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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] 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 Section 240.14a-11(c) or Section 240.14a-12
OBJECTIVE SYSTEMS INTEGRATORS, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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OBJECTIVE SYSTEMS INTEGRATORS, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 21, 1997
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Objective
Systems Integrators, Inc., a Delaware corporation ("OSI"), will be held on
Friday, November 21, 1997, at 10:00 a.m. local time, at the Lake Natoma Inn, 702
Gold Lake Drive, Folsom, California 95630, for the following purposes:
1. To elect five directors to serve until the next Annual Meeting or until
their successors are elected and qualified.
2. To approve an amendment to our 1994 Stock Option Plan to increase the
number of shares of Common Stock reserved for issuance by 3,000,000
shares.
3. To approve an amendment to our 1995 Employee Stock Purchase Plan to
increase the number of shares of Common Stock reserved for issuance by
800,000 shares.
4. To ratify the appointment of Deloitte & Touche LLP as our independent
auditors for the fiscal year ending June 30, 1998.
5. To transact such other business as may properly come before the Meeting.
More detail about the stated purposes of the Meeting can be found in the
Proxy Statement that accompanies this Notice. The record date for the Meeting
is October 10, 1997. Only stockholders of record at the close of business on
that date will be given notice of the Meeting and are entitled to vote.
All stockholders are invited to attend the Meeting. However, to ensure that
your shares are represented we urge you to mark, sign, date and return a Proxy
as promptly as possible. A postage-prepaid envelope has been enclosed for that
purpose. If you do attend the Meeting, you may vote in person even if you have
returned a Proxy.
Sincerely,
Philip N. Cardman
Vice President, General Counsel and
Secretary
Folsom, California
October 20, 1997
YOUR VOTE IS IMPORTANT.
TO ENSURE YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE MARK, SIGN, DATE
AND RETURN YOUR PROXY AS PROMPTLY AS POSSIBLE.
October 20, 1997
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OBJECTIVE SYSTEMS INTEGRATORS, INC.
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PROXY STATEMENT FOR 1997
ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is being solicited on behalf of the Board of Directors
("Board") of OBJECTIVE SYSTEMS INTEGRATORS, INC., a Delaware corporation
("OSI"), for use at our Annual Meeting of Stockholders ("Meeting") to be held
Friday, November 21, 1997, at 10:00 a.m. local time, or at any adjournment of
the Meeting, and for the purposes described in this Proxy Statement. The Annual
Meeting will be held at the Lake Natoma Inn, 702 Gold Lake Drive, Folsom,
California 95630. OSI's principal executive offices are at 100 Blue Ravine
Road, Folsom, California 95630, and our telephone number at that location is
(916) 353-2400.
These proxy solicitation materials and the Annual Report to Stockholders for
the year ended June 30, 1997, were first mailed on or about October 27, 1997, to
all stockholders entitled to vote at the Meeting.
RECORD DATE AND OUTSTANDING SHARES
Stockholders of record at the close of business on October 10, 1997 ("Record
Date") will be given notice of the Meeting and are entitled to vote. We have
one series of Common Shares outstanding, designated Common Stock, $.001 par
value per share ("Common Stock"). On the Record Date, 32,905,110 shares of
Common Stock were issued and outstanding. They were held of record by 112
stockholders.
REVOCABILITY OF PROXIES
Proxies can be revoked at any time before their use by (a) delivering a
written notice of revocation to our Secretary, (b) delivering a duly executed
proxy bearing a later date to our Secretary, or (c) attending the Meeting and
voting in person.
VOTING AND SOLICITATION
You have one vote for each share of Common Stock held on the Record Date. In
voting for the election of directors (Proposal One) you may cumulate your votes.
For cumulative voting, the total number of votes that may be cast is five times
the the number of shares that you are entitled to vote. One candidate may be
given all of your votes or they may be distributed among as many candidates as
you chose. However, (a) votes cannot be cast for more than five candidates or
for a candidate who has not been nominated before the voting, and (b) cumulative
voting will not apply unless at least one stockholder has given notice, before
the voting, of the intention to cumulate. On all other matters, each share of
Common Stock has one vote. A majority of the outstanding shares of Common Stock
on the Record Date must be represented at the Meeting for business to be
transacted. Abstentions and Broker Nonvotes will be counted in establishing a
quorum.
This solicitation is being made by OSI, which will bear all related costs.
We may reimburse brokerage firms and others representing beneficial owners for
their expenses in forwarding solicitation material to those beneficial owners.
Proxies may also be solicited, without additional compensation, by our
directors, officers and other employees.
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QUORUM, ABSTENTIONS AND BROKER NONVOTES
Votes cast at the Meeting will be counted by the Inspector of Elections
("Inspector"), who is a representative of our Transfer Agent. The Inspector will
also determine whether a quorum is present. For proposals to be approved,
Delaware law generally requires an affirmative vote by a majority of shares
present (in person or by proxy) at a duly held Meeting where there is a quorum.
Delaware law also generally provides that a quorum for a meeting will exist only
if a majority of the shares entitled to vote at the meeting are present either
in person or by proxy.
In determining whether a quorum is present, the Inspector will treat shares
that are voted "Withheld" or "Abstain" as being present and entitled to vote.
They will not be treated as votes in favor of any matter submitted. Proxies
which are returned using the form of proxy enclosed, and which are not marked as
to a particular item, will be voted to elect the five nominated directors, to
approve amending our 1994 Stock Option Plan, for to approve amending of our 1995
Employee Stock Purchase Plan, for of the appointment of Deloitte & Touche LLP
and, as the proxy holders deem advisable, on any other matters that may properly
come before the Meeting.
If a broker indicates that it has no discretionary authority for a particular
matter ("Broker Nonvotes"), the Inspector will not consider the shares held by
the broker as being present for that matter in determining whether a quorum
exists.
We believe that these tabulation procedures are consistent with Delaware law
and our bylaws in determining of a quorum and in this voting of shares.
DEADLINE FOR STOCKHOLDER PROPOSALS
Stockholder proposals for the 1998 Annual Meeting must have been received by
OSI not later than June 22, 1998, to be considered for inclusion in the Proxy
Statement and form of Proxy relating to that meeting.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table has information on the beneficial ownership of our Common
Stock as of October 10, 1997, for (a) each person that we know beneficially owns
more than 5% of the outstanding shares of our Common Stock, (b) each of our
directors, (c) each of our officers named in the Summary Compensation Table on
page 15, and (d) all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
FIVE PERCENT STOCKHOLDERS, COMMON STOCK APPROXIMATE
DIRECTORS, AND CERTAIN EXECUTIVE OFFICERS BENEFICIALLY OWNED PERCENTAGE OWNED(1)
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<S> <C> <C>
Colorado State Bank and Trust, Trustee (2).................... 8,000,000 24.31%
1600 Broadway, Suite 300
Denver, CO 80202
Johnson L.L.C. ............................................... 2,308,986 7.02%
2676 West Alamo Avenue
Littleton, CO 80120
Tom L. Johnson (3)............................................ 6,190,174 18.81%
Vento L.L.C. ................................................. 2,308,986 7.02%
2676 West Alamo Avenue
Littleton, CO 80120
Richard G. Vento (4).......................................... 6,190,174 18.81%
Amerindo Investment Advisors, Inc. (5)........................ 2,491,100 7.57%
One Embarcadero Center, Suite 2300
San Francisco, CA 94111-3162
Jonathan B. Shantz (6)........................................ 1,315,789 4.00%
Tim J. Sebring (7)............................................ 1,076,620 3.27%
Dr. Kornel Terplan............................................ 361,921 1.10%
Joseph T. Ambrozy (8)......................................... 198,125 *
James K.R. Souders (9)........................................ 125,912 *
Dan D. Line (10).............................................. 124,506 *
David M. Allen (11)........................................... 41,667 *
George F. Schmitt (12)........................................ 36,042 *
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All directors and executive officers as a group (17 persons).. 20,764,997 63.10%
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</TABLE>
* Less than 1% of the outstanding shares.
(1) Options exercisable on or before December 9, 1997, are treated as being
outstanding in computing both ownership and percentage ownership for the
optionee, but not in computing the percentage of any other person.
Percentage ownership is based on 32,905,110 shares of Common Stock
outstanding as of October 10, 1997, together with options held by each
individual. Beneficial ownership is determined according to the SEC rules
and includes voting and investment power with respect to shares.
(2) Includes 2,000,000 shares held in each of four Grantor Retained Annuity
Trusts created by Mr. Johnson, Mr. Johnson's wife, Mr. Vento and Mr.
Vento's wife, respectively. Colorado State Bank and Trust is the trustee
of each of the trusts and exercises sole voting and investment power over
the shares.
(3) Includes 39,604 shares owned directly by Mr. Johnson in addition to 39,604
shares owned by Mr. Johnson's wife, 1,900,990 shares owned by Kari Anne
Johnson L.L.C., 1,900,990 shares owned by Kevin Johnson L.L.C. and
2,308,986 shares owned by Johnson L.L.C., over which Mr. Johnson is
deemed to share voting and investment power.
(4) Includes 39,605 shares owned directly by Mr. Vento in addition to 39,605
shares owned by Mr. Vento's wife, 1,267,326 shares owned by Nicole Vento
L.L.C., 1,267,326 shares owned by Renee Vento L.L.C., 1,267,326 shares
owned by Gail Vento L.L.C., and 2,308,986 shares owned by Vento L.L.C.,
over which Mr. Vento is deemed to share voting and investment power.
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(5) Based on a Schedule 13D/A filed with the SEC on October 10, 1997, Amerindo
Investment Advisors Inc., a California corporation with principal executive
offices at One Embarcadero Center, Suite 2300, San Francisco, CA 94111
("Amerindo"), Amerindo Investment Advisors, Inc., a Panama corporation with
principal executive offices at Edificio Sucre, Calle 48 Este, Bella Vista,
Apartado 6277, Panama 5, Panama ("Amerindo Panama"), the Amerindo
Investment Advisors Inc. Money Purchase Trust, the address of which is
Gables International Plaza, 2655 La Jeune Road, Suite 1112, Coral Gables,
FL 33134 (the "Plan"), the Amerindo Advisors (UK) Limited Retirement
Benefits Scheme, the address of which is 43 Upper Grosvenor Street, London
WIX 9PG England ("Retirement"), Alberto W. Vilar, Gary A. Tanaka, James P.
F. Stableford and Renata LePort beneficially own, in the aggregate,
2,491,100 shares as of October 10, 1997, as to all but 7,500 of which
beneficial ownership is disclaimed. Amerindo shares voting and dispositive
power over 1,605,000 shares and disclaims beneficial ownership as to all of
them; Amerindo-Panama shares voting and dispositive power over 876,000
shares and disclaims beneficial ownership as to all of them; the Plan has
sole voting and dispositive power over 2,500 shares and disclaims
beneficial ownership as to all of them; Retirement shares voting and
dispositive power over 5,000 shares and disclaims beneficial ownership as
to all of them; Messr. Vilar has sole voting and dispositive power of 2,500
shares but affirms beneficial ownership as to only a portion of them and
shares voting and dispositive power over 2,488,600 shares and disclaims
beneficial ownership as to all but 5,000 of them; Messr. Tanaka shares
voting and dispositive power over 2,488,600 shares and disclaims beneficial
ownership as to all but 5,000 of them; Messr. Stableford shares voting and
dispositive power over 5,000 shares but affirms beneficial ownership as to
only a portion of them; and Ms. Leport shares voting and dispositive power
over 5,000 shares but affirms beneficial ownership over only a portion of
them. Amerindo is registered as an investment advisor pursuant to Section
203 of the Investment Advisors Act of 1940, as amended. Messrs. Vilar and
Tanaka are the sole stockholders and directors of Amerindo and Amerindo-
Panama. Messr. Vilar is the sole trustee of the Plan. Messrs. Vilar,
Tanaka, and Stableford and Ms. Leport are the managing trustees of
Retirement. Each person expressly disaffirms membership in any group under
the Securities Exchange Act of 1934, as amended, or otherwise. The shares
are held for the discretionary accounts of certain clients. Amerindo,
Amerindo Panama and Messrs. Vilar, Tanaka and Stableford and Ms. LePort
disclaim beneficial ownership of all such shares, except insofar as
concerns their indirect interest in the Plan and Retirement by reason of
their Pro Rata interests in the Plan and Retirement.
