<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q
(Mark One)
/X/ Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
September 29, 1996
OR
/ / Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
_____________ to ______________
Commission File Number 0-21034
--------------------
PROXIMA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3740880
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
9440 Carroll Park Drive
San Diego, California 92121
(address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (619) 457-5500
--------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / / .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common Stock, $.001
par value per share, 7,396,509 shares as of November 7, 1996.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROXIMA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
-------- --------
September 30, March 31,
1996 1996
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 268 $ 2,389
Short-term investments 17,319 19,032
Accounts receivable, net 28,641 27,255
Inventories (note 2) 24,156 24,416
Deferred income taxes 3,018 2,864
Prepaid expenses and other 971 809
-------- --------
Total current assets 74,373 76,765
-------- --------
PROPERTY 7,350 7,189
-------- --------
OTHER ASSETS
Investment in affiliate (note 3) 1,111 4,485
Deferred income taxes 868 874
Patents 473 497
Other 352 448
-------- --------
Total other assets 2,804 6,304
-------- --------
TOTAL $ 84,527 $ 90,258
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,702 $ 9,469
Accrued expenses 5,096 5,555
Income taxes payable 1,320 2,064
-------- --------
Total current liabilities 14,118 17,088
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDERS' EQUITY (NOTE 5)
Preferred stock, authorized--5,000,000 shares,
par value $.001, no shares issued or outstanding
Common stock, authorized--40,000,000 shares,
par value $.001, issued and outstanding--
7,335,000 and 7,120,000 shares, respectively 7 7
Paid-in capital 40,967 39,399
Treasury stock--281,000 shares held (2,548) (1,750)
Retained earnings 31,983 35,514
-------- --------
Total stockholders' equity 70,409 73,170
-------- --------
TOTAL $ 84,527 $ 90,258
======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
PROXIMA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six months September 30,
-----------------------
1996 1995
-------- --------
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (3,531) $ 3,003
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,730 1,295
Provision for allowance for doubtful accounts (80) 571
Benefit from deferred income taxes (148) (82)
Tax benefit from stock option exercises 269 919
Gain on sale of subsidiary's assets (2,779) --
Writedown of investment in affiliate 3,905 --
Changes in assets and liabilities, net of effects
from sale of subsidiary's assets:
Accounts receivable (3,427) 1,903
Income taxes payable (744) 39
Inventories (1,887) (1,431)
Prepaid expenses and other assets (215) 682
Accounts payable and accrued expenses (1,540) (6,834)
-------- --------
Net cash provided by
(used for) operating activities (8,447) 65
-------- --------
INVESTING ACTIVITIES
Proceeds from sale of subsidiary's assets 7,259 --
Acquisition of property (2,541) (1,467)
Short-term investments decrease 1,713 9,402
Investment in affiliate (666) (1,342)
Other 123 (172)
-------- --------
Net cash provided by investing activities 5,888 6,421
-------- --------
FINANCING ACTIVITIES
Sale of common stock 438 879
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,121) 7,365
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,389 3,304
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 268 $ 10,669
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 985 $ 18
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
PROXIMA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
---------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
SALES $ 36,221 $ 35,030 $ 71,260 $ 67,990
COST OF SALES 24,813 23,108 49,752 44,547
-------- -------- -------- --------
Gross profit 11,408 11,922 21,508 23,443
-------- -------- -------- --------
OPERATING EXPENSES
Selling and marketing 5,277 5,067 11,946 9,504
Research and development 4,141 2,780 8,625 5,553
General and administrative 1,537 1,607 3,374 3,144
-------- -------- -------- --------
Total 10,955 9,454 23,945 18,201
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS 453 2,468 (2,437) 5,242
-------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest and other income 353 185 673 371
Equity in income (loss) of affiliate (note 3) 7 (271) (276) (479)
Gain on sale of subsidiary's assets (note 7) 100 -- - 2,779 --
Writedown of investment in affiliate (note 3) -- -- -(3,905) --
-------- -------- -------- --------
Total 460 (86) (729) (108)
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 913 2,382 (3,166) 5,134
PROVISION FOR INCOME TAXES 211 1,027 365 2,131
-------- -------- -------- --------
NET INCOME (LOSS) $ 702 $ 1,355 ($ 3,531) $ 3,003
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE DATA (NOTE 1)
Earnings (loss) per share $ 0.10 $ 0.20 $ (0.51) $ 0.43
======== ======== ======== ========
Weighted average common and common
equivalent shares (note 1) 7,151 6,939 6,953 6,950
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial information has been prepared by Proxima
Corporation (the "Company"), without audit, in accordance with the instructions
to Form 10-Q and therefore does not include all information and footnotes
necessary for a fair presentation of financial position, results of operations
and cash flows in accordance with generally accepted accounting principles.
