(m)--
Section 162(m) of the Code, adopted as part of the Revenue
Reconciliation Act of 1993, generally limits to $1 million the deduction that
can be claimed by any publicly-held corporation for compensation paid to any
"covered employee" in any taxable year beginning after December 31, 1993. The
term "covered employee" for this purpose is defined generally as the chief
executive officer and the four other highest paid employees of the corporation.
Performance-based compensation is outside the scope of the $1 million
limitation and, hence, generally can be deducted by a publicly-held corporation
without regard to amount, provided that, among other requirements, such
compensation is approved by stockholders. Among the items of performance-based
compensation that can be deducted without regard to amount (assuming stockholder
approval and other applicable requirements are satisfied) is compensation
associated with the exercise price of a stock option so long as the option has
an exercise price equal to or greater than the fair market value of the
underlying stock at the time of the option grant. Generally, options granted
under the Incentive Plan have an exercise price at least equal to the fair
market value of the underlying stock on the date of grant. However, the
Committee can, in the exercise of its discretion, grant options with an exercise
price at less or more than fair market value on the date of grant.
Other--
Of the total shares of Common Stock available for awards under the
Incentive Plan, no more than 300,000 shares may be awarded over the term of the
Incentive Plan to any participant, either as awards of ISOs, NQSOs, SARs,
performance shares, restricted stock and dividend equivalent rights.
Except to the extent necessary to comply with any applicable law,
regulation, or stock exchange or automated quotation system rule, the board may
amend or terminate the Incentive Plan without further shareholder approval.
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INFORMATION CONCERNING DIRECTORS, NOMINEES AND OFFICERS
Information concerning the names, ages, terms, positions with the
Company and business experience of the Company's current directors, director
nominees and executive officers is set forth below. The Board of Directors
currently consists of 6 persons, although Roger Ferguson has indicated that he
intends to resign upon conclusion of the Annual Meeting, at which time the Board
of Directors will be reduced to 5 members.
<TABLE>
<CAPTION>
TERM
NAME AGE POSITION EXPIRES
- ---- --- -------- -------
<S> <C> <C> <C>
Vincent C. Hren 50 President, Chief Executive 2002
Officer and Director
Kent C. Mueller(1)(2) 59 Chairman of the Board and 2001
Director
Roger C. Ferguson (1)(2) 56 Director 2002
Steven G. Mihaylo (2) 56 Director 2001
William C. Turner (1)(2) 70 Director 2000
Dianne C. Walker (1)(2) 43 Director 2000
James E. Boren 54 Vice President, Sales ---
David R. Coffin 46 Vice President, General Manager
Test & Measurement ---
William R. Crowell 40 Chief Financial Officer,
Treasurer & Secretary ---
Dr. Klaus M. Romanek 50 Vice President & Managing
Director, European Operations ---
</TABLE>
- --------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
VINCENT C. HREN has served as our President and Chief Executive Officer
since January 1999 and has been a member of our Board of Directors since May
1999. Mr. Hren was previously the President and Chief Executive Officer of
Three-Five Systems, Inc., a publicly-traded designer and manufacturer of
interface devices for operational control and informational display functions
used in the products of original equipment manufacturers. Mr. Hren joined
Three-Five Systems in 1996, was promoted to Chief Operating Officer, and became
President and Chief Executive Officer on July 1, 1998. He served as Vice
President and General Manager at Graco, Inc. from 1994 to 1996. Mr. Hren held
various management positions at Emerson Electric from 1973 to 1994.
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KENT C. MUELLER has served as Chairman of our Board of Directors since
January 1999 and as a member of our Board of Directors since December 1997. Mr.
Mueller has served as President and Chief Executive Officer of Kent Mueller
Ventures, a high technology oriented investment fund, since March 1996. Mr.
Mueller founded Mastersoft, Inc., a computer software developer, in August 1986
and served as its President and Chief Executive Officer until it was acquired by
Adobe Systems, Inc. in October, 1995. Mr. Mueller has held senior executive
positions with Capex/Computer Associates, Intel Corporation and Ampex
Corporation. Mr. Mueller has served as Chairman and director of XANTEL
Corporation, as a director of Quality Care Solutions, Inc. and as a director of
CoreData. Mr. Mueller is a trustee and member of the executive committee of
Westminster College in Fulton, Missouri, and is a founder of the Arizona
Software Association. He was named Inc. magazine Arizona High Tech Entrepreneur
of the Year in 1994.
ROGER C. FERGUSON has been a member of our Board of Directors since
September 1993. He served as our Chairman of the Board from March 1994 to March
1997. Mr. Ferguson is a Managing Principal with Vencraft in Woodside,
California, an investment company. He served as President and Chief Executive
Officer of Datatools, Inc., a software tools manufacturer, from August 1993
until the Company was sold in 1997. Mr. Ferguson served as Chief Operating
Officer of Network General, a publicly-traded manufacturer of local area network
diagnostic products, from 1987 to 1993.
STEVEN G. MIHAYLO has been a member of our Board of Directors since
August 1994. Mr. Mihaylo has served as Chief Executive Officer of Inter-Tel,
Inc., a publicly-traded company that designs, manufactures and services digital
and analog telephone systems and voice processing systems, and provides long
distance services, since 1969. Mr. Mihaylo has also served as a director of
MicroAge, Inc., a publicly-traded distributor of information technology products
and services, since 1988.
WILLIAM C. TURNER has been a member of our Board of Directors since
February 1995. Mr. Turner is currently the Chairman of the Board and Chief
Executive Officer of Argyle Atlantic Corporation, an international merchant
banking and management consulting firm; a director of the Goodyear Tire & Rubber
Company; a director of Rural/Metro Corporation; a trustee and executive
committee member of the United States Council for International Business; and a
Trustee and past Chairman of the American Graduate School of International
Management (Thunderbird). Mr. Turner is also a former United States Ambassador
and permanent representative to the Organization for Economic Cooperation and
Development.
DIANNE C. WALKER has been a member of our Board of Directors since
January 1994. Ms. Walker is an independent consultant on electric utility
mergers and acquisitions and asset purchase transactions. Ms. Walker served as
an electric energy consultant for Bear Stearns and Kidder Peabody from January
1990 through December 1994. Ms. Walker served as Assistant Vice President of
Pacific Telecom, Inc.'s Venture
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Capital Portfolio from January 1983 through October 1989. Pacific Telecom is an
independent telephone company and subsidiary of PacifiCorp where Ms. Walker
served as a Director of Mergers and Acquisitions from May 1987 to October 1989.
Ms. Walker currently is on the Board of Directors of Comdial Corporation, a
publicly-traded telephone equipment manufacturer. Ms. Walker also serves on the
Board of Directors of Microage, Inc. and Arizona Public Service, a utility
company.
JAMES E. BOREN has served as our Vice President, Sales since May 1999.
Mr. Boren was a management consultant to the industrial distribution industry
from June 1998 through April 1999. Mr. Boren served as President and General
Manager of Southeast Asia Operations for Graco, Inc. from January 1997 through
June 1998, after serving as General Manager of Graco Industrial Equipment
Division from January 1995 through December 1996 and Director of North American
sales from January 1992 through December 1994. Mr. Boren has spent 30 years in
various executive sales and marketing management positions in the industrial
equipment industry.
DAVID R. COFFIN has served as our Vice President, General Manager
Network Test & Measurement since May 1999 and as our Vice President, Research &
Development from July 1997 through April 1999. Mr. Coffin joined Microtest in
1996 as Vice President of the Network Connectivity Division. Mr. Coffin served
as President and Chief Executive Officer for Irys Networking Corporation, a
microcomputer networking technology development firm, from 1991 to 1995. He was
Director of Networked Micro Systems for Group Bull from 1987 to 1990 and served
in various management positions for Intel Corporation from 1982 to 1986. Mr.