(6) Includes 1,315,789 shares owned by Cisco Systems, Inc. Mr. Shantz is a Vice
President at Cisco Systems, Inc. Mr. Shantz disclaims any beneficial
ownership of these shares.
(7) Includes 1,072,673 shares of Common Stock which may be acquired under stock
options that can be exercised on or before December 9, 1997.
(8) Includes 198,125 shares of Common Stock which may be acquired under stock
options that can be exercised on or before December 9, 1997.
(9) Includes 123,265 shares of Common Stock which may be acquired under stock
options that can be exercised on or before December 9, 1997.
(10) Includes 124,506 shares of Common Stock which may be acquired under stock
options that can be exercised on or before December 9, 1997.
(11) Includes 36,667 shares of Common Stock which may be acquired under stock
options that can be exercised on or before December 9, 1997.
(12) Includes 26,042 shares of Common Stock which may be acquired under stock
options that can be exercised on or before December 9, 1997.
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PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
OSI's Bylaws provide for six directors. However, we expect that only five
directors will be elected at the Meeting, with one vacancy remaining
outstanding. We intend to appoint a director to fill the vacancy when a
suitable candidate is found. Unless otherwise instructed, proxy holders will
vote the proxies they receive for the five nominees listed below, all of whom
are presently directors of OSI. If a nominee is unable or declines to serve as
a director at the time of the Meeting, proxies will be voted for any nominee
designated by the present Board to fill the vacancy. We are not aware of any
nominee who is unable or will decline to serve as a director. If additional
nominations are made, the proxy holders will vote the proxies they receive (in
accordance with cumulative voting) to elect as many of the nominees listed below
as is possible. If this occurs, the proxy holders will decide on the specific
nominees that will receive their votes. The term of office for each person
elected as a director will continue until the next Meeting of Stockholders or
until a successor has been duly elected and qualified.
VOTE REQUIRED
If a quorum is present and voting, the five nominees receiving the highest
number of votes will be elected to the Board. Abstentions and Broker Nonvotes
are not counted in electing directors.
NOMINEES
The names of the nominees and some information about them are as follows:
NAME OF NOMINEE AGE POSITION WITH OSI
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Tom L. Johnson (1)........... 52 Co-Chairman of the Board of Directors and
Co-Chief Executive Officer
Richard G. Vento (1)......... 57 Co-Chairman of the Board of Directors and
Co-Chief Executive Officer
George F. Schmitt (1)(2)..... 54 Director
Jonathan B. Shantz (1)(2).... 38 Director
Dr. Kornel Terplan (1)(2).... 53 Director
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(1) Member of Compensation Committee
(2) Member of Audit Committee
There is no family relationship between any director or executive officer.
Tom L. Johnson co-founded Objective Systems Integrators, a partnership and
the predecessor to OSI, in January 1989. He became Co-Chief Executive Officer
for the second time in April 1997, has been Co-Chairman of the Board since
January 1996, and was Co-Chief Executive Officer and Chairman of the Board from
OSI's incorporation in June 1989 until February 1996. Mr. Johnson also served
as President from May 1991 to June 1994, as Chief Financial Officer from July
1989 to November 1993, and as Vice President, Product Development from July 1990
to July 1995. From January 1987 to February 1989, he co-founded and served as
Vice President, Product Development of TelWatch, Inc., a telecommunications
software and hardware company. Before January 1987, he was for more than 22
years involved in a number of software companies, including TelAccount, Inc.,
Schmidt Associates, Computer Sciences Corporation, Control Data Service Bureau,
University Computing Company and MRI Systems, serving in a variety of management
and technical positions. Mr. Johnson has a B.S. degree in Abstract Mathematics
with a minor in Business Management from the University of Houston.
Richard G. Vento co-founded Objective Systems Integrators, a partnership and
the predecessor to OSI, in January 1989 and has been a director of OSI since its
incorporation in June 1989. He became Co-Chief Executive Officer for the second
time in April 1997 and became Co-Chairman of the Board in January 1996. Mr.
Vento also served as Co-Chief Executive Officer from January 1989 to February
1996, as President from June 1994 to July 1995, as Secretary from July 1989 to
November 1993 and as Vice President,
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Sales and Marketing from July 1990 to June 1994. From January 1987 to February
1989, he co-founded and served as Vice President, Business Development, of
TelWatch, Inc. Before January 1987, he was for more than 23 years involved in a
number of software companies, including TelAccount, Inc., Schmidt Associates,
Computer Sciences Corporation, ADP Network Services and TYMSHARE, Inc., serving
in a variety of management positions. Mr. Vento has a B.A. degree in
Mathematics, a B.S. degree in Business and a B.S. degree in Econometric
Statistics from San Francisco State University and an A.A. degree in Liberal
Arts from Foothill College.
George F. Schmitt has been a director of OSI since October 1995. Mr. Schmitt
has been President of Omnipoint Communications Inc. and Executive Vice President
of Omnipoint Corporation (collectively, "Omnipoint") since October 1995. From
November 1994 to September 1995, Mr. Schmitt was President and Chief Executive
Officer of PCS PrimeCo, a personal communications service partnership formed by
AirTouch Communications, NYNEX, Bell Atlantic and US West. From November 1993
to November 1994, Mr. Schmitt was Executive Vice President, International
Operations, of AirTouch Communications. From January 1990 to March 1994, he
served as Vice President of Pacific Telesis Group, a predecessor to AirTouch.
Before January 1990, Mr. Schmitt held various management positions with Pacific
Telesis Group and Pacific Bell. Mr. Schmitt is a director of Omnipoint
Corporation. Mr. Schmitt has a B.A. degree from St. Mary's College of
California and an M.S.M. degree from Stanford University.
Jonathan B. Shantz has been a director of OSI since January 1996. Mr. Shantz
has been Vice President, Service Provider Market, of Cisco Systems, Inc. since
November 1995. From April 1992 to October 1995, Mr. Shantz was with British
Telecom, where he was the Head of the Applications and Information Markets area.
Before April 1992, he held various managerial positions at Bellcore and Bell
Laboratories. Mr. Shantz has a B.A. degree from UC Santa Barbara in
Economics/Mathematics, an M.S. degree from the University of Arizona in Systems
Engineering and an M.B.A. degree from Rutgers University.
Dr. Kornel Terplan has been a director of OSI since August 1992. Since 1983,
Dr. Terplan has served as President of Performance Navigations, Inc., a
telecommunications company. Before 1983, Dr. Terplan served as a consultant
and systems engineer to Computer Sciences Corporation and Tesdata, Inc., both
telecommunications companies. For more than 25 years, Dr. Terplan has served as
a corporate consultant providing consulting, training and product development
services to various national and multinational corporations in the
telecommunications industry, including AT&T, France Telecom and Siemens. He has
a B.A. degree in Electronics, an M.S. degree in Electronics and a Ph.D. degree
in Operational Research from the University of Dresden, Germany.
BOARD MEETINGS AND COMMITTEES
The Board held five meetings in fiscal 1997. No director attended fewer than
75% of the Board meetings and its committees on which he served. The Board has
an Audit Committee and a Compensation Committee. The Board has no nominating
committee or any committee that performs that function.
In fiscal 1997, the Audit Committee consisted of Messrs. Schmitt, Shantz and
Terplan. The Audit Committee oversees our independent auditors and reviews our
internal financial procedures and controls. This Committee met three times in
fiscal 1997.
In the first three quarters of fiscal 1997, the Compensation Committee
consisted of Messrs. Schmitt, Shantz and Terplan. Messrs. Johnson and Vento
joined the Committee in the fourth quarter of fiscal 1997. The Compensation
Committee determines salaries, incentives and other forms of compensation for
our directors, officers and other employees. It also administers various of our
incentive compensation and benefit plans. The Compensation Committee met three
times in fiscal 1997.
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PROPOSAL TWO
AMENDMENT OF 1994 STOCK OPTION PLAN
At the Meeting, you are being asked to approve an amendment of our 1994 Stock
Option Plan ("Plan") to increase the number of shares of Common Stock that can
be issued under the Plan by 3,000,000 shares, for a total of 7,434,830 shares.
The Plan was adopted by the Board and approved by our stockholders in November
1994. In August 1995, our stockholders approved an amendment that (a) increased
the number of shares that could be issued under the Plan by 1,375,000 shares,
(b) made changes in the Plan to reflect developments in the law, and (c) ended
participation in the Plan by nonemployee directors. In November 1996, our
stockholders approved an amendment that increased the number of shares that
could be issued by 810,330 shares. As of the Record Date, (a) options to
purchase a total of 3,540,901 shares of Common Stock were outstanding, with a
weighted average exercise price of $7.33 per share, and (b) 3,722,358 shares
(including the 3 million shares that you are being asked to approve at this
Meeting) were available for future grant, and (c) 171,571 shares had been
purchased following the exercise of options under the Plan.
The Plan authorizes the Board to grant stock options to eligible employees
and consultants of OSI. It allows the Board broad discretion in creating equity
incentives to help us attract and retain the best available personnel for our
business. We have had a long-standing practice of linking the compensation of
our key employees to OSI's performance, because we believe that doing so helps
to maximize stockholder value. In this regard, we regularly provide equity
incentives to a broad range of our employees. This practice has enabled us to
attract and retain the talent that we need.
The Board believes the shares that remain available for grant under the Plan
are not sufficient for the purposes of the Plan. To retain the services of
valuable employees as we mature, we will need to grant additional options as
outstanding options become fully vested. To attract the highly qualified people
that we need, we will have to grant options to new employees.
VOTE REQUIRED
The affirmative vote of at least a majority of the Votes Cast is needed to
amend the Plan. The Votes Cast under Delaware law are the shares of our
Common Stock present at the Meeting (in person or by proxy) and entitled to vote
on a matter. We will count abstentions and votes against amending the Plan in
calculating whether there is a quorum for the Meeting and the number of Votes
Cast. We will count Broker Nonvotes in determining the presence or absence of a
quorum, but not in determining the number of Votes Cast.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR AMENDING THE PLAN.
The essential terms of the Plan are as follows:
PURPOSES
The purposes of the Plan are to (a) attract and retain the best available
personnel for positions of substantial responsibility, (b) provide additional
incentives to employees and consultants of OSI, and (c) promote the success of
our business.
ADMINISTRATION
The Plan is administered by the Board or by a committee approved by the
Board. The Plan is currently being administered by the Board's Compensation
Committee, except that grants to our executive officers are approved by the
entire Board. The Board, or the committee appointed to administer the Plan, is
referred to in this description as the Administrator. The Administrator sets
the terms of options granted, including their exercise price, the number of
shares subject to the option and any exercise restrictions. All questions of
interpretation are determined by the Administrator, and its decisions are final.
Members of the Board receive no additional compensation for their services in
administering the Plan.
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ELIGIBILITY
The Plan provides that either incentive or nonstatutory stock options may be
granted to employees (including officers and employee directors) of OSI or any
of its designated subsidiaries. In addition, the Plan provides that
nonstatutory options may be granted to consultants of OSI or any of its
designated subsidiaries. The Administrator selects the optionees and determines
the number of shares subject to each option. In making this determination, the
Administrator takes into account the duties and responsibilities of the
optionee, the value of the optionee's services, the optionee's present and
potential contribution to our success and other relevant factors. The Plan does
not provide for a minimum number of option shares which may be granted to any
one employee. There is a $100,000 limit on the fair market value of all shares
(under any incentive options) which can be exercised for the first time in any
one calendar year.
TERMS OF OPTIONS
A stock option agreement between OSI and the optionee controls each option.
Options are subject to the following additional terms and conditions:
(1) Exercise of the Option: The vesting period for options is determined
by the Administrator. An option is exercised by giving written notice to OSI,
specifying the number of shares of Common Stock to be purchased and tendering
payment of the purchase price. Payment may consist of cash, check, promissory
note, delivery of already-owned shares of OSI's Common Stock (subject to certain
conditions) or such other consideration the Administrator decides and is
permitted by law. There is also a cashless exercise procedure. Under this
procedure, the optionee gives a broker irrevocable instructions to sell the
purchased shares and remit to OSI, out of the sale proceeds, the exercise price
plus applicable withholding taxes.