In the opinion of management, the unaudited consolidated financial statements
for the interim periods presented reflect all adjustments (solely of a normal
recurring nature) which are necessary for a fair presentation of the financial
position and results of operations as of and for the periods indicated. These
consolidated financial statements and notes thereto should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended March
31, 1996.
Earnings (loss) per share is computed based on the weighted average number of
common and common equivalent shares outstanding during each period using the
treasury stock method, in which any shares that could have been purchased on the
open market with the funds received from the exercise of options or warrants are
not considered additional outstanding stock and have no dilutive effect on
earnings per share (see note 5). Stock options are considered to be common stock
equivalents. For the six months ended September 30, 1996, when the inclusion of
common stock equivalents would be antidilutive, earnings (loss) per share is
computed based on the weighted average number of common shares outstanding
excluding common stock equivalents. Primary earnings (loss) per share is not
significantly different from fully diluted earnings (loss) per share for any of
the periods indicated.
For ease of presentation, the Company has indicated its fiscal year as ending on
March 31 and its second fiscal quarter as ending on September 30, whereas the
Company operates and reports on a 52-53 week fiscal year ending on the Sunday
closest to March 31. Each fiscal quarter presented herein included 13 weeks, and
each six month period presented herein included 26 weeks.
Results for the interim periods presented herein are not necessarily indicative
of results which may be reported for any other interim period or for the entire
fiscal year.
2. INVENTORIES:
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
(unaudited)
<S> <C> <C>
Raw materials $ 5,037,000 $ 3,974,000
Work-in-process 9,538,000 10,887,000
Finished goods 9,581,000 9,555,000
----------- -----------
Total $24,156,000 $24,416,000
=========== ===========
</TABLE>
5
<PAGE> 6
3. OTHER ASSETS--INVESTMENT IN AFFILIATE
In May 1993 the Company purchased 125,000 shares of Laser Power Corporation
("LPC") common stock for $255,000 and has subsequently purchased, through
September 30, 1996, 1,611,000 shares of LPC Series A Preferred Stock for
$6,444,000. The Company has also entered into agreements providing for
technology licenses between the Company and LPC and the cooperative development
of new technologies. At September 30, 1996, the Company owned 125,000 shares of
LPC common stock and 1,611,000 shares of LPC Series A Preferred Stock for a
total investment of $6,699,000.
At September 30, 1996, the Company owned approximately 29% of the outstanding
voting stock of LPC. The Company accounts for its investment under the equity
method. The Company's share of the net losses of LPC of $276,000 for the first
six months of fiscal 1997 is reflected in the accompanying Consolidated
Statements of Operations. This item includes approximately $195,000 for the
amortization of the excess of the cost of the investment over the underlying
equity in net assets of LPC.
The Company recorded a write-down of $3,905,000 against its investment in LPC
during the quarter ended June 30, 1996. The remaining investment balance of
$1,111,000, shown on the accompanying balance sheet as of September 30, 1996
reflects the Company's equity in the net assets of LPC, less a valuation
reserve. This valuation of the Company's investment in LPC is the result of an
analysis of discounted and undiscounted estimated cash flows from the
investment. The Company deemed it necessary to review its investment in LPC
because of information obtained upon the completion of the first engineering
model of a microlaser projector in July 1996. That engineering model
demonstrated that the microlaser projector development would take more time and
be more costly than anticipated, and that component costs would exceed earlier
expectations. The Company now believes that microlaser technology will initially
be suited for the higher-cost specialty projector market, which offers lower
unit volumes than originally contemplated.
The Company will continue to recognize its share of the net income or loss of
LPC under the equity method.