Coffin is on the Arizona Software Association's Board of Directors and has
authored a number of technical articles and research papers.
WILLIAM R. CROWELL has served as our Chief Financial Officer since
February 2000. Mr. Crowell served as Senior Vice President, Finance and
Acquisitions for Rural/Metro Corporation, a publicly-traded health and safety
services company, from July 1997 until February 2000. Mr. Crowell served in
various executive positions with Rural/Metro from July 1992 through June 1997,
including Vice President, Financial Services from January 1993 through June
1997. Mr. Crowell is a certified public accountant.
DR. KLAUS ROMANEK has served as our Vice President and Managing
Director, European Operations and as a member of the Board of Directors of
Microtest GmbH, Microtest Europe Limited and H+H Zentrum fuer
Rechnerkommunikation GmbH since October 1997. Dr. Romanek worked for six years
at Wavetek, where he served as Vice President and General Manager of the
Munich-based Sales and Marketing Operation and later for the Wireless Division
in Germany. He also served on the Board of Directors for Wavetek's Austrian
Division. Dr. Romanek also served in various marketing functions for Kontron
Elektronik GmbH, a subsidiary of Hofmann LaRoche, and BMW. During that time, he
served as a member of the Board of Directors for Createc GmbH, a wholly owned
subsidiary of Kontron. Dr. Romanek holds a Master's Degree and Ph.D. in Physics
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from the University of Stuttgart, Germany, where he specialized in semiconductor
and laser physics.
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the year ended December 31, 1999, our board of directors met or
acted by written consent on eleven occasions. Each of our directors attended
more than 75% of the meetings of the board of directors and the meetings held by
committees of the board on which such director served.
COMPENSATION COMMITTEE: The Compensation Committee of the board of
directors, which met or acted by written consent five times during 1999, reviews
all aspects of compensation of our officers and determines or makes
recommendations on such matters to the full board of directors. The report of
the Compensation Committee for 1999 is set forth below.
AUDIT COMMITTEE: The Audit Committee, which met four times during 1999,
represents the board of directors in evaluating the quality of our financial
reporting process and internal financial controls through consultations with the
independent auditors, internal management and the board of directors.
OTHER COMMITTEES: We do not maintain a standing nominating committee or
other committees performing similar functions.
DIRECTOR COMPENSATION
During 1999, we paid each non-employee director an $8,000 annual
retainer for their service as a board member plus a $2,000 annual retainer for
each committee membership. In addition, non-employee directors received $1,500
per board meeting attended, $1,000 per committee meeting attended, and $750 per
telephonic board or committee meeting attended.
Non-employee directors are also granted stock options under the 1998
Director Compensation Plan. The 1998 Director Compensation Plan entitles
non-employee directors to two types of option grants. The first type is the
annual option grant under which the non-employee director were granted an option
to purchase 1,000 shares in 1998, and 5,000 shares annually thereafter, of our
common stock on the third business day following the public release of our
fiscal year-end earnings information. These annual option grants are immediately
exercisable and the exercise price is equal to the fair market value of the per
share price of our common stock on the date of grant.
The second type of option grant is the anniversary option grant under
which the non-employee director is granted an option to purchase 10,000 shares
of our common stock upon first being elected or appointed to the board and
thereafter on the third business day following the public release of our fiscal
or quarterly earnings information
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immediately following the third anniversary of the non-employee director's
election or appointment to the board and each successive third year anniversary
thereafter. Twenty-five percent of the anniversary option grants is immediately
exercisable and 25% vests over each of the next three years. In the event of a
"Change of Control", as defined in the 1998 Director Compensation Plan, all
stock options become exercisable. The exercise price of the anniversary option
grants is equal to the fair market value of the per share price of our common
stock on the date of grant.
If a director granted options under the 1998 Director Compensation Plan
ceases to be a director for any reason the director will forfeit their unvested
options. Vested but unexercised options are exercisable for one year after
ceasing to be a director.
The 1998 Director Compensation Plan will be terminated upon approval of
the proposal No. 2, and future option grants to our non-employee directors will
be made under the amended Long-Term Incentive Plan. See "Approval of Amended and
Restated Microtest, Inc. Long-Term Incentive Plan."
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EXECUTIVE COMPENSATION
The following table sets forth the total compensation for services
rendered in all capacities to Microtest for the fiscal years ended December 31,
1999, 1998 and 1997, by our Chief Executive Officer, and our most highly
compensated executive officers who were in office at December 31, 1999 and one
executive officer who was no longer with us at December 31, 1999 whose aggregate
cash compensation exceeded $100,000 (collectively, "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING ALL
PRINCIPAL POSITION COMPENSATION STOCK OTHER
AT YEAR-END YEAR SALARY BONUS ($) (1) OPTIONS(#) COMPENSATION(2)
- ----------- ---- ------ ----- ------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Vincent C. Hren, President & 1999 $235,577 $117,805(3) -- 200,000 $ 2,428
Chief Executive Officer
James E. Boren, 1999 $ 85,577 $ 31,250 -- 50,000 $ 938
Vice President, Sales (4)
David R. Coffin, 1999 $156,885 $ 40,000 -- 20,000 $ 2,353
Vice President, Network Test 1998 $132,077 $ 5,020 -- 30,000 $17,670(5)
and Measurement 1997 $125,000 $ 14,467 -- 25,000 $16,945(5)
Klaus Romanek, Vice President & 1999 $138,750 $ 63,166 -- -- --
Managing Director, European 1998 $127,988 $ 4,823 -- -- --
Operations 1997 $ 31,395 -- -- 75,000 --
Daniel J. Predovic, Former 1999 $114,980 -- -- 50,000 $ 1,641
Chief Financial Officer (6)
Richard G. Meise, Former Chief 1999 $131,634(8) -- -- 5,000 --
Executive Officer (7) 1998 $235,000 $ 9,757 -- 25,000 $61,558(5)
1997 $235,000 -- -- -- $61,433(5)
</TABLE>
- -----------------
(1) Other annual compensation did not exceed the lesser of $50,000 or 10%
of the total salary and bonus for any of the Named Executive Officers
except as noted.
(2) Unless otherwise indicated, consists of Company-matching contributions
to our 401(k) plan.
(3) We paid Mr. Hren $67,805 in connection with his January 1999 employment
as substitution for the loss of incentive compensation at his prior
place of employment. We paid Mr. Hren $50,000 incentive compensation in
December 1999.
(4) Mr. Boren joined us in May 1999.
(5) Includes split dollar insurance premium value of $15,170 in each 1998
and 1997 for Mr. Coffin and $59,058 in each 1998 and 1997 for Mr. Miese
(represents the present value of the interest projected to accrue for
employee's benefit on then current year's insurance premium paid by
Microtest). We did not provide split-dollar life insurance after 1998.
(6) Mr. Predovic was Chief Financial Officer from March 1999 until his
death in November 1999.
(7) Mr. Meise retired from Microtest January 17, 1999.
(8) Includes $100,000 paid to Mr. Meise in connection with a consulting
services arrangement with us. See discussion at "Executive Compensation
- Employment Agreements."