Options may be exercised at any time on or after they vest. An option may
not be exercised for a fraction of a share. No option may be exercised after
it expires.
(2) Option Price: The option price is determined by the Administrator.
For incentive stock options, the price must always equal or exceed the fair
market value of the Common Stock on the date of grant. Under the Plan, fair
market value is the closing sales price of the Common Stock as reported on
the Nasdaq National Market. For people who, at the time of grant, own more
than 10% of the voting power of all classes of OSI stock, the option price
cannot be less than 110% of the fair market value on the date of grant.
(3) Termination Of Employment: The Plan provides that if an optionee's
employment ends for any reason other than death or disability, options must
be exercised within 30 days (or such other period, not exceeding three months
in the case of incentive stock options, as determined by the Administrator),
but only to the extent the options were vested on the date of termination.
(4) Death: If an optionee dies while an employee or a consultant of OSI,
options may be exercised at any time within 12 months after the date of
death, but only to the extent that the options were vested on the date of
death.
(5) Disability: If an optionee's employment ends due to a disability,
options may be exercised at any time within 12 months from the date
employment ends, but only to the extent that the options were vested on the
date of termination.
(6) Termination of Options: Options expire 10 years from the date they
are granted. However, incentive options that are granted to an optionee who,
immediately before the grant, owns more than 10% of our Common Stock, may not
have a term of more than five years.
(7) Nontransferability of Options: An option is not transferable other
than by will or the laws of descent and distribution. Options can be
exercised only by the optionees during their lifetime or, if they die, by a
person who acquires the right to exercise the option by bequest, inheritance
or otherwise.
CAPITAL CHANGES
If our capitalization is changed in any way without our receiving
consideration (such as a stock split or dividend) and the result changes the
number of shares of Common Stock, appropriate adjustment will be made in the
option price and in the number of shares subject to each option. If our
dissolution or liquidation is proposed, all outstanding options will
automatically terminate. If we merge with or into another corporation, or
substantially all of our assets are sold, (a) all outstanding options will be
assumed or an
8
<PAGE>
equivalent option substituted by the successor corporation, or (b) if the option
is not assumed or substituted, the outstanding options will terminate when the
transaction closes.
AMENDMENT AND TERMINATION
The Board may amend, suspend or terminate the Plan at any time. Any
amendment, suspension or termination cannot adversely affect options then
outstanding without the consent of the optionee. The Plan will end in 2004.
To the extent necessary to comply with Rule 16b-3 or with Section 422 of the
the Internal Revenue Code of 1986, as amended ("Code"), or any other applicable
law or regulation, we will obtain stockholder approval of amendments to the Plan
in the manner and to the degree required.
TAX INFORMATION
Options may be either "incentive stock options," as defined in Section 422 of
the Code, or nonstatutory options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time of the grant or at the time of exercise,
although exercise may trigger the alternative minimum tax. On a sale or
exchange of the shares more than two years after grant and one year after
exercise, any gain or loss will be treated as long-term capital gain or loss.
If these holding periods are not met, the optionee will recognize ordinary
income at the time of sale or exchange. The amount of the income will be the
difference between the exercise price and the lower of (a) the fair market value
of the shares on the date of exercise, or (b) the sale price of the shares. A
different rule for measuring ordinary income on a premature disposition may
apply if the optionee is also an officer, director or 10% stockholder.
Generally, OSI will be entitled to a deduction in the same amount as the
ordinary income recognized by the optionee. Any gain or loss on premature
disposition in excess of the amount treated as ordinary income will be
characterized as long-term or short-term capital gain or loss, depending on the
holding period.
All options not qualifying as incentive stock options are referred to as
nonqualified options. An optionee will not recognize taxable income at the time
a nonqualified option is granted. However, on exercise, the optionee will
recognize ordinary income generally equal to the excess of the then fair market
value of the shares over their purchase price. Taxable income in connection with
exercises by optionees who are employees or former employees of OSI will be
subject to withholding. On resale of the shares by the optionee, the difference
between the sales price and the purchase price, to the extent not recognized as
taxable income, will be treated as long-term or short-term capital gain or loss,
depending on the holding period. Generally, OSI will have a tax deduction in the
same amount as the ordinary income recognized by the optionee for shares
acquired on exercise of nonstatutory options.
This is only a summary of the federal income tax effects on OSI and an
optionee. It is not complete and does not discuss the tax consequences of an
optionee's death. It also does not discuss the income tax laws of any
municipality, state or foreign county in which an optionee may reside.
PARTICIPATION IN THE PLAN
The grant of options under the Plan to executive officers, including the
officers named in the Summary Compensation Table, is at the discretion of the
Administrator. As of the date of this Proxy Statement, the Administrator has
made no determination regarding future awards under the Plan. The table of
option grants under "Executive Compensation and Other Matters - Option Grants in
Last Fiscal Year" provides information about the grant of options to the
officers named in the Summary Compensation Table during fiscal 1997.
Information regarding options granted to nonemployee Directors during fiscal
1997 can be found under the heading "Executive Compensation and Other Matters -
Compensation of Directors." During fiscal 1997, all current officers, as a
group, and all nonofficer employees, as a group, received options to purchase
1,764,000 shares and 1,906,492 shares, respectively, under the Plan.
9
<PAGE>
PROPOSAL THREE
AMENDMENT OF 1995 EMPLOYEE STOCK PURCHASE PLAN
At the Meeting, you are being asked to approve an amendment of our 1995
Employee Stock Purchase Plan ("Purchase Plan") to increase the number of shares
that can be issued by 800,000 shares. The Purchase Plan was adopted by the
Board and approved by the stockholders in August 1995. A total of 687,500
shares of Common Stock can be issued under the Purchase Plan. As of the Record
Date, a total of 296,982 shares had been issued at an average purchase price of
$7.67 per share. Excluding the 800,000 shares for which approval is being
sought at the Meeting, 390,518 shares remain available for future issuance.
The fair market value of our Common Stock on the first day of the most recent
offering period was $4.563 per share. See "Purchase Price."
VOTE REQUIRED
The affirmative vote of at least a majority of the Votes Cast is needed to
amend the Purchase Plan. The "Votes Cast" under Delaware law are the shares of
our Common Stock present at the Meeting (in person or by proxy) and entitled to
vote on a matter. We will count abstentions and votes against amending the Plan
in determining whether there is a quorum for the Meeting and the number of Votes
Cast. We will count Broker Nonvotes in determining the presence or absence of a
quorum, but not in determining the number of Votes Cast.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" AMENDING THE
PURCHASE PLAN.
The essential terms of the Purchase Plan are as follows:
PURPOSE
The purpose of the Purchase Plan is to provide our employees (and those of our
subsidiaries that the Board designates) with an opportunity to purchase our
Common Stock through accumulated payroll deductions. The Purchase Plan is
intended to qualify under Section 423 of the Code.
ADMINISTRATION
The Purchase Plan is administered by the Board or a committee appointed by
the Board. The Purchase Plan is currently administered by the Board. All
questions of interpretation or application of the Purchase Plan are determined
by the Board or its appointed committee, and its decisions are final and binding
on all participants. No charge for administrative or other costs may be made
against the payroll deductions of a participant. Members of the Board receive no
additional compensation for their services in administering the Purchase Plan.
OFFERING PERIODS
The Purchase Plan has offering periods of approximately twenty-four months,
each divided into four six-month purchase periods. The offering periods begin
the first trading day on or after April 30 and October 31 of each year. The
Board has the power to change the length of the offering periods without
stockholder approval.
ELIGIBILITY
Participation in the Purchase Plan is available to anyone who (a) is a
regular employee scheduled to work at least twenty hours per week and at least
five months per calendar year, and (b) was employed by us (or a subsidiary
designated by the Board) on the first day of the offering.
Eligible employees become participants in the Purchase Plan by delivering a
subscription agreement to our payroll department. An employee who becomes
eligible to participate in the Purchase Plan after an offering period starts may
not participate until the next offering period.
10
<PAGE>
PURCHASE PRICE
Shares are sold to participating employees at 85% of the fair market value of
a share of Common Stock on (a) the first day of the offering period, or (b) the
last day of the purchase period, which ever is less. Under the Purchase Plan,
fair market value is the closing sales price of Common Stock as reported on the
Nasdaq National Market. The closing price per share of Common Stock on the
Record Date was $14.50.
PAYMENT OF PURCHASE PRICE AND PAYROLL DEDUCTIONS
The purchase price for the shares is accumulated by payroll deductions over
the offering period. Deductions may not exceed 15% of an employee's
compensation. Employees may stop their participation in the Purchase Plan at
any time during an offering period. An employee may also increase or decrease
the rate of deductions once during any purchase period. Payroll deductions begin
on the first payday after an offering period starts and continue at the same
rate until the end of the offering period, unless terminated or changed as
provided in the Purchase Plan.
PURCHASE OF STOCK AND EXERCISE OF OPTION
By executing a subscription agreement to participate in the Purchase Plan, an
employee is granted an option to purchase shares of Common Stock. The maximum
number of shares that an employee can buy in a purchase period is determined by
dividing the amount of compensation withheld over the purchase period by the
lower of (a) 85% of the fair market value of a share of Common Stock on the
first day of the offering period, or (b) 85% of the fair market value of a share
of Common Stock on the last day of the purchase period. However, in all events,
the total number of shares issued to an employee for a purchase period cannot be
more than the number determined by dividing $12,500 by the market value of a
share of Common Stock at the beginning of the offering period. Unless the
employee's participation is discontinued, the option will be exercised
automatically at the end of the purchase period.
No employee can subscribe for shares under the Purchase Plan if, immediately
after the grant of the option, the employee would own, or have outstanding
options to purchase, five percent or more of our Common Stock. In addition, no
subscription can occur if, as a result, the employee could purchase during any
calendar year more than $25,000 worth of stock (determined at the fair market
value of the shares at the time of grant) under all OSI employee stock purchase
plans. Finally, if the number of shares which would otherwise be under option
at the beginning of an offering period is greater than the number of shares then
available under the Purchase Plan, a pro rata allocation of the shares remaining
will be made in as equitable a manner as is practicable.
WITHDRAWAL
An employee can withdraw from an offering in whole, but not in part, by
signing and delivering to us a notice of withdrawal. Withdrawal may be made at
any time before the end of the offering period. Withdrawal by the employee
automatically ends the employee's interest in the offering. If an employee
withdraws from an offering period, payroll deductions will not resume at the
beginning of the next offering period (as they otherwise would) unless the
employee delivers a new subscription agreement.
TERMINATION OF EMPLOYMENT
Termination of employment for any reason, including retirement or death,
immediately ends participation in the Purchase Plan. If this occurs, payroll
deductions credited to the employee's account are returned, without interest,
either to the employee or, in the case of death, as specified by the employee in
the subscription agreement.
CAPITAL CHANGES
If our capitalization is changed in any way without our receiving
consideration (such as by a stock split or dividend) and the result changes the
number of shares of Common Stock, appropriate adjustment will be made in the
number of shares that can be purchased and in the purchase price per share. If
our dissolution or liquidation is proposed, the current offering periods will
end immediately before the transaction closes unless the Board provides
otherwise. If we merge with or into another corporation, or substantially all of
our assets are sold, each option under the Purchase Plan will be assumed or an
equivalent option substituted by the successor corporation, its parent or a
subsidiary. This will occur unless the Board, in its discretion, decides to
shorten the offering periods then in progress so the option can be exercised
before the closing. Participants will be notified in writing at least 10 days
before the end of a shortened offering period.
11
<PAGE>
NONASSIGNABILITY
No rights or accumulated payroll deductions can be pledged, assigned,
transferred or otherwise disposed of by the employee other than by (a) will, (b)
the laws of descent and distribution, or (c) written designation of a
beneficiary who is to receive the employee's shares or cash on the employee's
death. We can treat any attempt to do so as an election to withdraw from the
current offering period.