The Company has entered into an equipment line of credit agreement with LPC to
provide up to $1,000,000 to LPC for the acquisition of equipment for projector
development. The line of credit carries interest at 1.5% over the prime rate for
a term of 48 months. The line of credit is secured by the equipment acquired and
is guaranteed by a principal of LPC. At September 30, 1996, the total amount
borrowed pursuant to the line of credit was $265,000. This amount is included in
"Other" assets in the accompanying balance sheets.
6
<PAGE> 7
4. COMMITMENTS AND CONTINGENCIES
Litigation
During the three months ended September 30, 1996, the Company was named as a
defendant in three putative shareholder class action lawsuits. Certain current
and former executive officers and directors are also named as defendants. In
Stielau Family Trust, et. al. v. Paul Eichen, et. al., filed on August 15, 1996
in the California Superior Court for San Diego County, and in Robert Powers, et.
al. v. Paul Eichen, et. al., filed on August 16, 1996 in the U.S. District Court
for the Southern District of California, the plaintiffs purport to represent a
class consisting of all persons who purchased the Company's common stock between
July 26, 1994 and August 17, 1995. In Richard Strausz, et. al. v. Proxima Corp.,
et. al., filed on August 27, 1996 in the California Superior Court for San Diego
County, the plaintiffs purport to represent a class consisting of all persons
who purchased the Company's common stock between October 21, 1995 and June 24,
1996. The complaints allege that the defendants violated various federal
securities laws and California statutes through material misrepresentations and
omissions during the class periods. The plaintiffs are seeking unspecified
compensatory damages and additional punitive damages. The Company believes that
it has good defenses to the claims alleged in the lawsuits and is defending
itself vigorously against these actions.
5. STOCKHOLDERS' EQUITY
Treasury Stock
During the three months ended September 30, 1996 the Company received
approximately 58,000 shares of the Company's common stock in connection with the
exercise of stock options. The shares received had a fair market value of
$798,000 at the time of receipt. The Company may receive or repurchase
additional shares of its issued and outstanding common stock in the future.
Stock Option Plan
At the annual meeting of shareholders on August 14, 1996, the shareholders
approved a new Stock Option Plan which provides for incentive and non-qualified
options to purchase up to 500,000 shares of common stock to be granted to
certain key employees, directors and other individuals to purchase shares of the
Company's common stock. The Plan also provides for additional options equal to
the number of options granted under the terminated 1986 Stock Option Plan that
expire unexercised, not to exceed an additional 500,000 shares. Incentive stock
options may be granted at prices not less than the fair market value at the date
of grant, and generally become exercisable in equal annual increments over four
years. Options issued under the Plan generally expire seven years after the date
of grant.
7
<PAGE> 8
6. LINE OF CREDIT
At September 30, 1996, the Company had available a line of credit arrangement
providing for a $13.0 million revolving line of credit, secured by accounts
receivable, inventories and equipment, at an interest rate equal to the bank's
prime rate, with $3.0 million of the line available for the purchase of fixed
assets, at an interest rate of one-half percent over the bank's prime rate. The
line of credit arrangement contains standard covenants relating to financial
ratios. The Company is in compliance with all such covenants. No borrowings were
made under this or any previous credit arrangement during fiscal year 1996 or
during the first six months of fiscal 1997. The credit arrangement expires on
July 31, 1997.
7. SALE OF SUBSIDIARY'S ASSETS
On June 28, 1996, the Company entered into an agreement to sell the assets of
its wholly-owned power protection subsidiary, Newpoint Corporation, in a cash
transaction totaling approximately $7.3 million. Newpoint accounted for less
than 10% of the Company's revenues during the first six months of fiscal years
1996 and 1997, and during the three month periods ended September 30, 1995 and
1996. The operating results of Newpoint Corporation for the six months ended
September 30, 1995 and for the three months ended June 30, 1996 are reflected in
the accompanying Consolidated Statements of Operations. The gain on sale of
assets of $2,679,000 was recognized in the Consolidated Statement of Operations
for the three-month period ended June 30, 1996, under "Gain on sale of
subsidiary's assets." The Company also retained certain liabilities related to
Newpoint Corporation. An additional gain on sale of assets of $100,000 was
recognized in the Consolidated Statement of Operations for the three-month
period ended September 30, 1996, reflecting an adjustment in the reserve for
these liabilities. The asset sale agreement provided for an independent audit of
the assets within 60 days from the date of the agreement, which was completed
during the three months ended September 30, 1996. The agreement also provides
for adjustments in the final sales price up to one year after the date of the
agreement based on such factors as collectability of receivables and inventory
obsolescence. The Company has established reserves that it considers sufficient
to cover any such adjustments, liabilities or contingencies.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company offers broad lines of data and video projection products,
including multimedia projectors capable of supporting full-motion video,
animation, and sound directly from a computer or VCR, and the Cyclops pointer
system, a unique fully interactive command and control system. All of the
Company's projection products are designed for interactivity and ease of use.