13
<PAGE> 16
Except as otherwise noted, the following table sets forth information
with respect to the grants of stock options during the fiscal year ended
December 31, 1999, to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------ Potential Realizable
% of Total Value at Assumed Annual
Number of Options Rates of Stock Price
Securities Granted to Appreciation for Option
Underlying Employees in Exercise or Term (2)
Options Fiscal Base Price (per Expiration
Name Granted (#) Year share) (1) Date 5% ($) 10% ($)
---- ----------- ------------ --------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Vincent C. Hren 200,000 36% $2.93750 2009 $369,476 $936,324
James E. Boren 50,000 9% $2.18800 2009 $275,204 $697,422
David R. Coffin 20,000 4% $2.62500 2009 $330,170 $836,715
Klaus Romanek -- -- -- -- -- --
Daniel J. Predovic 50,000 9% $2.28125 2009 $286,933 $727,145
Richard G. Meise 5,000 1% $2.56300 2009 $322,371 $816,952
</TABLE>
(1) All options were granted at the fair market value (the closing price of
the common stock on the NASDAQ National Market) on the date of grant.
The exercise price and tax withholding obligations related to an
exercise may be paid by delivery of already owned shares or by offset
of the underlying shares, subject to certain conditions.
(2) Gains are reported net of option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates
of appreciation. Actual gains, if any, on stock option exercises are
dependent on the future performance of the common stock, overall stock
market conditions, as well as the option-holder's continued employment
through the vesting period. The amounts reflected in this table may not
necessarily be achieved.
14
<PAGE> 17
The following table sets forth information with respect to the exercise
and value of stock options granted to the Named Executive Officers during the
fiscal year ended December 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
# SHARES UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT FISCAL
ACQUIRED YEAR-END (#) YEAR-END ($)(2)
ON VALUE ------------------------------- ------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- -------- -------- ----------- ------------- ----------- -------------
(1)
<S> <C> <C> <C> <C> <C> <C>
Vincent C. Hren -- -- -- 200,000 -- $1,212,500
James E. Boren -- -- -- 50,000 -- $ 340,600
David R. Coffin -- -- 38,870 87,488 $ 50,104 $ 350,487
Klaus Romanek -- -- 37,500 37,500 $126,562 $ 126,562
Daniel J. Predovic -- -- -- 50,000 -- $ 335,938
Richard G. Meise 100,000 $532,296 95,167 -- $370,311 --
</TABLE>
(1) Calculated based on the market price at exercise multiplied by the
number of options exercised less the total exercise price of the
options exercised.
(2) Calculated based on $9.00, which was the closing price of the Common
Stock as quoted on the Nasdaq National Market on December 31, 1999
multiplied by the number of applicable shares in-the-money less the
total exercise price.
EMPLOYMENT AGREEMENTS
On January 7, 1999, we entered into an agreement with Mr. Meise, our
former Chairman and Chief Executive Officer. Under the agreement, Mr. Meise will
be a consultant to the company and will be paid an annual fee of $100,000
through December 22, 2000. Mr. Meise will also receive medical insurance
benefits equivalent to executive staff through February 2001. The exercise
period for Mr. Meise's vested options was also extended through February 28,
2001. We agreed to provide Mr. Meise the use of his current company laptop and
cellular phone, and to reimburse him for company-related expenses, through
January 1, 2001. The Agreement prohibits Mr. Meise from competing with us for
one-year after his term as a consultant and as a director.
15
<PAGE> 18
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") is composed entirely of
independent, non-employee members of our board of directors. The Committee
reviews and approves each of the elements of the executive compensation program
and periodically assesses the effectiveness and competitiveness of the program
in total. In addition, the Committee administers the key provisions of the
executive compensation program and reviews with the board of directors the
compensation program for our executives. The Committee has furnished the
following report on executive compensation.
OVERVIEW AND PHILOSOPHY
Our executive compensation program is primarily comprised of base
salary, management incentive program and equity-based incentives in the form of
stock option grants. Executives also participate in various other benefit plans,
including medical and retirement plans, generally available to all employees.
We believe that the interests of executive officers should be directly
aligned with those of the stockholders. Our philosophy is to pay base salaries
to executives that enable us to attract, motivate and retain highly qualified
executives. The management incentive program is designed to reward for
performance and is based primarily on financial results. Stock option grants are
intended to result in no reward if the stock price does not appreciate, but may
provide substantial rewards to executives as shareholders benefit from stock
price appreciation.
BASE SALARY
Each executive officer receives a base salary which, when aggregated
with their maximum incentive compensation, is intended to be competitive with
similarly situated executives in the similar industry positions. In determining
salaries, we also take into account individual experience and performance and
our specific needs. We believe executive officer base salaries are properly
aligned with other similar positions at companies comparable to Microtest.
MANAGEMENT INCENTIVE PROGRAM
In addition to a base salary, executive officers are eligible to
participate in our Management Incentive Program. At the beginning of each year,
we establish a targeted maximum incentive pay for each executive and establish
performance criteria for the executive to achieve incentive compensation. The
amount of the targeted incentive compensation and the performance criteria vary
with the position and role of the
16
<PAGE> 19
executive, although all potential pay-outs are significantly tied to our
financial performance. Selected bonuses were earned in 1999.
EQUITY-BASED INCENTIVES
We believe that it is important for our executive officers to have an
equity stake in Microtest. We make stock option grants to key executives from
time to time. In awarding stock option grants, we review the level of grants to
executives at other technology companies, the awards granted to our other
executives and the individual officer's specific role at Microtest.
During February 2000, we hired William R. Crowell as our Chief
Financial Officer, Treasurer and Secretary. Mr. Crowell was granted options to
acquire shares of our common stock as a significant inducement for him to join
the Company. Accordingly, these stock options were not granted under a plan
previously approved by our shareholders. If, as a result of substantial
appreciation in our stock and the exercise of substantial stock option holdings,
Mr. Crowell's compensation were to exceed $1 million in one year excess
compensation may not be deductible. The compensation element of stock options
generally does not, however, result in a charge to earnings on our financial
statements.
OTHER BENEFITS
Executive officers are eligible to participate in benefit programs
designed for all full-time employees. These programs include medical, disability
and life insurance, employee stock purchase plan and a qualified retirement
program allowed under Section 401(k) of the Internal Revenue Code, as amended.
INTERNAL REVENUE CODE - SECTION 162(m)
In 1994, the Internal Revenue Code was amended to add a limitation on
the tax deduction a publicly-held company may take on compensation aggregating
more than $1 million for selected executives in any given year. The law and
related regulations are subject to numerous qualifications and exceptions. Gains
realized on non-qualified stock options, or incentive stock options that are
subject to a "disqualifying disposition," are subject to the tax limitation
unless they meet certain requirements. To date, we have not been subject to the
deductibility limitation and our general policy is to structure our equity-based
compensation to comply with the exception to the limitation. However, in order
to provide our executives with adequate compensation in connection with their
hiring, we have not structured selected equity compensation arrangements
consistent with these exceptions. As a consequence, some compensation paid to
our executives may be subject to the Section 162(m) limitation.
17
<PAGE> 20
CHIEF EXECUTIVE OFFICER COMPENSATION
We use the same factors discussed above in determining compensation
decisions regarding the Chief Executive Officer. During the year ended December
31, 1999, Mr. Hren annual base compensation was $250,000. He received additional
compensation of $117,805; representing $67,805 as incentive to become our Chief
Executive Officer and $50,000 as incentive compensation related to his
performance during 1999. See the table under "Executive Compensation -- Option
Grants in Last Fiscal Year" for information regarding options granted to Mr.
Hren in 1999.
This report is made by Dianne C. Walker, Roger C. Ferguson, William C.
Turner and Kent C. Mueller who served on our Compensation Committee during 1999.
DIANNE C. WALKER, ROGER C. FERGUSON, WILLIAM C. TURNER, KENT C. MUELLER
18
<PAGE> 21
STOCK PRICE PERFORMANCE GRAPH
The graph below compares our cumulative total return with the Standard
& Poor's (S&P) 500 Stock Index and the H & Q Technology Index from December 31,
1994 to December 31, 1999. The graph assumes that $100 was invested on December
31, 1994, and that any dividends were reinvested.