AMENDMENT AND TERMINATION OF THE PURCHASE PLAN
The Board can amend or end the Purchase Plan at any time and for any
reason. However, termination can not affect any options that have been granted
nor can an amendment change an outstanding option to adversely affect a
participant's rights. To the extent necessary to comply with Rule 16b-3 or with
Section 423 of the Code, or any other applicable law or regulation, we will
obtain stockholder approval of amendments to the Purchase Plan in the manner and
to the degree required. In all events, the Purchase Plan will end on July 31,
2005.
USE OF FUNDS
Payroll deductions under the Purchase Plan do not accrue interest and can be
used by OSI for any OSI corporate purpose.
AUTOMATIC TRANSFER TO LOWER PRICE OFFERING PERIOD
To the extent permitted by law, if the fair market value of Common Stock on
the last day of a purchase period is less than its fair market value on the
first day of an offering period, all participants in the offering period will be
automatically withdrawn after their option is exercised and re-enrolled in the
next offering period.
CERTAIN UNITED STATES FEDERAL INCOME TAX INFORMATION
The Purchase Plan is intended to qualify under Section 423 of the Code.
Under Section 423, no income is taxable to an employee until shares are sold or
otherwise transferred. On sale or transfer, the employee will generally be
taxed with the amount of the tax depending on how long the stock has been held.
If the sale or transfer takes place more than two years after the first day of
the offering period, and more than one year after the shares are purchased,
ordinary income will result. The amount of this income will be the lesser of
(a) the excess of the fair market value of the shares when they are sold or
transferred over their purchase price, or (b) 15% of the fair market value of
the shares at the start of the offering period. Additional gain will be treated
as long-term capital gain. If these holding periods are not met, the amount of
ordinary income will be the excess of the shares' fair market value when they
are purchased over their purchase price. Additional gains or losses will be
long-term or short-term capital gain or loss, depending on the holding period.
Generally, we will have a deduction for the ordinary income recognized by
employees if they sell or transfer shares before the end of these holding
periods.
This is only a summary of the federal income tax effects on OSI and a
participant. It is not complete and does not discuss the tax consequences of a
paticipant's death. It also does not discuss the income tax laws of any
municipality, state or foreign country in which a participant may reside.
PARTICIPATION IN THE PURCHASE PLAN
Participation in the Purchase Plan is voluntary. Each eligible employee must
elect to participate and set the level of payroll deductions. As a result, we
cannot determine future purchases under the Purchase Plan. Nonemployee
directors are not permitted to participate in the Purchase Plan.
The following table has information about shares purchased during our fiscal
year ended June 30, 1997, by each of our executive officers named in the Summary
Compensation Table who participated in the Purchase Plan, all of our current
executive officers as a group and all other employees who participated in the
Purchase Plan as a group.
12
<PAGE>
<TABLE>
<CAPTION>
Number of
Name of Individual or Shares Dollar
Identity of Group and Position Purchased Value ($)(1)
-------------------------------------- --------- ------------
<S> <C> <C>
Joseph T. Ambrozy............................... - -
Tom L. Johnson.................................. - -
Richard G. Vento................................ - -
David M. Allen.................................. - -
Dan D. Line..................................... 3,290 5,316.98
Tim J. Sebring.................................. 3,290 5,316.98
James K.R. Souders.............................. 3,290 5,316.98
All current executive officers as a group
(5 persons)..................................... 13,960 24,560.94
All other employees as a group.................. 245,894 384,371.46
All current non-executive directors*............ - -
- ------------------------------------------------
</TABLE>
* Not eligible to participate in the Purchase Plan
(1) Fair market value of shares on date of purchase minus the purchase price
under the Purchase Plan
13
<PAGE>
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board has selected Deloitte & Touche LLP, independent auditors, to
audit our consolidated financial statements for the fiscal year ending June 30,
1998, and recommends that you ratify that appointment. Even if the appointment
is ratified, the Board can appoint new independent auditors at any time during
the year if it determines that the change would be in the best interest of OSI
and its stockholders. If there is a negative vote on ratification, the Board
will reconsider its selection.
Deloitte & Touche LLP has audited our financial statements annually since
1993. Representatives of Deloitte & Touche LLP have been invited to the Meeting
and will be given an opportunity to make a statement if they wish. We also
expect that they will be available to respond to appropriate questions.
THE BOARD RECOMMENDS A VOTE "FOR" RATIFYING DELOITTE & TOUCHE LLP AS OSI'S
INDEPENDENT AUDITORS.
14
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
The following Summary Compensation Table contains information regarding the
compensation of our Chief Executive Officers and our other most highly
compensated officers for the fiscal years ended June 30, 1997, June 30, 1996 and
June 30, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
Restricted Securities
Name and Fiscal Annual Compensation Stock Underlying All Other
Principal Position Year Salary($) Bonus($) Commission($) Awards($) Options(#) Compensation
- ----------------------------------------- ----------------------------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph T. Ambrozy(1)............... 1997 $350,009 $ _ $ _ $ - $200,000 $1,021,568(4)
Chief Executive Officer, 1996 223,637 - - 430,001(3) 290,000 233,971(5)
President and Director 1995 - - - - -
Tom L. Johnson(2).................. 1997 87,501 - - - - -
Co-Chairman of the Board, 1996 350,004 - - - - 3,875(7)
Co-Chief Executive Officer 1995 300,002 33,253 - - - 5,655(7)
Richard G. Vento(2)................ 1997 87,501 - - - - -
Co-Chairman of the Board, 1996 350,004 - - - - 7,299(7)
Co-Chief Executive Officer 1995 300,002 33,253 - - - 5,655(7)
David M. Allen..................... 1997 168,381 77 - - 275,000(9) 114,358(6)
Chief Financial Officer, Vice 1996 - - - - - -
President, Finance and 1995 - - - - - -
Administration
Tim I. Sebring..................... 1997 112,500 155 669,308 - 225,000(10) -
Vice President, Business 1996 65,000 1,218 420,422 - 100,000 2,993(7)
Development 1995 65,000 - 300,726 - 445,500 2,655(7)
Dan D. Line........................ 1997 75,000 171 306,254 - 206,250(11) 2,686(7)
Vice President, Global 1996 74,157 609 184,734 - 100,000 22,581(7)
Accounts and Partner 1995 61,579 - 307,423 - 41,250 5,655(7)
Alliances
James K.R. Souders................. 1997 71,000 155 136,270 - 45,000(12) 1,447(7)
Vice President, Managing Dir- 1996 66,105 650 166,216 - 100,000 2,754(7)
ector Asia-Pacific Operations 1995 126,371(8) - - - 27,500 -
</TABLE>
- -----------------------------------
(1) Mr. Ambrozy joined OSI as President in November 1995 and became Chief
Executive Officer in February 1996. Mr. Ambrozy resigned as President,
Chief Executive Officer and Director of OSI in April 1997 .
(2) Messrs. Johnson and Vento resigned as Co-Chief Executive Officers of OSI in
February 1996, but resumed those offices in April 1997 following the
resignation of Mr. Ambrozy.
(3) Under a Restricted Stock Award Agreement dated November 29, 1995, OSI
granted Mr. Ambrozy a stock award of 33,077 shares of Common Stock.
The amount shown on the table represents the dollar value of the award
calculated by multiplying the closing market price of the Common Stock on
the last trading day before the grant ($13.00) by the number of shares
awarded. All of these shares became fully vested on July 20, 1996, under
a Severance Agreement dated April 19, 1997. As of June 30, 1997, these
shares had an aggregate value of $285,289.13 based on closing price of
$8.625 per share. Mr. Ambrozy will receive the same dividends on all
shares of restricted stock as all other stockholders. However, OSI does
not anticipate paying any cash dividends in the foreseeable future.
(4) Includes a $1 million payment under the Severance Agreement dated April 19,
1997, a term life insurance policy premium in the amount of $8,791, a
relocation allowance of $4,573 and a 401K matching contribution of $8,204.
(5) Includes a relocation allowance of $226,256 (including temporary living and
costs associated with home residence) and premiums for term life insurance
of $7,715.
15
<PAGE>
(6) Includes a relocation allowance of $114,358.
(7) Includes matching and other contributions made by OSI for the benefit of
the named individuals under our 401(k) savings plan.
(8) Because information was not available to separately identify salary, bonus,
commission and "all other compensation" components of this figure, it
represents all annual compensation and other compensation for Mr. Souders
in fiscal year 1995.
(9) Includes grants of options to purchase 110,000 shares pursuant to the April
19, 1997 repricing of an option originally granted earlier in fiscal year
1997.
(10) Includes grants of options to purchase 135,000 shares pursuant to the April
19, 1997 repricing of options to purchase 100,000 shares and 35,000 shares
originally granted in fiscal year 1996 and earlier in fiscal year 1997,
respectively.
(11) Includes grants of options to purchase 161,250 shares pursuant to the April
19, 1997 repricing of options to purchase 141,250 shares and 20,000 shares
originally granted in fiscal year 1996 and earlier in fiscal year 1997,
respectively.
(12) Includes grants of options to purchase 147,500 shares pursuant to the April
19, 1997 repricing of options to purchase 127,500 shares and 20,000 shares
originally granted in fiscal year 1996 and earlier in fiscal year 1997,
respectively.
16
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1997
The following table has information about options that were granted to the
people named in the Summary Compensation Table during our fiscal year ended June
30, 1997.
OPTION GRANTS IN FISCAL YEAR 1997
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
PERCENTAGE POTENTIAL REALIZABLE
NUMBER OF OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS EXERCISE ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE PER PRICE APPRECIATION
OPTIONS EMPLOYEES IN SHARE FOR OPTION TERM (1)
NAME GRANTED FISCAL 1997 (2) (3) EXPIRATION DATE 5% 10%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph T. Ambrozy.................. 200,000 5.45% $25.50 07/20/06 $3,207,363 $ 8,128,087
Tom L. Johnson.................... - - - - - -
Richard G. Vento................... - - - - - -
David M. Allen..................... 35,000 .95% 25.50 07/20/06 561,288 1,422,415
David M. Allen..................... 75,000 2.04% 25.50 07/20/06 1,202,761 3,048,032
David M. Allen..................... 35,000(4) .95% 6.00 07/20/06 30,487 159,840
David M. Allen..................... 75,000(4) 2.04% 6.00 07/20/06 65,328 342,514
David M. Allen..................... 55,000 1.50% 4.37 04/19/07 151,328 383,494
Tim J. Sebring..................... 35,000 .95% 25.50 07/20/06 561,288 1,422,415
Tim J. Sebring..................... 55,000 1.50% 4.37 04/19/07 151,328 383,494
Tim J. Sebring..................... 100,000(4) 2.73% 6.00 10/27/05 63,102 385,780
Tim J. Sebring..................... 35,000(4) .95% 6.00 07/20/06 30,487 159,840
Dan D. Line........................ 20,000 .55% 25.50 07/20/06 320,736 812,809
Dan D. Line........................ 20,000(4) .55% 6.00 07/20/06 17,421 91,337
Dan D. Line........................ 41,250(4) 1.12% 6.00 06/30/05 21,713 146,693
Dan D. Line........................ 100,000(4) 2.72% 6.00 10/27/05 63,102 385,780
Dan D. Line........................ 25,000 .68% 4.37 04/19/07 68,785 174,316
James K.R. Souders................. 20,000 .55% 25.50 07/20/06 320,736 812,809
James K.R. Souders................. 27,500(4) .75% 6.00 06/30/05 14,475 97,795
James K.R. Souders................. 100,000(4) 2.73% 6.00 10/27/05 63,102 385,780
James K.R. Souders................. 20,000(4) .55% 6.00 07/20/06 17,421 91,337
James K.R. Souders................. 25,000 .68% 4.37 04/19/07 68,785 174,316
</TABLE>
______________________
(1) Potential realizable value is based on the assumption that our Common Stock
appreciates at the rate shown (compounded annually) from the date of grant
until the ten year option term expires. These numbers are calculated based
on SEC requirements and do not reflect our estimate of future stock price
growth.
(2) Options have an exercise price equal to the fair market value of our Common
Stock on the date of grant.
(3) The exercise price may be paid in cash, promissory note, by delivery of
already-owned shares (subject to certain conditions) or under a cashless
exercise procedure where the optionee gives irrevocable instructions to a
broker to sell the purchased shares and to remit to OSI, out of the sale
proceeds, the exercise price plus applicable withholding taxes.