RESULTS OF OPERATIONS
The following table sets forth certain data as a percentage of sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 68.5 66.0 69.8 65.5
----- ----- ----- -----
Gross profit 31.5 34.0 30.2 34.5
----- ----- ----- -----
Operating expenses
Selling and marketing 14.6 14.5 16.8 14.0
Research and development 11.4 7.9 12.1 8.2
General and administrative 4.3 4.6 4.7 4.6
----- ----- ----- -----
Total 30.3 27.0 33.6 26.8
----- ----- ----- -----
Income (loss) from operations 1.2 7.0 (3.4) 7.7
----- ----- ----- -----
Other income (expense)
Interest and other income 1.0 0.5 0.9 0.5
Equity in loss of affiliate -- (0.7) (0.4) (0.7)
Gain on sale of subsidiary's assets 0.3 -- 3.9 --
Write-down of investment in affiliate -- -- (5.5) --
----- ----- ----- -----
Total 1.3 (0.2) (1.1) (0.2)
----- ----- ----- -----
Income (loss) before income taxes 2.5 6.8 (4.5) 7.5
Provision for income taxes 0.6 2.9 0.5 3.1
----- ----- ----- -----
Net income (loss) 1.9% 3.9% (5.0)% 4.4%
===== ===== ===== =====
</TABLE>
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements (denoted with an
asterisk *) within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as a result of
the risk factors set forth below.
9
<PAGE> 10
SECOND QUARTER FISCAL 1997 COMPARED TO SECOND QUARTER FISCAL 1996
Sales
The Company's sales increased 3% from $35.0 million in the second
quarter of fiscal 1996 to $36.2 million in the second quarter of fiscal 1997.
The increase in sales was primarily attributable to sales of LCD integrated
projector products sourced from other companies, partially offset by the loss of
sales of the Company's Newpoint Corporation subsidiary, whose assets were sold
during the first quarter of fiscal 1997. Overall, an increase in unit sales was
partially offset by a decrease in average selling prices attributable to price
reductions and promotional discounts. The Company has experienced increased
pricing pressures as a result of the entry of new competitors into the
projection market. In addition, the increase in the number of competitive new
products available to the channels of distribution in which the Company competes
is negatively impacting the Company's sales and market share. The increasing
number of competitive products is due primarily to the growth in resources
dedicated to product development by the Company's competitors. The Company
believes that competition in the form of continued pricing pressures and the
introduction of new product offerings will intensify in the future*. The Company
also expects that its international sales as a percentage of total sales will be
lower in the third and fourth quarters of fiscal 1997 versus the comparable
periods of fiscal 1996, primarily due to expected reduced sales to the
Company's major private label customer*. See "Risk Factors."
Gross Profit
Gross profit as a percentage of sales decreased from 34.0% in the
second quarter of fiscal 1996 to 31.5% in the comparable quarter of fiscal 1997.
The decrease in gross profit as a percentage of sales for the quarter ended
September 30, 1996 was due to price reductions and promotional discounts offered
by the Company. The decline in gross profit as a percentage of sales was
partially offset by component cost reductions. The increasing downward pressure
on the average selling prices of the Company's products, discussed in "Sales,"
above, also serves to reduce the Company's gross profit margins*. See "Risk
Factors."
Operating Expenses
Operating expenses include selling and marketing, research and
development, and administrative expenses, which are individually discussed
below. The Company's goal is to maintain operating expenses at levels comparable
to those experienced during the fourth quarter of fiscal 1996, when total
operating expenses were $12,372,000, adjusted for inflation at an assumed rate
of 5% per year, and excluding legal costs to be incurred during fiscal 1997 for
shareholder litigation*. See "Risk Factors." Actual operating expenses were
$12,990,000 and $10,955,000 during the first and second quarters of fiscal 1997,
respectively. The reduction in operating expenses in the second quarter of
fiscal 1997 versus the first quarter of fiscal 1997 is primarily attributable to
the absence of operating expenses of the Company's Newpoint Corporation
subsidiary, the assets of which were sold at the end of the first quarter of
fiscal 1997.