MICROTEST, INC. STOCK PERFORMANCE
<TABLE>
<CAPTION>
Nasdaq Stk Mkt
Date MTST US Index H&Q Tech Index
- ---- ------------ ------------- --------------
<S> <C> <C> <C>
100 100 100
1995 90.52632317 108.6773266 111.2563602
93.68421545 124.1355885 137.723372
83.15790786 138.7759668 158.6973319
42.1052771 139.9183986 146.2956848
1996 29.47369241 146.470517 149.6176508
33.15790007 157.5908129 158.8628088
37.82896026 163.1629957 172.1670794
41.05263855 171.6886214 183.6789468
1997 18.94737314 162.4687972 179.3293175
16.84211162 191.7748218 209.2267625
23.4210597 224.1728191 258.7580289
19.47368852 208.8342341 213.5800377
1998 19.60526833 244.1193534 257.0409478
19.21053277 251.9735072 266.1463993
14.7368462 225.2566778 243.5509819
11.57895003 291.5966442 329.0278423
1999 10.00000389 327.3312364 361.5062949
10.00000389 357.2158631 423.4244588
15.26316158 365.2002825 453.7851892
37.89474627 541.1604975 730.4968324
2000 51.31581766 608.7823551 883.3794395
</TABLE>
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than 10% shareholders are required by SEC regulation to
furnish us with copies of all Section 16(a) forms they file.
19
<PAGE> 22
We believe that during the preceding fiscal year all Section 16(a)
filing requirements applicable to our officers, directors and greater than 10%
beneficial owners were complied with.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of April 1, 2000, the number and
percentage of outstanding shares of common stock beneficially owned by each
person known by us to beneficially own more than 5% of such stock and by each
director and Named Executive Officer and by all directors and Named Executive
Officers as a group.
<TABLE>
<CAPTION>
SHARES ISSUABLE UPON
EXERCISE OF OPTIONS
EXERCISABLE PERCENT
NAME AND ADDRESS SHARES BENEFICIALLY CURRENTLY OR WITHIN BENEFICIALLY
OF BENEFICIAL OWNER(1) OWNED(1) 60 DAYS OWNED
- ------------------------ ------------------- ------------------- ------------
<S> <C> <C> <C>
Vincent C. Hren 81,667 66,667 *
Kent C. Mueller 90,833 25,883 1.0%
Roger C. Ferguson 63,500 45,500 *
Steven G. Mihaylo 47,600 42,600 *
William C. Turner 52,158 42,158 *
Dianne C. Walker 55,200 49,800 *
James E. Boren 15,700 12,500 *
David R. Coffin 58,114 58,114 *
Klaus Romanek 49,887 37,500 *
Daniel J. Predovic -- -- *
Richard G. Meise 5,000 5,000 *
Dimensional Fund Advisors Inc. (2) 531,000 -- 8.7%
All directors and Named Officers as a group
(11 persons) (3) 519,659 5.7%
</TABLE>
- -----------------
* Represents less than 1% of our outstanding common stock.
(1) To our knowledge, the persons named in the table have sole voting and
sole investment power with respect to all shares of common stock shown
as beneficially owned by them, subject to community property laws,
where applicable, and the information contained in the footnotes
hereunder. The address of Ms. Walker, and Messrs. Hren, Mueller,
Ferguson, Mihaylo, Turner, Boren, Coffin, Romanek, Predovic and Meise
is c/o Microtest, Inc., 4747 North 22nd Street, Phoenix, Arizona 85016.
20
<PAGE> 23
(2) Represents 531,000 shares of common stock beneficially owned by
Dimensional Fund Advisors ("DFA"), a registered investment advisor. DFA
has sole voting and dispositive power with respect to 531,000 shares.
The address of DFA is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA
90401. Beneficial ownership information is based upon a Schedule 13G
dated February 11, 2000 filed with the Securities and Exchange
Commission. We make no representation as to the accuracy or
completeness of the information reported.
(3) Includes all shares included in note (1) above.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
We believe all transactions entered into with affiliates are at arm's
length and on terms equivalent or similar to terms under which we would conduct
business with unaffiliated third parties.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The principal independent public accounting firm utilized during the
fiscal year ended December 31, 1999, was Deloitte & Touche LLP, independent
certified public accountants (the "Auditors"). It is presently contemplated that
the Auditors will be retained as the principal accounting firm to be utilized
during the current fiscal year. A representative of the Auditors will attend the
Annual Meeting for the purpose of responding to appropriate questions and will
be afforded an opportunity to make a statement if the Auditors so desire.
SHAREHOLDER PROPOSALS
The board of directors will consider proposals from shareholders for
nominations to the class of directors whose terms expire at the 2001 Annual
Meeting of Shareholders that are made in writing to our Secretary, are received
at least 90 days prior to the 2001 Annual Meeting and contain sufficient
background information concerning the nominee to enable proper judgment to be
made as to his or her qualifications, as more fully provided in our certificate
of incorporation and bylaws. Proposals of shareholders as to other matters
intended to be presented at the 2001 Annual Meeting must be received by us by
December 15, 2000, for inclusion in our proxy materials relating to such
Meeting.
OTHER MATTERS
The board of directors does not intend to present at the Annual Meeting
any matters other than those described herein and does not presently know of any
matters that will be presented by other parties.
Dated: April 10, 2000
21
<PAGE> 24
APPENDIX A
MICROTEST, INC.
LONG-TERM INCENTIVE PLAN
AMENDED AND RESTATED AS OF MARCH 28, 2000
ARTICLE 1 PURPOSE
1.1 GENERAL. The purpose of the Microtest, Inc. Long-Term Incentive
Plan (the "Plan") is to promote the success, and enhance the value, of
Microtest, Inc. (the "Company") by linking the personal interests of its
non-employee directors, employees, consultants and advisors to those of Company
shareholders and by providing such individuals with an incentive for outstanding
performance. The Plan is further intended to provide flexibility to the Company
in its ability to motivate, attract, and retain the services of non-employee
directors, employees, consultants and advisors upon whose judgment, interest,
and special effort the successful conduct of the Company's operation is largely
dependent. Accordingly, the Plan permits the grant of incentive awards from time
to time to selected non-employee directors, employees, consultants and advisors
of the Company and any Subsidiary.
ARTICLE 2 EFFECTIVE DATE
2.1 EFFECTIVE DATE. The Plan was originally effective as of March 14,
1995 (the "Effective Date"). The Plan, as amended and restated, is effective as
of March 28, 2000 (the "Restated Effective Date"). Within one year after the
Restated Effective Date, the Plan shall be submitted to the shareholders of the
Company for their approval. The Plan will be deemed to be approved by the
shareholders if it receives the affirmative vote of the holders of a majority of
the shares of stock of the Company present, or represented, and entitled to vote
at a meeting duly held (or by the written consent of the holders of a majority
of the shares of stock of the Company entitled to vote) in accordance with the
applicable provisions of the Delaware Corporation Law and the Company's Bylaws
and Articles of Incorporation. If the shareholders fail to approve the Plan, any
Award made after the Effective Date shall be automatically canceled without any
further act.
ARTICLE 3 DEFINITIONS AND CONSTRUCTION.
3.1 DEFINITIONS. When a word or phrase appears in this Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in this
Section or in Sections 1.1 or 2.1 unless a clearly different meaning is required
by the context. The following words and phrases shall have the following
meanings:
(a) "Anniversary Grant Date" means the date of the initial
election or appointment of a Nonemployee Director to the Board and, thereafter,
the third business day following the public release of the Company's fiscal or
quarterly earnings
22
<PAGE> 25
information immediately following the third anniversary of the Nonemployee
Director's initial election or appointment and each successive third year
anniversary thereafter.