(4) Issued in replacement of earlier granted options (see table "Ten Year
Option Repricing" on page 21).
17
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table has information about the exercise of stock options in
the last fiscal year by the people named in the Summary Compensation Table and
the value of options held by them as of June 30, 1997.
<TABLE>
<CAPTION>
Number of Securities Potential Realizable Value at
Underlying Unexercised Assumed Annual Rates of
Shares Options at Stock Price Appreciation
Acquired on Value June 30, 1997(#) for Option Term(2) ($)
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph T. Ambrozy(3)............... - $ - 117,917 372,083 $ - $ -
Tom L. Johnson.................... - - - - - -
Richard G. Vento................... - - - - - -
David M. Allen(4).................. - - - 165,000 - 522,500
Tim J. Sebring..................... 100,000 2,458,218 1,124,338 327,500 8,847,144 1,483,580
Dan D. Line........................ 31,184 687,105 42,499 241,250 363,154 999,506
James K.R. Souders................. 29,000 681,180 49,565 227,500 423,533 963,413
</TABLE>
________________________
(1) Market value of our Common Stock at the exercise date minus the exercise
price.
(2) Market value of our Common Stock at fiscal year-end minus the exercise
price.
(3) Mr. Ambrozy joined OSI as President in November 1995 and became Chief
Executive Officer in February 1996.
(4) Mr. Allen joined OSI as Vice President, Finance and Administration and
Chief Financial Officer in July 1996.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
In November 1995, Joseph T. Ambrozy, the former President, Chief Executive
Officer, and a director of OSI, entered into an employment agreement with OSI
which provided for an annual base salary of $350,000 and bonus payments if
certain profit levels were achieved. This agreement also provided for the grant
of an option to purchase a total of 240,000 shares of Common Stock at $13.00 per
share, which was the fair market value of the Common Stock on the date of grant,
and a restricted stock award for 33,077 shares of Common Stock. The stock option
vested over four years. So long as Mr. Ambrozy was an employee of OSI on the
release dates, 1/3 of the restricted shares would be released in November 1996
and 1/36th of the restricted shares would be released monthly thereafter. If his
employment with OSI were to end other than voluntarily or for cause, Mr. Ambrozy
was entitled to receive severance pay equal to his base salary for two years and
his restricted stock would be fully vested.
On April 19, 1997, Mr. Ambrozy resigned as our President and Chief
Executive Officer and as a member of the Board. In connection with his
resignation, Mr. Ambrozy and OSI entered into an agreement under which we have
retained him as a consultant until his issued but unvested options are fully
vested. From the date of his resignation through the end of calendar 1997, Mr.
Ambrozy will be paid a consulting fee at a rate equal to his prior base salary
of $350,000 per year. Thereafter, he will be paid a consulting fee of $1.00 per
year. In connection with this agreement, approximately 390,000 of Mr. Ambrozy's
options to purchase Common Stock will not be subject to early termination. We
have also paid Mr. Ambrozy the lump sum of $1 million, in principal part as
required by his employment contract. In addition, we have reimbursed Mr.
Ambrozy for certain costs, and indemnified him against certain losses, that he
incurred in disposing of his California residence and relocating to the East
Coast. Finally, we will reimburse Mr. Ambrozy in each of the next three years
for the premium costs of continuing a term life insurance policy in the face
amount of $1 million and payable to his beneficiary.
In June 1996, under the terms of his employment, David M. Allen, Chief
Financial Officer, Vice President Finance and Administration, entered into a
letter agreement with the Company under which he is to receive an annual base
salary of $175,000 to be reviewed each year. If Mr. Allen's employment is
involuntarily terminated other than for cause, his base salary will continue to
be paid for a period of one year from his termination date.
COMPENSATION OF DIRECTORS
Members of the Board do not receive compensation for their services as
directors. Our 1995 Director Option Plan provides stock options to be granted
to nonemployee directors ("Outside Directors"). Each Outside Director
automatically receives an option
18
<PAGE>
to purchase 50,000 shares ("First Option") on the date he becomes an Outside
Director. Thereafter, if he has then served on the Board for at least six
months, the Outside Director is automatically granted an option to purchase
12,500 shares at the first meeting of the Board after each year's Annual Meeting
of Stockholders. The options can be exercised only while the Outside Director
remains a director. The First Option vests as to 25% of the shares on the first
anniversary of the grant date and at the rate of 1/48th of the shares per month
thereafter. Subsequent option grants vest as to 50% of the shares six months
after the date of grant and as to 1/12th of the shares per month thereafter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until April 19, 1997, the Compensation Committee ("Committee") consisted of
Messrs. Schmitt, Shantz and Terplan. Mr. Johnson and Mr. Vento joined the
Committee on that date.
Mr. Johnson became Co-Chief Executive Officer of OSI in April 1997. Mr.
Johnson also was Co-Chief Executive Officer from June 1989 until February 1996,
President from May 1991 until June 1994, Chief Financial Officer from July 1989
until November 1993, and Vice President, Product Development from July 1990
until July 1995.
Mr. Vento became Co-Chief Executive Officer of OSI in April 1997. Mr.
Vento was Co-Chief Executive Officer from June 1989 until February 1996,
President from June 1994 until July 1995 and Vice President, Sales and Marketing
from July 1990 to June 1994.
REPORT OF THE COMPENSATION COMMITTEE
The Committee reviews and approves our executive compensation policies.
The Committee also administers our various incentive plans, including the 1994
Stock Option Plan and the 1995 Employee Stock Purchase Plan, sets compensation
policies applicable to our executive officers and evaluates the performance of
those officers. Compensation for our executive officers, including base salary
levels, potential bonuses and stock option grants are determined by the
Committee at the beginning of the fiscal year. Below is a description of the
policies and rationale the Committee applied in setting compensation for our
executive officers during the fiscal year ended June 30, 1997.
Compensation Philosophy
The underlying philosophy in our setting executive compensation is to
maximize stockholder value over time. The primary goal of the executive
compensation program is, therefore, to closely align the interests of our
executive officers with those of our stockholders. To achieve this end, we
attempt to (a) offer compensation opportunities that attract and retain
executives whose abilities are critical to our long-term success, (b) motivate
individuals to perform at their highest level and reward outstanding
achievement, (c) maintain a portion of an executive's total compensation at
risk, tied to achieving financial, organizational and management performance
goals, and (d) encourage executives to manage from the perspective of owners
with an equity stake in OSI. The Committee currently uses base salary, annual
cash incentives and stock options to meet these goals.
Base Salary and Commissions
We use base salary primarily as a device to attract, motivate, reward and
retain highly skilled executives. The Committee reviewed and approved fiscal
1997 base salaries for the Chief Executive Officer and other executive officers
at the beginning of the fiscal year. Salaries were set based on the executive
officer's job responsibilities, level of experience, individual performance,
contribution to our business, our financial performance for the past year and
recommendations from management. The Committee also took into account the
salaries for similar positions at comparable companies, based on the industry
experience of the Committee members and on input from independent compensation
specialists it had hired to assist in the process. In reviewing base salaries,
the Committee focused significantly on each executive officer's prior
performance with OSI and expected contribution to our future success. It also
focused on a group of comparable companies in the high technology sector, as
identified by its independent consultants. In making its decisions, the
Committee exercised its discretion and judgment using the factors described
above. No specific formula was applied to determine the weight of each factor.
Commissions are paid only to those of our executive officers who have a
direct responsibility for sales. In setting commission rates for sales
executives, the Committee evaluated both what we had done in the past and the
approach taken by comparable high technology companies. Here again, comparable
companies were identified based on the industry experience of each individual
Committee member and on information provided by the independent compensation
specialists.
19
<PAGE>
Annual Cash Incentives
Bonuses for executive officer's bonus are based on qualitative and
quantitative factors. They are intended to motivate and reward executive
officers by directly linking the amount of their bonus to specific OSI-based
performance targets. They are also intended to reflect the Committee's belief
that a portion of each executive's compensation should be contingent on our
performance. To carry out this philosophy, at the beginning of the fiscal year
the Board reviewed and approved the financial budgeted for the year and
established performance targets. The Committee then set target bonuses for each
executive officer as a percentage of the officer's base salary. Bonuses were
dependent on the achievement of performance targets which were tied to different
indicators of performance such as our operating results. The Committee evaluated
the completion of performance targets and approved a performance rating relative
to the goals completed. Scoring was influenced by the Committee's perception of
the relative importance of the various corporate goals. Because our financial
performance fell short of the Committee's target, no bonuses were paid to our
executive officers in fiscal 1997. The Committee believes that this bonus
structure provides an excellent link between our earnings performance and the
incentives that are received by our executives.
Stock Options
The Committee provides executive officers with long-term incentive
compensation through grants of stock options under the 1994 Stock Option Plan.
Stock options provide executive officers with an opportunity to purchase and
maintain an equity interest in OSI and thereby share in any appreciation in the
value of our Common Stock. The Committee believes that stock options directly
motivate an executive to maximize long-term stockholder value. In addition,
vesting periods are set to encourage key executives to stay with OSI. To date,
all options that have been granted to executive officers have been at fair
market value on the date of grant. Option grants are subjective, but are based
on factors such as the executive's relative position, responsiblities at OSI,
individual performance over the previous fiscal year and anticipated
contribution to the attainment of our long-term strategic goals. Stock options
granted in prior years are also taken into consideration. The Committee views
stock option grants as an important component of its long-term, performance-
based compensation philosophy.
CEO Compensation
From the beginning of the fiscal year through April 19, 1997, the date of
his resignation, Mr. Ambrozy served as our Chief Executive Officer. His base
salary, bonus plan and stock option grants were determined by the Committee
using essentially the same criteria applied to all other executive officers, but
with specific input from the Committee's independent compensation specialists on
approaches used by comparable companies. On April 19, 1997, Messrs. Johnson and
Vento assumed the role of Co-Chief Executive Officers. Neither received any
salary, bonuses or stock option after assuming these roles, nor is it
contemplated that they will do so during fiscal 1998.
REPORT ON REPRICING OF OPTIONS
In April 1997, the Board determined that the purposes of the 1994 Stock
Option Plan were not being adequately achieved because a significant percentage
of our employees held options with exercise prices greater than the then-
current market value of the Common Stock. The Board also determined that it
was in the best interests of OSI and its stockholders to retain and motivate
those employees. As a result, the Board decided to provide employees with an
opportunity to exchange their existing options for equivalent options having an
exercise price of $6.00 per share ("New Options"). Fair market value of the
Common Stock on April 19, 1997, the date of the Board's decision was $4.375 per
share. The New Options have the same terms as the exchanged options (including
number of shares, vesting and expiration date), except (a) the exercise price is
$6.00 per share, and (b) the New Options are not exercisable, except on
involuntary termination, death or disability of the optionee for six months from
the date of grant. 174 employees of OSI were eligible to participate in the
repricing, and those employees' existing options had an average price of $17.15
per share prior to the repricing. All of the eligible employees, 174
participated in the repricing, including the executives noted in the table
below.