Selling and marketing expenses increased from $5,067,000 in the second
quarter of fiscal 1996 to $5,277,000 in the second quarter of fiscal 1997. As a
percentage of sales, selling and marketing expenses increased from 14.5% in the
second quarter of fiscal 1996 to 14.6% in the second quarter of fiscal 1997.
Selling and marketing expenses were higher both in dollar amount and as a
percentage of sales primarily due to product promotion expenses related to the
introduction of the Company's new line of integrated projectors and sales
expenses required to support the higher sales volumes.
10
<PAGE> 11
Research and development expenses increased from $2,780,000 in the
second quarter of fiscal 1996 to $4,141,000 in the second quarter of fiscal
1997. As a percentage of sales, research and development expenses were 7.9% in
the second quarter of fiscal 1996 and 11.4% in the second quarter of fiscal
1997. The increase in absolute dollars and as a percentage of sales for the
second quarter of fiscal 1997 as compared to the second quarter of fiscal 1996
reflects higher staffing levels and outside R&D services.
General and administrative expenses were relatively unchanged at
$1,607,000 in the second quarter of fiscal 1996 versus $1,537,000 in the second
quarter of fiscal 1997. As a percentage of sales, general and administrative
expenses decreased from 4.6% in the second quarter of fiscal 1996 to 4.3% in the
second quarter of fiscal 1997 as a result of higher sales volume. The Company
expects legal expenses to increase due to the defense of shareholder
litigation*. See "Risk Factors."
Interest Income
Interest income increased from $185,000 in the second quarter of fiscal
1996 to $353,000 in the second quarter of fiscal 1997. The increase is
attributable to higher average balances of cash and short-term investments.
Income Taxes
The Company's effective tax rate was 23.1% in the second quarter of
fiscal 1997 compared to a provision of 43.1% in the second quarter of fiscal
1996. The Company's effective tax rate in the second quarter of fiscal 1997 was
lower than the effective tax rate in the comparable period of the preceding year
primarily due to the reinstatement of the R&D tax credit effective July 1, 1996.
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30,1995
Sales
The Company's sales increased 5% from $68.0 million in the six months
ended September 30, 1995 to $71.3 million in the six months ended September 30,
1996. The increase in sales was primarily attributable to sales of LCD
integrated projector products sourced from other companies, partially offset by
the loss of sales of the Company's Newpoint Corporation subsidiary, whose assets
were sold during the first quarter of fiscal 1997. Overall, an increase in unit
sales was partially offset by a decrease in average selling prices attributable
to price reductions and promotional discounts. The Company has experienced
increased pricing pressures as a result of the entry of new competitors into the
projection market. In addition, the increase in the number of competitive new
products available to the channels of distribution in which the Company competes
is negatively impacting the Company's sales and market share. The increasing
number of competitive products is due primarily to the growth in resources
dedicated to product development by the Company's competitors. The Company
believes that competition in the form of continued pricing pressures and the
introduction of new product offerings will intensify in the future*. The Company
also expects that its international sales as a percentage of total sales will be
lower in the third and fourth quarters of fiscal 1997 versus the comparable
periods of fiscal 1996, primarily due to expected reduced sales to the
Company's major private label customer*. See "Risk Factors."
11
<PAGE> 12
Gross Profit
Gross profit as a percentage of sales decreased from 34.5% in the six
months ended September 30, 1995 to 30.2% in the comparable period of fiscal
1997. The decrease in gross profit as a percentage of sales for the six months
ended September 30, 1996 was due to price reductions, associated price
protection, and promotional discounts offered by the Company, in addition to
inventory adjustments to reflect standard cost changes. The decline in gross
profit as a percentage of sales was partially offset by component cost
reductions. The increasing downward pressure on the average selling prices of
the Company's products, discussed in "Sales," above, also serves to reduce the
Company's gross profit margins*. See "Risk Factors."