(b) "Annual Grant Date" means the third business day following
the public release of the Company's fiscal year-end earnings information.
(c) "Award" means any Option, Director Option, Stock
Appreciation Right, Restricted Stock Award, Performance Share Award, or Dividend
Equivalent Award or any other right or interest relating to Stock or cash,
granted to a Participant under the Plan.
(d) "Award Agreement" means any written agreement, contract,
or other instrument or document evidencing an Award.
(e) "Board" means the Board of Directors of the Company.
(f) "Cause" means (except as otherwise provided in on Option
Agreement) if the Board, in its reasonable and good faith discretion, determines
that the employee, consultant or advisor (i) has developed or pursued interests
substantially adverse to the Company, (ii) materially breached any employment,
engagement or confidentiality agreement or otherwise failed to satisfactorily
discharge his or her duties, (iii) has not devoted all or substantially all of
his or her business time, effort and attention to the affairs of the Company (or
such lesser amount as has been agreed to in writing by the Company), (iv) is
convicted of a felony involving moral turpitude, or (v) has engaged in
activities or omissions that are detrimental to the well-being of the Company.
(g) "Change of Control" means and includes each of the
following (except as otherwise provided in an Option Agreement):
(1) there shall be consummated any consolidation or
merger of the Company in which the Company is not the
continuing or surviving entity, or pursuant to which Stock
would be converted into cash, securities or other property,
other than a merger of the Company in which the holders of the
Company's Stock immediately prior to the merger have the same
proportionate ownership of beneficial interest of common stock
or other voting securities of the surviving entity immediately
after the merger
(2) there shall be consummated any sale, lease,
exchange or other transfer (in one transaction or a series of
related transactions) of assets or earning power aggregating
more than 40% of the assets or earning power of the Company
and its subsidiaries (taken as a whole);
(3) the shareholders of the Company shall approve any
plan or proposal for liquidation or dissolution of the
Company;
(4) any person (as such term is used in Section 13(d)
and 14(d)(2) of the Exchange Act), other than any employee
benefit plan of the
23
<PAGE> 26
Company or any subsidiary of the Company or any entity holding
shares of capital stock of the Company for or pursuant to the
terms of any such employee benefit plan in its role as an
agent or trustee for such plan, shall become the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange
Act) of 20% or more of the Company's outstanding Stock or any
beneficial owner of 20% or more of the Company's outstanding
Stock as of the Effective Date of the Plan shall become the
beneficial owner of 50% or more of the Company's outstanding
Stock; or
(5) during any period of two consecutive years,
individuals who at the beginning of such period shall fail to
constitute a majority thereof, unless the election, or the
nomination for election by the Company's shareholders, of each
new director was approved by a vote of at least two-thirds of
the directors then still in office who were directors at the
beginning of the period.
(h) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(i) "Committee" means the committee of the Board described in
Article 4.
(j) "Covered Employee" means an Employee who is a "covered
employee" within the meaning of Section 162(m) of the Code.
(k) "Director Option" means an Option granted to a
Non-Employee Director under Section 12.
(l) "Disability" shall mean any illness or other physical or
mental condition of a Participant which renders the Participant incapable of
performing his customary and usual duties for the Company, or any medically
determinable illness or other physical or mental condition resulting from a
bodily injury, disease or mental disorder which in the judgment of the Committee
is permanent and continuous in nature. The Committee may require such medical or
other evidence as it deems necessary to judge the nature and permanency of the
Participant's condition.
(m) "Dividend Equivalent" means a right granted to a
Participant under Article 11.
(n) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(o) "Fair Market Value" means with respect to Stock or any
other property, the fair market value of such Stock or other property as
determined by the Board in its discretion, under one of the following methods:
(i) the average of the closing bid and asked prices for the Stock as reported on
any national securities exchange on which the Stock is then listed (which shall
include the Nasdaq National Market) for that date or,
24
<PAGE> 27
if no prices are so reported for that date, such prices on the next preceding
date for which closing bid and asked prices were reported; or (ii) the price as
determined by such methods or procedures as may be established from time to time
by the Board.
(p) "Incentive Stock Option" means an Option that is intended
to meet the requirements of Section 422 of the Code or any successor provision
thereto.
(q) "Non-Employee Director" means a member of the Company's
Board who is not a common-law employee of the Company. For purposes of Section
4.1, a Non-Employee Director means a member of the Board who qualifies as a
"Non-Employee Director" as defined in Rule 16b-3(b)(3) of the Exchange Act, or
any successor definition adopted by the Board.
(r) "Non-Qualified Stock Option" means an Option that is not
intended to be an Incentive Stock Option.
(s) "Option" means a right granted to a Participant under
Article 7 or Article 12 of the Plan to purchase Stock at a specified price
during specified time periods. An Option may be either an Incentive Stock Option
or a Non-Qualified Stock Option provided that any Option granted under Article
12 must be a Non-Qualified Stock Option.
(t) "Participant" means a person who, as a Non-Employee
Director, employee of or consultant or advisor to the Company or any Subsidiary,
has been granted an Award under the Plan.
(u) "Performance Share" means a right granted to a Participant
under Article 9, to receive cash, Stock, or other Awards, the payment of which
is contingent upon achieving certain performance goals established by the
Committee.
(v) "Plan" means the Microtest, Inc. Long-Term Incentive Plan,
as amended from time to time.
(w) "Restricted Stock Award" means Stock granted to a
Participant under Article 10 that is subject to certain restrictions.
(x) "Stock" means the common stock of the Company and such
other securities of the Company that may be substituted for Stock pursuant to
Article 13.
(y) "Stock Appreciation Right" or "SAR" means a right granted
to a Participant under Article 8 to receive a payment equal to the difference
between the Fair Market Value of a share of Stock as of the date of exercise of
the SAR over the grant price of the SAR
(z) "Subsidiary" means any corporation, domestic or foreign,
of which a majority of the outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Company.
25
<PAGE> 28
ARTICLE 4 ADMINISTRATION
4.1 BOARD/COMMITTEE. The Plan shall be administered by the Board of
Directors or a Committee appointed by, and which serves at the discretion of,
the Board. If the Board appoints a Committee, the Committee will consist of at
least two individuals, each of whom qualifies as (i) a Non-Employee Director,
and (ii) an "outside director" under Code Section 162(m) and the regulations
issued thereunder. Reference to the Committee will refer to the Board if the
Board does not appoint a Committee.
4.2 ACTION BY THE BOARD. A majority of the Board shall constitute a
quorum. The acts of a majority of the members present at any meeting at which a
quorum is present and acts approved in writing by a majority of the Board in
lieu of a meeting shall be deemed the acts of the Board. Each member of the
Board is entitled to, in good faith, rely or act upon any report or other
information furnished to that member by any officer or other employee of the
Company or any Subsidiary, the Company's independent certified public
accountants, or any executive compensation consultant or other professional
retained by the Company to assist in the administration of the Plan.
4.3 AUTHORITY OF BOARD. The Board has the exclusive power, authority
and discretion to:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted to
each Participant;
(c) Determine the number of Awards to be granted and the
number of shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted
under the Plan including but not limited to, the exercise price, grant price, or
purchase price, any restrictions or limitations on the Award, any schedule for
lapse of forfeiture restrictions or restrictions on the exercisability of an
Award, and accelerations or waivers thereof, based in each case on such
considerations as the Board in its sole discretion determines;
(e) Determine whether, to what extent, and under what
circumstances an Award may be settled in, or the exercise price of an Award may
be paid in, cash, Stock, other Awards, or other property, or an Award may be
canceled, forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which need not
be identical for each Participant;
(g) Decide all other matters that must be determined in
connection with an Award;
26
<PAGE> 29
(h) Establish, adopt or revise any rules and regulations as it
may deem necessary or advisable to administer the Plan; and
(i) Make all other decisions and determinations that may be
required under the Plan or as the Board deems necessary or advisable to
administer the Plan.