20
<PAGE>
TEN YEAR OPTION REPRICING
<TABLE>
<CAPTION>
MARKET LENGTH OF
NUMBER OF PRICE OF EXERCISE ORIGINAL
SECURITIES STOCK AT PRICE AT OPTION TERM
UNDERLYING TIME OF TIME OF NEW REMAINING AT
OPTIONS REPRICING OR REPRICING OR EXERCISE DATE OF
REPRICED AMENDMENT AMENDMENT PRICE REPRICING OR
NAME AND PRICIPAL POSITION DATE OR AMENDED ($/SH) ($/SH) ($/SH) AMENDMENT
<S> <C> <C> <C> <C> <C> <C>
David M. Allen................... 4/19/97 110,000 $4.37 $25.50 $6.0 9 years 92 days
Chief Financial Officer, Chief
Operating Officer and
Secretary
Jeffrey T. Boone................. 4/19/97 3,000 4.37 13.00 6.0 8 years 219 days
Vice President, Technical 4/19/97 5,000 4.37 25.50 6.0 9 years 92 days
Support Services
Philip N. Cardman................ 4/19/97 110,000 4.37 25.50 6.0 9 years 92 days
Vice President, General
Counsel and Secretary
Albert J. Germek................. 4/19/97 10,000 4.37 22.25 6.0 9 years 183 days
Vice President, Planning and 4/19/97 35,000 4.37 25.50 6.0 9 years 92 days
Development.................... 4/19/97 35,000 4.37 42.25 6.0 8 years 330 days
Dan D. Line...................... 4/19/97 41,250 4.37 10.18 6.0 8 years 72 days
Vice President, Global 4/19/97 100,000 4.37 11.00 6.0 8 years 191 days
Alliances 4/19/97 20,000 4.37 25.50 6.0 9 years 92 days
Kevin C. McCoy................... 4/19/97 10,000 4.37 22.25 6.0 9 years 183 days
Vice President, Research and 4/19/97 60,000 4.37 43.25 6.0 8 years 361 days
Development and 4/19/97 35,000 4.37 25.50 6.0 9 years 92 days
Professional Services
Patric R.R. Olenczak............. 4/19/97 25,000 4.37 15.62 6.0 9 years 274 days
Managing Director, Europe,
Middle East and Africa
Tim J. Sebring................... 4/19/97 100,000 4.37 11.00 6.0 8 years 191 days
Vice President, Sales and 4/19/97 35,000 4.37 25.50 6.0 9 years 92 days
Marketing
Christopher Simon................ 4/19/97 9,000 4.37 13.00 6.0 8 years 219 days
Vice President, Service 4/19/97 25,000 4.37 25.50 6.0 9 years 92 days
Provider Solutions
James K.R. Souders............... 4/19/97 20,000 4.37 25.50 6.0 9 years 92 days
Vice President, Managing Dir 4/19/97 27,500 4.37 10.18 6.0 8 years 72 days
ector Asia Pacific Operations 4/19/97 100,000 4.37 11.00 6.0 8 years 191 days
R. Jay West...................... 4/19/97 5,000 4.37 25.50 6.0 9 years 92 days
Vice President, Americas
Sales
</TABLE>
SECTION 162(M)
The Board has considered the potential future effects of Section 162(m) of
the Code on the compensation paid to our executive officers. Section 162(m)
disallows a public company from taking tax deductions for compensation paid to
an executive officer named in the Proxy Statement to the extent the compensation
is more than $1 million in any taxable year. The only exception is if the
compensation is performance-based. We have adopted a policy that, where
reasonably practicable, we will seek to qualify the variable compensation we pay
to our executive officers for an exemption from the deductibility limitations of
Section 162(m).
Respectfully submitted by:
Tom L. Johnson
George F. Schmitt
Jonathan B. Shantz
Dr. Kornel Terplan
Richard G. Vento
21
<PAGE>
PERFORMANCE GRAPH
The following graph compares the annual percentage change in the cumulative
return to the stockholders of our Common Stock with the cumulative return of the
Nasdaq Stock Market-US Index and of the Hambrecht & Quist Communications Index.
The period shown begins December 1, 1995, the date we began reporting under
Securities Exchange Act of 1934, as amended ("Exchange Act") and ending on June
30, 1997. Returns are weighted based on market capitalization at the beginning
of each fiscal year.
COMPARISON OF 19 MONTH CUMULATIVE RETURN
AMONG OBJECTIVE SYSTEMS INTEGRATORS, INC. THE NASDAQ STOCK
MARKET-US INDEX AND THE HAMBRECHT & QUIST COMMUNICATIONS INDEX
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD OBJECTIVE SYSTEMS NASDAQ STOCK HAMBRECHT & QUIST
(FISCAL YEAR COVERED) INTEGRATORS, INC. Market (US) COMMUNICATIONS
--------------------------- ---------------------- -------------------------
<S> <C> <C> <C>
12/01/95 $100.00 $100.00 $100.00
FYE 6/96 $192.00 $113.00 $110.00
FYE 6/97 $ 45.00 $137.00 $110.00
</TABLE>
The graph assumes that on December 1, 1995, $100 was invested in each of
our Common Stock, the Nasdaq Stock Market-US Index and the Hambrecht & Quist
Communications Index. It also assumes that all dividends were reinvested. No
dividends have been declared or paid on our Common Stock. Stockholder returns
over the indicated period should not be considered indicative of future
stockholder returns.
The information contained above under the captions "Report of the
Compensation Committee" and "Performance Graph" will not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor will that information be incorporated by reference into any
future filing under the Securities Act or Exchange Act, except to the extent
that we specifically incorporate it by reference.
CERTAIN TRANSACTIONS
In January 1994, OSI and Strategic Solutions International Corporation
("SSIC"), of which Messrs. Vento and Johnson are stockholders, entered into a
Nonexclusive License to Sublicense Agreement ("SSIC License"). The SSIC License
provides that SSIC will grant OSI a nontransferable and nonexclusive license to
market, sublicense, modify and use certain computer programs developed by SSIC.
In consideration for the licenses granted under the SSIC License, OSI is to pay
SSIC certain license, training and support fees. In March 1994, OSI and SSIC
entered into a Loan Development Copy Software License Agreement ("SSIC Software
Agreement"). The SSIC Software Agreement provides that OSI will grant a
nonexclusive and nontransferable license to SSIC to use certain of OSI's
software for demonstration purposes to prospective customers or for development
of conjoined software. In fiscal 1997, nothing was paid to SSIC.
In September 1995, OSI entered into a business relationship with (a) Japan
Associated Finance Co., Ltd. ("JAFCO") and (b) Quantum Industrial Partners LDC,
the principal operating subsidiary of Quantum Industrial Holdings Ltd., an
investment fund advised by Soros Fund Management, a private investment firm
owned by George Soros and S-C Phoenix Holdings, L.L.C., an investment vehicle
owned by affiliates of Mr. Soros and Dr. Purnendu Chatterjee
("Chatterjee/Soros") principally for the development of our business in Japan,
India and Southeast Asia. (JAFCO and Chatterjee/Soros are collectively referred
to as "Investors") In conjunction with this relationship, our principal
stockholders, Messrs. Vento and Johnson, each sold 909,091 shares of Common
Stock to the investors at $11.00 per share. Under the terms of a Shareholder
Rights Agreement among OSI, Mr. Johnson, Mr. Vento and the Investors dated
September 27, 1995 ("Shareholder Rights Agreement"), the Investors have certain
Board observation rights. Messrs. Vento and Johnson also entered into a voting
agreement with the Investors to elect one Investor representative, reasonably
acceptable to OSI, to the Board until the first to occur of August 31, 1998, or
such time as the Investors hold in aggregate less than 600,000 shares of Common
Stock. At that time, the voting agreement and Board observation rights will end.
Under this voting agreement, Mr. Schmitt was nominated as a member of the Board.
Under the Shareholder Rights Agreement, at the request of the Investors, we will
register the shares of Common Stock that they hold for public resale. In
addition, if we propose to register shares of Common Stock for sale to the
public, the Investors and Messrs. Vento and Johnson can (subject to quantity
limitations determined by the underwriters if the offering involves an
underwriting) request that we register for public resale their shares of
22
<PAGE>
Common Stock. The Investors together may include shares in the registration
totaling at least one-third of the aggregate shares included by the Investors
and Messrs. Vento and Johnson. All fees and expenses incurred in connection
with the registration will be borne by OSI, except for underwriting discounts
and commissions relating to shares sold, which will be borne by the seller. OSI
and the sellers have agreed to indemnify each other against certain liabilities
in connection with registration, including liabilities under the Securities Act.
During fiscal year 1997, we had revenues of approximately $3.0 million from
Cisco Systems, Inc. ("Cisco"). Cisco currently owns 1,315,789 shares of our
common stock and Jonathan B. Shantz is both a Vice President of Cisco and a
member of our Board of Directors.
We believe that all of these transactions were made on terms no less
favorable to OSI than could have been obtained from unaffiliated third parties.
All future transactions, including loans, between OSI and its officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the Board, including a majority of independent and disinterested
outside directors, and will continue to be on terms no less favorable to OSI
than could be obtained from unaffiliated third parties.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive officers and
directors, and people who own more than ten percent of a registered class of our
equity securities, to file reports of ownership and changes in ownership with
the SEC and the National Association of Securities Dealers, Inc. Executive
officers, directors and greater-than-ten-percent stockholders are required by
SEC regulation to furnish us with copies of all Section 16(a) forms that they
file. Based on our review of the forms we have received, or written
representations from various of our reporting persons, we believe that, with the
exception of Mr. Germek, who was late in filing a Statement of Change in
Beneficial Ownership of Securities on Form 4, all of our executive officers and
directors complied with all applicable filing requirements in fiscal 1997.
OTHER MATTERS
We know of no other matters to be submitted at the Meeting. If any other
matters properly come before the Meeting, it is the intention of the people
named in the enclosed form of Proxy to vote the shares they represent as the
Board recommends.
THE BOARD OF DIRECTORS
Dated: October 20, 1997
23
<PAGE>
APPENDIX 1
OBJECTIVE SYSTEMS INTEGRATORS, INC.
1994 STOCK OPTION PLAN
(AS AMENDED THROUGH JULY 18, 1997)
1. Purposes of the Plan. The purposes of this Stock Option Plan are
--------------------
to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be incentive stock
options (as defined under Section 422 of the Code) or nonstatutory stock
options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as
amended, and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall
-----------
apply:
(a) "Administrator" means the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means a Committee appointed by the Board of
---------
Directors in accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means Objective Systems Integrators, Inc., a
-------
California corporation.
(g) "Consultant" means any person who is engaged by the Company
----------
or any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any director of the Company whether
compensated for such services or not. If and in the event the Company
registers any class of any equity security pursuant to the Exchange Act, the
term Consultant shall thereafter not include directors who are not compensated
for their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means that the
----------------------------------------------
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave approved by an authorized representative of
the Company. For purposes of Incentive Stock Options, no such leave may exceed
90 days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract, including Company policies. If reemployment upon
expiration of a leave of absence approved by the Company is not so guaranteed,
on the 91st day of such leave any Incentive Stock Option held by the Optionee
shall cease to be treated as an Incentive Stock Option and shall be treated for
tax purposes as a Nonstatutory Stock Option.
(i) "Employee" means any person, including Officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
<PAGE>
prior to the time of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the Nasdaq National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(n) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "Option" means a stock option granted pursuant to the Plan.
------
(p) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(q) "Optionee" means an Employee or Consultant who receives an
--------
Option.
(r) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(s) "Plan" means this 1994 Stock Option Plan.
----
(t) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 below.
(u) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 7,434,830 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
--------
however, that Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if unvested Shares are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.
4. Administration of the Plan.
--------------------------
(a) Initial Plan Procedure. Prior to the date, if any, upon which
----------------------
the Company becomes subject to the Exchange Act, the Plan shall be administered
by the Board or a committee appointed by the Board.
-2-
<PAGE>
(b) Plan Procedure after the Date, if any, upon Which the Company
-------------------------------------------------------------
becomes Subject to the Exchange Act.
- -----------------------------------
(i) Administration with Respect to Directors and Officers.
-----------------------------------------------------
With respect to grants of Options to Employees who are also Officers or
directors of the Company, the Plan shall be administered by (A) the Board if the
Board may administer the Plan in compliance with Rule 16b-3 promulgated under
the Exchange Act or any successor thereto ("Rule 16b-3") with respect to a plan
intended to qualify thereunder as a discretionary plan, or (B) a Committee
designated by the Board to administer the Plan, which Committee shall be
constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule 16b-
------------------------------
3, the Plan may be administered by different bodies with respect to directors,
non-director Officers and Employees who are neither directors nor Officers.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options to Employees or Consultants who
- ---------
are neither directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board, which
committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of incentive stock option plans, if
any, of California corporate and securities laws, of the Code, and of any
applicable stock exchange (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options
may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any award granted
hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted; and
(ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
-3-
<PAGE>
(d) Effect of Administrator's Decision. All decisions,
----------------------------------
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value:
(i) of Shares subject to an Optionee's Incentive Stock Options
granted by the Company, any Parent or Subsidiary, which
(ii) become exercisable for the first time during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(c) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
(d) Upon the Company or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 1,375,000 Shares.