Operating Expenses
Operating expenses include selling and marketing, research and
development, and administrative expenses, which are individually discussed
below. The Company's goal is to maintain operating expenses at levels comparable
to those experienced during the fourth quarter of fiscal 1996, when total
operating expenses were $12,372,000, adjusted for inflation at an assumed rate
of 5% per year, and excluding legal costs to be incurred during fiscal 1997 for
shareholder litigation*. See "Risk Factors." Actual operating expenses were
$12,990,000 and $10,955,000 during the first and second quarters of fiscal 1997,
respectively. The reduction in operating expenses in the second quarter of
fiscal 1997 versus the first quarter of fiscal 1997 is primarily attributable to
the absence of operating expenses of the Company's Newpoint Corporation
subsidiary, the assets of which were sold at the end of the first quarter of
fiscal 1997.
Selling and marketing expenses increased from $9,504,000 in the six
months ended September 30, 1995 to $11,946,000 in the six months ended September
30, 1996. As a percentage of sales, selling and marketing expenses increased
from 14.0% in the first six months of fiscal 1995 to 16.8% in the first six
months of fiscal 1997. Selling and marketing expenses were higher in both dollar
amount and as a percentage of sales primarily due to product promotion expenses
related to the introduction of the Company's new line of projectors and sales
expenses required to support the higher sales volumes.
Research and development expenses increased from $5,553,000 in the six
months ended September 30, 1995 to $8,625,000 in the six months ended September
30, 1996. As a percentage of sales, research and development expenses were 8.2%
in the six months ended September 30, 1995 and 12.1% in the six months ended
September 30, 1996. The increase in both absolute dollars and percentage of
sales for the first six months of fiscal 1997 as compared to the first six
months of fiscal 1996 reflects higher staffing levels and outside R&D services.
General and administrative expenses increased from $3,144,000 in the
first six months of fiscal 1996 to $3,374,000 in the first six months of fiscal
1997. As a percentage of sales, general and administrative expenses increased
from 4.6% in the first six months of fiscal 1996 to 4.7% in the first six months
of fiscal 1997. Increases in general and administrative expenses in absolute
dollars and as a percentage of sales in the first six months of fiscal 1997
versus the comparable period of fiscal 1996 were due primarily to higher
staffing levels, partially offset by decreases in reserves for accounts
receivable. The Company expects legal expenses to increase due to the defense of
shareholder litigation*. See "Risk Factors."
Interest and Other Income
Interest income increased from $371,000 in the six months ended
September 30, 1995 to $673,000 in the six months ended September 30, 1996. The
increase is attributable to higher average balances of cash and short-term
investments during the first six months of fiscal 1997 as compared to the first
half of fiscal 1996.
12
<PAGE> 13
Write-down of Investment in Affiliate
The Company recorded a write-down of $3,905,000 against its investment
in LPC during the quarter ended June 30, 1996. The remaining investment balance
of $1,111,000, shown on the accompanying balance sheet as of September 30, 1996,
reflects the Company's equity in the net assets of LPC, less a valuation
reserve. The Company deemed it necessary to review its investment in LPC because
of information obtained upon the completion of the first engineering model of a
microlaser projector in July 1996. That engineering model demonstrated that the
microlaser projector development would take more time and be more costly than
anticipated, and that component costs would exceed earlier expectations. The
Company now believes that microlaser technology will initially be suited for the
higher-cost specialty projector market, which offers much lower unit volumes
than originally contemplated.
Income Taxes
The Company's effective tax rate was 41.5% in the first six months of
fiscal 1996. The Company had a provision of $365,000 in the first six months of
fiscal 1997. The Company has not recognized any tax benefit from the equity in
loss of affiliate or from the write-down of its investment in LPC.