4.4 DECISIONS BINDING. The Board's interpretation of the Plan, any
Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Board with respect to the Plan are final, binding, and
conclusive on all parties.
ARTICLE 5 SHARES SUBJECT TO THE PLAN
5.1 NUMBER OF SHARES. Subject to adjustment provided in Section 14.1,
the aggregate number of shares of Stock reserved and available for Awards or
which may be used to provide a basis of measurement for or to determine the
value of an Award (such as with a Stock Appreciation Right or Performance Share
Award) shall be 1,200,000.
5.2 LAPSED AWARDS. To the extent that an Award terminates, expires or
lapses for any reason, any shares of Stock subject to the Award will again be
available for the grant of an Award under the Plan.
5.3 STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
5.4 LIMITATIONS ON AWARDS TO ANY SINGLE PARTICIPANT. Subject to
adjustment provided in Section 14.1, no single Participant may receive Awards
covering in the aggregate more than 300,000 shares of Stock during any fiscal
year of the Company.
ARTICLE 6 ELIGIBILITY
6.1 GENERAL. Awards may be granted only to individuals who are
Non-Employee Directors, employees of the Company or a Subsidiary or to
consultants or advisors thereto, as determined by the Board. . Persons eligible
to receive Director Option grants under Article 12 of the Plan include only
Non-Employee Directors of the Company.
6.2 FOREIGN PARTICIPANTS. In order to assure the viability of Awards
granted to Participants employed in foreign countries, the Committee may provide
for such special terms as it may consider necessary or appropriate to
accommodate differences in local law, tax policy, or custom. Moreover, the
Committee may approve such supplements to, or amendments, restatements, or
alternative versions of the Plan as it may consider necessary or appropriate for
such purposes without affecting the terms of the Plan as in effect for any other
purpose; provided, however, that no such supplements,
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amendments, restatements, or alternative versions will increase the number of
shares of Stock available under Section 5.1 of the Plan.
ARTICLE 7 STOCK OPTIONS
7.1 GENERAL. The Board is authorized to grant Options to Participants
on the following terms and conditions:
(a) EXERCISE PRICE. The exercise price per share of Stock
under an Option shall be determined by the Board.
(b) TIME AND CONDITIONS OF EXERCISE. The Board shall determine
the time or times at which an Option may be exercised in whole or in part. The
Board also shall determine the performance or other conditions, if any, that
must be satisfied before all or part of an Option may be exercised. Unless
otherwise provided in the Award Agreement, upon the Participant's termination of
employment or service from the Company or a Subsidiary for Cause, the Option
shall lapse as of the date of such termination.
(c) PAYMENT. The Board shall determine the methods by which
the exercise price of an Option may be paid, the form of payment, including,
without limitation, cash, promissory note, shares of Stock, or other property
(including broker assisted arrangements), and the methods by which shares of
Stock shall be delivered or deemed to be delivered to Participants.
(d) EVIDENCE OF GRANT. All Options shall be evidenced by a
written Award Agreement between the Company and the Participant. The Award
Agreement shall include such provisions as may be specified by the Board.
7.2 INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options
granted under the Plan must comply with the following additional rules:
(a) EXERCISE PRICE. The exercise price per share of Stock
shall be set by the Board, provided that the exercise price for any Incentive
Stock Option or may not be less than the Fair Market Value as of the date of the
grant.
(b) EXERCISE. In no event, may any Incentive Stock Option be
exercisable for more than ten years from the date of its grant.
(c) LAPSE OF OPTION. An Incentive Stock Option shall lapse
under the following circumstances:
(1) The Incentive Stock Option shall lapse ten (10)
years after it is granted, unless an earlier time is set in
the Award Agreement.
(2) The Incentive Stock Option shall lapse upon
termination of employment for Cause or for any other reason,
other than the Participant's
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death or Disability, unless the Committee determines in its
discretion to extend the exercise period for no more than
ninety (90) days after the Participant's termination of
employment.
(3) In the case of the Participant's termination of
employment due to Disability or death, the Incentive Stock
Option shall lapse upon termination of employment, unless the
Committee determines in its discretion to extend the exercise
period of the Incentive Stock Option for no more than twelve
(12) months after the date the Participant terminates
employment. Upon the Participant's death, any vested and
otherwise exercisable Incentive Stock Options may be exercised
by the Participant's legal representative or representatives,
by the person or persons entitled to do so under the
Participant's last will and testament, or, if the Participant
shall fail to make testamentary disposition of such Incentive
Stock Option or shall die intestate, by the person or persons
entitled to receive said Incentive Stock Option under the
applicable laws of descent and distribution.
(d) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair Market
Value (determined as of the time an Award is made) of all shares of Stock with
respect to which Incentive Stock Options are first exercisable by a Participant
in any calendar year may not exceed One Hundred Thousand Dollars ($100,000.00).
(e) TEN PERCENT OWNERS. An Incentive Stock Option shall be
granted to any individual who, at the date of grant, owns stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
Stock of the Company only if, at the time such Option is granted, the Option
price is at least one hundred ten percent (110%) of the Fair Market Value of the
Stock and such Option by its terms is not exercisable after the expiration of
five (5) years from the date the Option is granted.
(f) EXPIRATION OF INCENTIVE STOCK OPTIONS. No Award of an
Incentive Stock Option may be made pursuant to this Plan after the tenth
anniversary of the Effective Date.
(g) RIGHT TO EXERCISE. During a Participant's lifetime, an
Incentive Stock Option may be exercised only by the Participant.
(h) EMPLOYEES ONLY. Incentive Stock Options may be granted
only to Participants who are employees of the Company or any Subsidiary.
ARTICLE 8 STOCK APPRECIATION RIGHTS
8.1 GRANT OF SARs. The Board is authorized to grant SARs to
Participants on the following terms and conditions:
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(a) RIGHT TO PAYMENT. Upon the exercise of a Stock
Appreciation Right, the Participant to whom it is granted has the right to
receive the excess, if any, of:
(1) The Fair Market Value of one share of Stock on
the date of exercise; over
(2) The grant price of the Stock Appreciation Right
as determined by the Board, which shall not be less than the
Fair Market Value of one share of Stock on the date of grant
in the case of any SAR related to any Incentive Stock Option.
(b) OTHER TERMS. All awards of Stock Appreciation Rights shall
be evidenced by an Award Agreement. The terms, methods of exercise, methods of
settlement, form of consideration payable in settlement, and any other terms and
conditions of any Stock Appreciation Right shall be determined by the Board at
the time of the grant of the Award and shall be reflected in the Award
Agreement.
ARTICLE 9 PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE SHARES. The Board is authorized to grant
Performance Shares to Participants on such terms and conditions as may be
selected by the Board. The Board shall have the complete discretion to determine
the number of Performance Shares granted to each Participant. All Awards of
Performance Shares shall be evidenced by an Award Agreement.
9.2 RIGHT TO PAYMENT. A grant of Performance Shares gives the
Participant rights, valued as determined by the Board, and payable to, or
exercisable by, the Participant to whom the Performance Shares are granted, in
whole or in part, as the Board shall establish at grant or thereafter. The Board
shall set performance goals and other terms or conditions to payment of the
Performance Shares in its discretion which, depending on the extent to which
they are met, will determine the number and value of Performance Shares that
will be paid to the Participant, provided that the time period during which the
performance goals must be met shall, in all cases, exceed six months.