(ii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 11.
(iii) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 11), the cancelled Option will be counted against the limit
set forth in Section 5. For this purpose, if the exercise price of an Option is
reduced, the transaction will be treated as a cancellation of the Option and the
grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company, as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
-4-
<PAGE>
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option have been owned by the Optionee for more
than six months on the date of surrender and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the Board
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan, but in no case at a rate of less than 20% per year over five (5) years
from the date the Option is granted.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
-5-
<PAGE>
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the
----------------------------------------------------
event of termination of an Optionee's Continuous Status as an Employee or
Consultant with the Company (but not in the event of an Optionee's change of
status from Employee to Consultant (in which case an Employee's Incentive Stock
Option shall automatically convert to a Nonstatutory Stock Option on the ninety-
first (91st) day following such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was entitled
to exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise the Option at the date of such termination, or if
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event of termination of an
----------------------
Optionee's consulting relationship or Continuous Status as an Employee as a
result of his or her disability, Optionee may, but only within twelve (12)
months from the date of such termination (and in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination; provided, however, that if such disability is
not a "disability" as such term is defined in Section 22(e)(3) of the Code, in
the case of an Incentive Stock Option such Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the day three months and
one day following such termination. To the extent that Optionee is not entitled
to exercise the Option at the date of termination, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to
-----------------
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Non-Transferability of Options. Options may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger.
----------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided,
-6-
<PAGE>
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
(c) Merger. In the event of a merger of the Company with or into
------
another corporation, the Option may be assumed or an equivalent option may be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. If, in such event, the Option is not assumed or
substituted, the Option shall terminate as of the date of the closing of the
merger. For the purposes of this paragraph, the Option shall be considered
assumed if, following the merger, the option confers the right to purchase, for
each Share of Optioned Stock subject to the Option immediately prior to the
merger, the consideration (whether stock, cash, or other securities or property)
received in the merger by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger was not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option for
each Share of Optioned Stock subject to the Option to be solely common stock of
the successor corporation or its Parent equal in fair market value to the per
share consideration received by holders of Common Stock in the merger.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
-7-
<PAGE>
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. Agreements. Options shall be evidenced by written agreements in such
----------
form as the Board shall approve from time to time.
17. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
18. Information to Optionees and Purchasers. The Company shall provide to
---------------------------------------
each Optionee, not less frequently than annually, copies of annual financial
statements. The Company shall also provide such statements to each individual
who acquires Shares pursuant to the Plan while such individual owns such Shares.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.
-8-
<PAGE>
STOCK OPTION AGREEMENT
----------------------
1. DEFINITIONS. Unless expressly stated otherwise in this Stock Option
-----------
Agreement ("Agreement"), the terms in this Agreement will have the same
meanings as in the Objective Systems Integrators 1994 Stock Option Plan
("Plan").
2. GRANT OF OPTION. OSI grants to the Optionee ("you" or "Optionee") named in
---------------
the Notice of Stock Option Grant attached as the first page of the
Agreement ("Notice"), an option ("Option") to purchase the total number of
shares of Common Stock ("Shares") set forth in the Notice, at the exercise
price per share set forth in the Notice ("Exercise Price") subject to the
terms, definitions and provisions of the Plan, which is incorporated into
this Agreement by reference.
If described in the Notice as an Incentive Stock Option ("ISO"), the Option
is intended to qualify an Incentive Stock Option as defined in Section 422
of the Code. However, Incentive Stock Options, to the extent they exceed
the $100,000 rule of Code Section 422(d), will be treated as Nonstatutory
Stock Options ("NSOs").
3. VESTING SCHEDULE. The Option may be exercised, in whole or in part, as
----------------
follows:
(A) 25% of the Shares subject to the Option will vest on the Vest Date in
the Notice; and
(B) 1/48 of the Shares subject to the Option will vest each month
thereafter.
4. EXERCISE. The Option can be exercised with respect to vested Shares, as
--------
follows:
(A) RIGHT TO EXERCISE.
-----------------
(1) The Option may not be exercised for a fraction of a Share.
(2) The Option may be exercised only before it expires and only in
accordance with the Plan and this Agreement. The limitations in
Section 7 of the Plan regarding Options designated as ISOs and
Options granted to more than 10% shareholders will apply.
(3) Subject to the limitation in subsection 4(a)(1), if you die,
become disabled or your employment or consulting relationship
with OSI ends, your ability to exercise the Option is governed by
Sections 8, 9 and 10.
(4) Vesting of Options is earned by continued employment or by a
continued consulting relationship with OSI. The grant of an
Option is not an express or implied promise of continued
employment or a continued consulting relationship for the vesting
period or for any other period.
(B) METHOD OF EXERCISE. This Option can only be exercised by written
------------------
notice to OSI. The notice must (1) state that the Option is being
exercised, (2) recite the number of Shares being acquired, (3) contain
such other representations and agreements concerning the Shares as OSI
may require, (4) be signed by you, (5) be delivered in person or by
certified mail to the Secretary of OSI, and (6) be accompanied by
payment of the Exercise Price. Options will only be deemed to have
been exercised when OSI receives this notice accompanied by the
Exercise Price.
5. METHOD OF PAYMENT. Payment of the exercise price will be by cash, check,
-----------------
surrender of previously owned Common Stock which, on the date of surrender,
has been owned by you for more than six months (or was not acquired
directly from OSI) and has a fair market value equal to the aggregate
exercise price of the Shares being exercised, by delivery of a properly
executed exercise notice together with an irrevocable instruction to a
broker to promptly deliver the exercise price to OSI, or by a combination
of any of the above.
<PAGE>
6. RESTRICTIONS ON EXERCISE. The Option may not be exercised if the exercise
------------------------
itself, the issuance of the Shares or the type of consideration being paid
for the Shares, violates any applicable law, rule or regulation, including
any rule under Part 207 of Title 12 of the Code of Federal Regulations
("Regulation G") or any requirement of a stock exchange on which the Shares
are listed. Assuming no such violation exists, the Shares will be
considered issued on the date the Option is exercised.
7. CHANGE IN STATUS. If your status changes from being an Employee to being a
----------------
Consultant or vice versa (expressed in the Plan as maintaining Continuous
Status as an Employee or Consultant), this Agreement will remain in effect.
8. TERMINATION OF RELATIONSHIP. If you cease being an Employee or Consultant
---------------------------
of OSI (expressed in the Plan as a termination of Continuous Status as an
Employee or Consultant), you may exercise the Option at any time within 30
days after termination to the same extent that you could exercise it on the
date of your termination. To the extent that you were not entitled to
exercise the Option on your termination date, or if you do not exercise the
Option within the thirty-day period, the Option will expire.
9. DISABILITY. Notwithstanding Section 8, if you cease being an employee or
----------
consultant of OSI as a result of your disability, you may exercise the
Option at any time within 12 months after termination to the same extent
you were entitled to exercise it on the date of termination,. To the extent
you were not entitled to exercise the Option on your termination date, or
if you do not exercise the Option within the twelve-month period, the
Option will expire. Moreover, if your disability is not a "disability" as
defined in Section 22(e)(3) of the Code, ISOs will be treated for tax
purposes as a NSOs effective three months and one day after termination.
10. DEATH. Notwithstanding Section 8, if you die while an employee or
-----
consultant of OSI, your estate (or the person who acquired the right to
exercise the Option by bequest or inheritance) may exercise the Option at
any time within 12 months after your death to the same extent that you were
entitled to exercise it on the date of your death,. To the extent you were
not entitled to exercise the Option on the date of your death, or the
Option is not exercised within the twelve-month period, the Option will
expire.
11. NON-TRANSFERABILITY. Options may not be transferred in any manner otherwise
-------------------
than by will or by the laws of descent and distribution. During your
lifetime, the Option may be exercised only by you. The terms of an Option
will be binding upon your executors, administrators, heirs, successors and
assigns.
12. TAX CONSEQUENCES. Below is a brief summary of some of the current U.S.
----------------
Federal tax consequences of exercising an Option and disposing of the
resulting Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE AND THE TAX LAWS
AND REGULATIONS CAN CHANGE. YOU SHOULD CONSULT A TAX ADVISER BEFORE
EXERCISING THE OPTION OR DISPOSING OF THE SHARES.
(A) EXERCISE OF ISO. If this Option qualifies as an ISO, there will be no
---------------
regular U.S. Federal income tax liability on exercise. The excess, if
any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price will be treated as an adjustment to the
alternative minimum tax and may subject you to alternative minimum tax
in the year of exercise. However, you may be required at some point to
satisfy tax withholding obligations for a disqualifying disposition of
an ISO. This tax withholding obligation must be satisfied either by
paying the required amounts or having them withheld by OSI from your
compensation.
(B) EXERCISE OF ISO FOLLOWING DISABILITY. If your Continuous Status as an
------------------------------------
Employee or Consultant ends as a result of a disability that is not
total and permanent as defined in Section 22(e)(3) of the Code then,
to the extent permitted on the date of termination, you must exercise
the ISO within 90 days of termination for it to be qualified as an
ISO.
(C) EXERCISE OF NSO. There may be a regular U.S. Federal income tax
---------------
liability on the exercise of an NSO. You will be treated as having
received income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of
exercise over the Exercise Price ("Gain").
<PAGE>
However, the timing for recognizing this Gain may be deferred for up
to six months if you are subject to Section 16 of the Securities
Exchange Act of 1934, as amended ("Exchange Act"). If you are an
Employee or a former Employee, OSI must collect from you or withhold
from your compensation, and pay to the applicable tax authorities, a
percentage of the Gain at the time of exercise. OSI may refuse to
honor the exercise or refuse to deliver Shares if these withholding
amounts are not delivered at the time of exercise.
(D) DISPOSITION OF SHARES. In the case of an NSO, if Shares are held for
---------------------
at least one year any gain realized on their disposition will be
treated as long-term capital gain for U.S. Federal income tax
purposes. In the case of an ISO, if the Shares are held for at least
one year after exercise and are disposed of at least two years after
the Date of Grant, any gain realized on their disposition will be
treated as long-term capital gain. If Shares purchased under an ISO
are disposed of within the one-year period or within two years after
the Date of Grant, gain realized on the disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent
of the difference between the Exercise Price and the lesser of (1) the
Fair Market Value of the Shares on the date of exercise, or (2) the
sale price of the Shares.
(E) NOTICE OF DISQUALIFYING DISPOSITION. If the Option is an ISO, and if
-----------------------------------
you sell or otherwise dispose of any of the Shares acquired under the
ISO on or before the later of (1) two years after the Date of Grant,
or (2) one year after the date of exercise, you agree to immediately
give OSI written notice of the disposition. You may be subject to
income tax withholding by OSI on the compensation income that you
recognize.
13. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and this Agreement constitute the
-------------------------------
entire agreement of the parties with respect to their subject matter and
supersede all prior undertakings and agreements of Optionee and OSI with
respect to that subject matter. This Agreement may not be modified
adversely to your interest except by means of a writing signed by you and
OSI. This Agreement is governed by California law except for that body of
law pertaining to conflict of laws.
VESTING OF SHARES IS EARNED ONLY BY CONTINUED EMPLOYMENT AT THE WILL OF OSI (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
UNDER IT). NEITHER THE OPTION NOR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED EMPLOYMENT FOR
THE VESTING PERIOD OR FOR ANY OTHER PERIOD.
Optionee acknowledges receipt of a copy of the Plan, the Prospectus relating to
the Plan and the OSI Insider Trading Policy ("Policy"). You represent that you
are familiar with the terms of the Plan and accept the Option subject to those
terms. You further represent that you are familiar with the Policy and agree to
abide by the Policy in dealing with OSI securities.
Optionee has reviewed the Plan, the Option and the Policy, has had an
opportunity to obtain legal advice before executing this Agreement, fully
understands the provisions of the Option and specifically acknowledges that the
vesting of shares is earned only by continuing employment or consulting at the
will of OSI (and not through the act of being hired, being granted the Option or
acquiring shares under the Option). You accept as binding, conclusive and final
all decisions or interpretations of the Board of Directors upon any questions
arising under the Plan.
OBJECTIVE SYSTEMS INTEGRATORS, INC.