(a) OTHER TERMS. Performance Shares may be payable in cash,
Stock, or other property, and have such other terms and conditions as determined
by the Board and reflected in the Award Agreement. The terms, methods of
exercise, methods of settlement, form of consideration payable in settlement,
and any other terms and conditions of any Performance Shares shall be determined
by the Board at the time of the grant of the Award and shall be reflected in the
Award Agreement.
ARTICLE 10 RESTRICTED STOCK AWARDS
10.1 GRANT OF RESTRICTED STOCK. The Board is authorized to make Awards
of Restricted Stock to Participants in such amounts and subject to such terms
and
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conditions as may be selected by the Board. All Awards of Restricted Stock shall
be evidenced by a Restricted Stock Award Agreement.
10.2 ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions as the Board may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, or otherwise, as the Board determines
at the time of the grant of the Award or thereafter.
10.3 FORFEITURE. Except as otherwise determined by the Board at the
time of the grant of the Award or thereafter, upon termination of employment
during the applicable restriction period, Restricted Stock that is at that time
subject to restrictions shall be forfeited and reacquired by the Company,
provided, however, that the Board may provide in any Award Agreement that
restrictions or forfeiture conditions relating to Restricted Stock will be
waived in whole or in part in the event of terminations resulting from specified
causes, and the Board may in other cases waive in whole or in part restrictions
or forfeiture conditions relating to Restricted Stock.
10.4 CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under
the Plan may be evidenced in such manner as the Board shall determine. If
certificates representing shares of Restricted Stock are registered in the name
of the Participant, certificates must bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock, and
the Company shall retain physical possession of the certificate until such time
as all applicable restrictions lapse.
ARTICLE 11 DIVIDEND EQUIVALENTS
11.1 GRANT OF DIVIDEND EQUIVALENTS. The Board is authorized to grant
Dividend Equivalents to Participants subject to such terms and conditions as may
be selected by the Board. Dividend Equivalents shall entitle the Participant to
receive payments equal to dividends with respect to all or a portion of the
number of shares of Stock subject to an Option Award or SAR Award, as determined
by the Board. The Board may provide that Dividend Equivalents be paid or
distributed when accrued or be deemed to have been reinvested in additional
shares of Stock, or otherwise reinvested.
ARTICLE 12 NON-EMPLOYEE DIRECTOR OPTION GRANTS
12.1 ANNUAL DIRECTOR OPTION GRANTS. Subject to the limitations on the
number of shares that may be awarded under this Plan, as of each Annual Grant
Date, each Non-Employee Director serving as a director of the Company on that
Annual Grant Date will automatically be granted a Director Option to purchase
5,000 shares of Stock. The Option granted pursuant to this Section 12.1 will be
immediately vested and exercisable as of the relevant Annual Grant Date. The
Board will have the discretion to increase or decrease the number shares of
Stock subject to grant under this Section 12.1.
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12.2 ANNIVERSARY DIRECTOR OPTION GRANTS. Subject to the limitation on
the number of shares that may be awarded under this Plan, each Nonemployee
Director shall be granted an Option to purchase 10,000 shares of Stock on each
Anniversary Grant Date. The Option granted pursuant to this Section 12.2 shall
vest 25% on the Anniversary Grant Date, 25% on the first anniversary of the
Anniversary Grant Date, 25% on the second anniversary of the Anniversary Grant
Date, and the remaining 25% on the third anniversary of the Anniversary Grant
Date provided, however, that a Nonemployee Director shall not be permitted to
exercise any Option granted under this Section 12.2 until he owns (beneficially
or otherwise) 5,000 shares of Stock other than shares of Stock subject to
unexercised options under this Plan or any other Company plan. The Board will
have the discretion to increase or decrease the number of shares of Stock
subject to grant under this Section 12.2.
12.3 PERIODIC DIRECTOR OPTION GRANTS. The Board shall have the
authority to grant Options to Non-Employee Directors in addition to those
granted under Sections 12.1 and 12.2. Options granted to Non-Employee Directors
under this Section 12.3 will have terms and conditions consistent with the
provisions of this Article 12 and such other terms and conditions consistent
with the provisions in this Plan.
12.4 OPTION EXERCISE PRICE. The exercise price for Director Options
will be the Fair Market Value as of the relevant date of grant.
12.5 DURATION OF OPTIONS. Unless sooner terminated, forfeited, or
surrendered pursuant to a provision of this Plan, each Option granted under this
Article 12 shall expire on the tenth anniversary of its date of grant.
12.6 TERMINATION OF DIRECTOR STATUS. If a Non-Employee Director ceases
to be a director of the Company for any reason other than Cause, any vested
Director Option will expire on the earlier of (i) its expiration date, or (ii)
one year after the date on which his or her status as a director terminated.
Leave of absence approved by the Committee will not constitute termination of
status as director. If a Non-Employee Director terminates service for Cause, the
Director Option will lapse as of the date of such termination. If a Non-Employee
Director ceases to be a director of the Company for any reason, any nonvested
Director Option will expire on the date the Non-Employee Director ceases to be a
director of the Company.
12.7 PAYMENT OF EXERCISE PRICE. The exercise price of a Director Option
may be paid in cash, shares of Stock that have been held for at least six month
(through actual tender or by attestation), or other property (including
broker-assisted arrangements).
ARTICLE 13 PROVISIONS APPLICABLE TO AWARDS
13.1 STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted under
the Plan may, in the discretion of the Board, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Award granted
under the
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Plan. If an Award is granted in substitution for another Award, the Board may
require the surrender of such other Award in consideration of the grant of the
new Award. Awards granted in addition to or in tandem with other Awards may be
granted either at the same time as or at a different time from the grant of such
other Awards.
13.2 EXCHANGE PROVISIONS. The Board may at any time offer to exchange
or buy out any previously granted Award for a payment in cash, Stock, or another
Award (subject to Section 13.1), based on the terms and conditions the Board
determines and communicates to the Participant at the time the offer is made.
13.3 TERM OF AWARD. The term of each Award shall be for the period as
determined by the Board, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with the
Incentive Stock Option exceed a period of ten years from the date of its grant.
13.4 FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and
any applicable law or Award Agreement, payments or transfers to be made by the
Company or a Subsidiary on the grant or exercise of an Award may be made in such
forms as the Board determines at or after the time of grant, including without
limitation, cash, Stock, other Awards, or other property, or any combination,
and may be made in a single payment or transfer, in installments, or on a
deferred basis, in each case determined in accordance with rules adopted by, and
at the discretion of, the Board. The Board may also authorize payment in the
exercise of an Option by net issuance or other cashless exercise methods.
13.5 LIMITS ON TRANSFER. No right or interest of a Participant in any
Award may be pledged, encumbered, or hypothecated to or in favor of any party
other than the Company or a Subsidiary, or shall be subject to any lien,
obligation, or liability of such Participant to any other party other than the
Company or a Subsidiary. Except as otherwise provided by the Committee, no Award
shall be assignable or transferable by a Participant other than by will or the
laws of descent and distribution
13.6 BENEFICIARIES. Notwithstanding Section 13.5, a Participant may, in
the manner determined by the Board, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to any
Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject to
all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Board. If the Participant is married and resides in a jurisdiction in which
community property laws apply, a designation of a person other than the
Participant's spouse as his beneficiary with respect to more than 50 percent of
the Participant's interest in the Award shall not be effective without the
written consent of the Participant's spouse. If no beneficiary has been
designated or survives the Participant, payment shall be made to the person
entitled thereto under the Participant's will or the laws of descent and
distribution. Subject to the foregoing, a beneficiary designation may
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be changed or revoked by a Participant at any time provided the change or
revocation is filed with the Board.
13.7 STOCK CERTIFICATES. All Stock certificates delivered under the
Plan are subject to any stop-transfer orders and other restrictions as the Board
deems necessary or advisable to comply with federal or state securities laws,
rules and regulations and the rules of any national securities exchange or
automated quotation system on which the Stock is listed, quoted, or traded. The
Board may place legends on any Stock certificate to reference restrictions
applicable to the Stock.
13.8 TENDER OFFERS. In the event of a public tender for all or any
portion of the Stock, or in the event that a proposal to merge, consolidate, or
otherwise combine with another company is submitted for shareholder approval,
the Board may in its sole discretion declare previously granted Options to be
immediately exercisable. To the extent that this provision causes Incentive
Stock Options to exceed the dollar limitation set forth in Section 7.2(d), the
excess Options shall be deemed to be Non-Qualified Stock Options.
13.9 CHANGE OF CONTROL. A Change of Control shall, in the sole
discretion of the Board:
(a) Cause every Award outstanding hereunder to become fully
exercisable and all restrictions on outstanding Awards to lapse and allow each
Participant the right to exercise Awards prior to the occurrence of the event
otherwise terminating the Awards over such period as the Committee, in its sole
and absolute discretion, shall determine. To the extent that this provision
causes Incentive Stock Options to exceed the dollar limitation set forth in
Section 7.2(d), the excess Options shall be deemed to be Non-Qualified Stock
Options; or
(b) Cause every Award outstanding hereunder to terminate,
provided that the surviving or resulting corporation shall tender an option or
options to purchase its shares or exercise such rights on terms and conditions,
as to the number of shares and rights and otherwise, which shall substantially
preserve the rights and benefits of any Award then outstanding thereunder.
ARTICLE 14 CHANGES IN CAPITAL STRUCTURE
14.1 GENERAL. In the event a stock dividend is declared upon the Stock,
the shares of Stock then subject to each Award (and the number of shares subject
thereto) shall be increased proportionately without any change in the aggregate
purchase price therefor. In the event the Stock shall be changed into or
exchanged for a different number or class of shares of Stock or of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, there shall be substituted for each such share of Stock
then subject to each Award (and for each share of Stock then subject thereto)
the number and class of shares of Stock into which each outstanding share of
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Stock shall be so exchanged, all without any change in the aggregate purchase
price for the shares then subject to each Award.
ARTICLE 15 AMENDMENT, MODIFICATION AND TERMINATION
15.1 AMENDMENT, MODIFICATION AND TERMINATION. With the approval of the
Board, at any time and from time to time, the Committee may terminate, amend or
modify the Plan; provided, however, that to the extent necessary and desirable
to comply with any applicable law, regulation, or stock exchange rule, the
Company will obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
15.2 WITHHOLDING. The Company or any Subsidiary shall have the
authority and the right to deduct or withhold, or require a Participant to remit
to the Company, an amount sufficient to satisfy the Federal, state, and local
taxes (including the Participant's FICA obligation and any withholding
obligation imposed by any country other than the United States in which the
Participant resides) required by law to be withheld with respect to any taxable
event arising as a result of this Plan. With respect to withholding required
upon any taxable event under the Plan, Participants may elect, subject to the
Board's approval, to satisfy the withholding requirement, in whole or in part,
by having the Company or any Subsidiary withhold shares of Stock having a Fair
Market Value on the date of withholding equal to the minimum statutory amount to
be withheld for tax purposes in accordance with such procedures as the Board
establishes.
15.3 NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any Award Agreement
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary.
15.4 UNFUNDED STATUS OF AWARDS. The Plan is intended to be an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award Agreement shall give the Participant any rights that
are greater than those of a general creditor of the Company or any Subsidiary.
15.5 INDEMNIFICATION. To the extent allowable under applicable law,
each member of the Committee or of the Board shall be indemnified and held
harmless by the Company from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by such member in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action or failure
to act under the Plan and against and from any and all amounts paid by him or
her in satisfaction of judgment in such action, suit, or proceeding against him
or her provided he or she gives the Company an opportunity, at its own expense,
to handle and defend the same before he or she undertakes to handle and defend
it on his or her own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled
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under the Company's Articles of Incorporation or By-Laws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
15.6 RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or other benefit plan of the
Company or any Subsidiary.
15.7 EXPENSES. The expenses of administering the Plan shall be borne by
the Company and its Subsidiaries.
15.8 TITLES AND HEADINGS. The titles and headings of the Sections in
the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.
15.9 FRACTIONAL SHARES. No fractional shares of stock shall be issued
and the Board shall determine, in its discretion, whether cash shall be given in
lieu of fractional shares or whether such fractional shares shall be eliminated
by rounding up.
15.10 SECURITIES LAW COMPLIANCE. With respect to any person who is, on
the relevant date, obligated to file reports under Section 16 of the Exchange
Act, transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Board fails to so comply, it shall be
void to the extent permitted by law and voidable as deemed advisable by the
Board, and such provision or action shall be deemed to be modified so as to
comply with Rule 16b-3.
15.11 GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company
to make payment of awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by government
agencies as may be required. The Company shall be under no obligation to
register under the Securities Act of 1933, as amended, any of the shares of
Stock paid under the Plan. If the shares paid under the Plan may in certain
circumstances be exempt from registration under such act, the Company may
restrict the transfer of such shares in such manner as it deems advisable to
ensure the availability of any such exemption.
15.12 GOVERNING LAW. The Plan and all Award Agreements shall be
construed in accordance with and governed by the laws of the State of Arizona.
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PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
A. Please mark your votes as in this example: [X]
VOTE FOR NOMINEES Nominees:
LISTED WITHHELD
AT RIGHT FOR ALL
1. ELECTION William C. Turner
OF TWO Dianne C. Walker
DIRECTORS [ ] [ ]
WITHHELD FOR (Write that nominee's
name in the space
provided below)
- -----------------------------
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
CONTRARY DIRECTION IS INDICATED, WILL BE VOTED
FOR THE ELECTION OF DIRECTOR NOMINEES, APPROVAL
OF AN INCREASE IN AUTHORIZED SHARES FOR THE
EMPLOYEE STOCK PURCHASE PLAN, AND AS PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE
THE MEETING.
- -----------------------------
FOR AGAINST ABSTAIN
2. Approval to amend the
Microtest, Inc. Long-Term
Incentive Plan [ ] [ ] [ ]
Signature(s)___________________________________________ Date ______________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
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- --------------------------------------------------------------------------------
PLEASE PRESENT THIS TICKET FOR ADMISSION TO THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, MAY 30, 2000, AT 10:00 A.M., ARIZONA TIME, AT THE
DOUBLETREE LA POSADA RESORT, 4949 EAST LINCOLN DRIVE, PARADISE VALLEY, ARIZONA.
- --------------------------------------------------------------------------------
A. Please mark your votes as in this example: [X]
VOTE FOR NOMINEES Nominees:
LISTED WITHHELD
AT RIGHT FOR ALL
1. ELECTION William C. Turner
OF TWO Dianne C. Walker
DIRECTORS [ ] [ ]
WITHHELD FOR (Write that nominee's
name in the space
provided below)
- -----------------------------
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
CONTRARY DIRECTION IS INDICATED, WILL BE VOTED
FOR THE ELECTION OF DIRECTOR NOMINEES, APPROVAL
OF AN INCREASE IN AUTHORIZED SHARES FOR THE
EMPLOYEE STOCK PURCHASE PLAN, AND AS PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE
THE MEETING.
- -----------------------------
FOR AGAINST ABSTAIN
2. Approval to amend the
Microtest, Inc. Long-Term
Incentive Plan [ ] [ ] [ ]
Signature(s)___________________________________________ Date ______________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
38