By: ______________________________ __________________________________
OPTIONEE
Date: ____________________________ Date: ________________________
<PAGE>
APPENDIX 2
OBJECTIVE SYSTEMS INTEGRATORS, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED THROUGH JULY 18, 1997)
The following constitute the provisions of the 1995 Employee Stock Purchase
Plan of Objective Systems Integrators, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Objective Systems Integrators, Inc. and any
-------
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all W-2 compensation of the
------------
participant.
(f) "Designated Subsidiaries" shall mean the Subsidiaries which have
-----------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship will be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
(i) "Exercise Date" shall mean the last day of each Purchase Period.
-------------
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sale price for the Common Stock (or the mean of the closing bid and
asked prices, if no sales were reported), as quoted on such exchange (or the
exchange with the greatest volume of trading in Common Stock) or system on the
date of such determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable, or;
(2) If the Common Stock is quoted on the NASDAQ System (but not
on the Nasdaq National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(4) For purposes of the Enrollment Date under the first Offering
Period, the Fair Market Value shall be the initial price to the public as set
forth in the final Prospectus included within the Registration Statement in Form
S-1 filed with the Securities and Exchange Commission for the initial public
offering of the Company's Common Stock.
(k) "Offering Period" shall mean the period of approximately twenty-
---------------
four (24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after April 30 and October
31 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later. The first Offering Period shall begin on the effective
date of the Company's initial public offering of its Common Stock that is
registered with the Securities and Exchange Commission and shall end on the last
Trading Day on or before October 31, 1997. The duration and timing of Offering
Periods may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
----
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
<PAGE>
(o) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee (as defined in Section 2(g)), who shall be employed
by the Company on a given Enrollment Date shall be eligible to participate in
the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company and/or hold outstanding options to purchase such stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of the capital stock of the Company or of any Subsidiary, or (ii) which
permits his or her rights to purchase stock under all employee stock purchase
plans of the Company and its subsidiaries to accrue at a rate which exceeds
twenty-five thousand dollars ($25,000) worth of stock (determined at the fair
market value of the shares at the time such option is granted) for each calendar
year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after April 30 and October 31 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 19 hereof. The first Offering Period shall begin on the
Effective Date of the Company's initial public offering of its Common Stock that
is registered with the Securities and Exchange Commission. The Board shall have
the power to change the duration of Offering Periods (including the commencement
dates thereof) with respect to future offerings without shareholder approval if
such change is announced at least five (5) days prior to the scheduled beginning
of the first Offering Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing
<PAGE>
it with the Company's payroll office prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period, and the aggregate of such payroll deductions during the Offering Period
shall not exceed fifteen percent (15%) of the participant's Compensation during
said Offering Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and will be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions once during any Purchase Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Purchase Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to 0% at such time during any Purchase
Period which is scheduled to end during the current calendar year (the "Current
Purchase Period") that the aggregate of all payroll deductions which were
previously used to purchase stock under the Plan in a prior Purchase Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Purchase Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such participant's subscription
agreement at the beginning of the first Purchase Period which is scheduled to
end in the following calendar year, unless terminated by the participant as
provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make
<PAGE>
adequate provision for the Company's federal, state, or other tax withholding
obligations, if any, which arise upon the exercise of the option or the
disposition of the Common Stock. At any time, the Company may, but will not be
obligated to, withhold from the participant's compensation the amount necessary
for the Company to meet applicable withholding obligations, including any
withholding required to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by the
Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than a
number of Shares determined by dividing $12,500 by the Fair Market Value of a
share of the Company's Common Stock on the Enrollment Date, and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof, and
shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the
-5-
<PAGE>
participant's payroll deductions credited to his or her account will be paid to
such participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period will be automatically terminated,
and no further payroll deductions for the purchase of shares will be made for
such Offering Period. If a participant withdraws from an Offering Period,
payroll deductions will not resume at the beginning of the succeeding Offering
Period unless the participant delivers to the Company a new subscription
agreement.
(b) Upon a participant's ceasing to be an Employee (as defined in
Section 2(g) hereof), for any reason, he or she will be deemed to have elected
to withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to exercise
the option will be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 14 hereof, and
such participant's option will be automatically terminated. The preceding
sentence notwithstanding, a participant who receives payment in lieu of notice
of termination of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of employment during
the period in which the participant is subject to such payment in lieu of
notice.
11. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
12. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 1,487,500, subject to
adjustment upon changes in capitalization of the Company as provided in Section
18 hereof. If, on a given Exercise Date, the number of shares with respect to
which options are to be exercised exceeds the number of shares then available
under the Plan, the Company shall make a pro rata allocation of the shares
remaining available for purchase in as uniform a manner as shall be practicable
and as it shall deter mine to be equitable.
(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
13. Administration.
--------------
(a) Administrative Body. The Plan shall be administered by the
-------------------
Board or a committee of members of the Board appointed by the Board. The Board
or its committee shall have
<PAGE>
full and exclusive discretionary authority to construe, interpret and apply the
terms of the Plan, to determine eligibility and to adjudicate all disputed
claims filed under the Plan. Every finding, decision and determination made by
the Board or its committee shall, to the full extent permitted by law, be final
and binding upon all parties.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
----------------------
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be only administered by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
14. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise
Date on which the option is exercised but prior to delivery to such participant
of such shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to
exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
-7-
<PAGE>
16. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
- --------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration". Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Periods will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each option under the Plan shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board determines,
in the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Offering Periods then in progress by setting a new
Exercise Date (the "New Exercise Date"). If the Board shortens the Offering
Periods then in progress in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for his option has been changed to the New Exercise Date and that his
option will be exercised automatically on the
-8-
<PAGE>
New Exercise Date, unless prior to such date he has withdrawn from the Offering
Period as provided in Section 10 hereof. For purposes of this paragraph, an
option granted under the Plan shall be deemed to be assumed if, following the
sale of assets or merger, the option confers the right to purchase, for each
share of option stock subject to the option immediately prior to the sale of
assets or merger, the consideration (whether stock, cash or other securities or
property) received in the sale of assets or merger by holders of Common Stock
for each share of Common Stock held on the effective date of the transaction
(and if such holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares of
Common Stock); provided, however, that if such consideration received in the
sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board
may, with the consent of the successor corporation, provide for the
consideration to be received upon exercise of the option to be solely common
stock of the successor corporation or its parent equal in fair market value to
the per share consideration received by holders of Common Stock and the sale of
assets or merger.
19. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 18 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule
or provision or any other applicable law or regulation), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to the
-------
Company under
-9-
<PAGE>
or in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
23. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by Rule 16b-3 of the Exchange Act, if the Fair Market Value of the
Common Stock on any Exercise Date in an Offering Period is lower than the Fair
Market Value of the Common Stock on the Enrollment Date of such Offering Period,
then all participants in such Offering Period shall be automatically withdrawn
from such Offering Period immediately after the exercise of their option on such
Exercise Date and automatically re-enrolled in the immediately following
Offering Period as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
---------
OBJECTIVE SYSTEMS INTEGRATORS, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ________________________________________ hereby elects to participate in
the Objective Systems Integrators, Inc. 1995 Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan") and subscribes to purchase shares of
the Company's Common Stock in accordance with this Subscription Agreement
and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
_____ of my Compensation on each payday (1-15%) during the Offering Period
in accordance with the Employee Stock Purchase Plan. (Please note that no
fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete "Objective Systems Integrators, Inc.
1995 Employee Stock Purchase Plan." I understand that my participation in
the Employee Stock Purchase Plan is in all respects subject to the terms of
the Plan. I understand that my ability to exercise the option under this
Subscription Agreement is subject to obtaining shareholder approval of the
Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and spouse only):
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased
<PAGE>
such shares) or one year after the Exercise Date, I will be treated for
federal income tax purposes as having received ordinary income at the time
of such disposition in an amount equal to the excess of the fair market
value of the shares at the time such shares were purchased over the price
which I paid for the shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN
---------------------------------------
WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION OF MY SHARES AND I
---------------------------------------------------------------------------
WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING
------------------------------------------------------------------------
OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE COMMON STOCK.
-------------------------------------------------------------------------
The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year and 1-year holding periods, I understand
that I will be treated for federal income tax purposes as having received
income only at the time of such disposition, and that such income will be
taxed as ordinary income only to the extent of an amount equal to the
lesser of (1) the excess of the fair market value of the shares at the time
of such disposition over the purchase price which I paid for the shares, or
(2) 15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
__________________________________ __________________________________________
Relationship
__________________________________________
(Address)
-2-
<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
________________________________________
Spouse's Signature (If beneficiary other
than spouse)
-3-
<PAGE>
EXHIBIT B
---------
OBJECTIVE SYSTEMS INTEGRATORS, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Objective Systems
Integrators, Inc. 1995 Employee Stock Purchase Plan which began on ____________,
19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:__________________________
-4-
<PAGE>
OBJECTIVE SYSTEMS INTEGRATORS, INC.
ID:
OPTION NUMBER:
PLAN: ISO
ID:
Effective, you have been granted an Incentive Stock Option to buy_________
----------------------
shares of Objective Systems Integrators, Inc. ("OSI") stock at ___________ per
share.
The total option price of the shares granted is ______________.
Shares in each period will become fully vested on the date shown.
Shares Vest Type Full Vest Expiration
------ --------- --------- ----------
By your signature and OSI's signature below, you and OSI agree that these
options are granted under. and governed by the terms and conditions of. OSI's
Stock Option Plan. as amended, and the Option Agreement, all of which are
attached and made a part of this document.
- ----------------------------------- ---------------------------------
OBJECTIVE SYSTEMS INTEGRATORS, INC. Date
- ----------------------------------- ---------------------------------
Date
<PAGE>
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OBJECTIVE SYSTEMS INTEGRATORS, INC.
1997 ANNUAL MEETING OF STOCKHOLDERS
November 21, 1997
The undersigned stockholder of OBJECTIVE SYSTEMS INTEGRATORS, INC., a
Delaware corporation, acknowledges receipt of the Notice of Meeting of
Stockholders and Proxy Statement, each dated October 20, 1997, and appoints Tom
L. Johnson, Richard G. Vento, David M. Allen and Philip N. Cardman, and each of
them, proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
1997 Meeting of Stockholders of OBJECTIVE SYSTEMS INTEGRATORS, INC. to be held
on November 21, 1997, at 10:00 a.m. local time, at the Lake Natoma Inn, 702 Gold
Lake Drive, Folsom, California 95630, and at any adjournment or adjournments
thereof, and to vote all shares of Common Stock which the undersigned would be
entitled to vote if then and there personally present, on the matters set forth
below:
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE AMENDMENT TO THE 1994 STOCK
OPTION PLAN, FOR THE AMENDMENT TO THE 1995 EMPLOYEE STOCK PURCHASE PLAN, FOR THE
RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS AND, AS SAID
PROXIES DEEM ADVISABLE, ON ANY OTHER MATTERS AS PROPERLY COME BEFORE THE
MEETING.
(Continued and to be signed on other side)
FOLD AND DETACH HERE
<PAGE>
Please mark
[X] your votes
as indicated
WITHHELD
FOR FOR ALL
1. Election of Directors: [ ] [ ]
If you wish to withhold authority to vote for any
individual nominee, strike a line through that
nominee's name in the list below:
Tom L. Johnson
Richard G. Vento
George F. Schmitt
Jonathan B. Shantz
Kornel Terplan
FOR AGAINST ABSTAIN
2. Amendment of 1994 Stock Option Plan to increase the [ ] [ ] [ ]
number of shares reserved for grant thereunder:
3. Amendment of 1995 Employee Stock Purchase Plan to [ ] [ ] [ ]
increase the number of shares reserved for grant
thereunder:
4. Ratification of Deloitte and Touche LLP as the [ ] [ ] [ ]
independent auditors of the Company for the fiscal
period ending June 30, 1998:
and, in their discretion, upon such other matter or
matters which may properly come before the meeting or
any adjournment or adjournments thereof.
Signature(s)___________________________________________________ Date___________
(This Proxy should be marked, dated and signed by the stockholder(s) exactly
as his or her name appears hereon, and returned promptly enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
* FOLD AND DETACH HERE *