Treasury Stock
During the three months ended September 30, 1996 the Company received
approximately 58,000 shares of the Company's common stock in connection with the
exercise of stock options. The shares received had a fair market value of
$798,000 at the time of receipt. The Company may receive or repurchase
additional shares of its issued and outstanding common stock in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company has generally funded its operations through cash flow
provided from operations. The net increase in cash and short-term investments
was $5.7 million in fiscal 1996. The net increase in cash and short-term
investments in fiscal 1996 was primarily due to $9.7 million of earnings, a $2.0
million positive cash flow from the sale of common stock, and a $2.0 million tax
benefit from stock option exercises, partially offset by the acquisition of $5.0
million in property, a $3.3 million decrease in accounts payable and accrued
expenses, and a $2.0 million investment in LPC. The net decrease in cash and
short-term investments was $3.8 million in the six months ended September 30,
1996. The net decrease in cash and short-term investments in the first six
months of fiscal 1997 was due primarily to a $3.5 million net loss, the
acquisition of $2.5 million in property, a $2.2 million decrease in accounts
payable and accrued expenses, and a $1.4 million increase in accounts
receivable, partially offset by $7.3 million received on the sale of the assets
of Newpoint Corporation. Accounts payable and accrued expenses decreased during
the first six months of fiscal 1997 after the acquisition of components for new
products had been largely completed. Accounts receivable increased during the
same period as sales were much greater near the end of the period. Receivable
days outstanding were 52 at March 31, 1996 and 72 at September 30, 1996.
As of September 30, 1996, the Company had $17.6 million in cash and
short-term investments and $60.3 million in working capital, compared to $21.4
million in cash and short-
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<PAGE> 14
term investments and $59.7 million in working capital as of March 31, 1996. The
Company had no debt at March 31 or September 30 of 1996.
The Company has an arrangement to provide for a $13.0 million revolving
line of credit, secured by accounts receivable, inventories and equipment, at an
interest rate equal to the bank's prime rate, with $3.0 million of the line
available for the purchase of fixed assets, at an interest rate of one-half
percent over the bank's prime rate. The line of credit arrangement contains
standard covenants relating to financial ratios. The Company is in compliance
with all such covenants. No borrowings were made under this or any previous
credit arrangement during fiscal year 1996 or during the first six months of
fiscal 1997. The credit arrangement expires on July 31, 1997. The Company
expects to be able to obtain a new credit arrangement under favorable terms*.
See "Risk Factors."
The Company believes that existing cash resources, together with cash
flow from operations and available lines of credit, will provide sufficient
funding for operations for the foreseeable future*. See "Risk Factors."
To date, inflation has not had a significant impact on the Company's
operating results.
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<PAGE> 15
RISK FACTORS
The following discussion of risk factors describes certain aspects of
the business environment in which the Company operates. Users of this report
should carefully consider these risk factors in addition to the other
information in this report. The risks faced by the Company are exemplified by
the Company's reported sales and earnings per share over the last eight
quarters:
<TABLE>
<CAPTION>
FY95 FY96 FY97
------------------ ------------------------------------------ -------------------
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales ($millions) 36.2 40.7 33.0 35.0 44.2 47.6 35.0 36.2
EPS $ 0.55 $ 0.56 $ 0.24 $ 0.20 $ 0.46 $ 0.47 ($0.59) $ 0.10
</TABLE>
The Company believes that this volatility has been influenced by the occurrence
of one or more of the factors discussed below.
FORECASTS
The Company prepares annual budgets and other confidential internal
projections that contain detailed forecasts of future sales and earnings for
existing products as well as forecasts for products still in development. The
Company believes that inaccuracies in its forecasting are related to factors in
the highly dynamic market in which it competes as described in certain of the
risk factors below, including "Short Product Lives and Technological Change,"
"Competition," "Development Risk," "Sources of Supply," "Price Reductions" and
"Variability of Quarterly or Annual Results." In the past eight quarters, for
example, actual quarterly earnings results have varied from internal forecasts
by amounts ranging from only a few percentage points to well over 100%, with
most of the large variances being negative. It is the Company's policy not to
publicly disclose its internal forecasts. Numerous independent stock analysts
and market analysts prepare and publish financial forecasts and projections
about the Company. The Company disclaims responsibility for all such forecasts
and projections. The Company believes that forecasts and projections prepared by
these independent stock analysts and market analysts have frequently been
inaccurate in the past and are, therefore, highly speculative and should be used
only with extreme caution.
From time to time, the Company may announce one or more new products
with a subsequent availability date. Any such availability dates are merely good
faith estimates by the Company based on an assessment of all information
available at the time of the estimate. In the past, the Company has suffered
substantial delays in the availability of new products. These delays have
occurred either because the Company has been unable to resolve certain
technical challenges and supplier issues that are normal in any development
process prior to the estimated availability date, or because of unforeseen
technical challenges and supplier issues arising after the announcement of an
availability date. See "Development Risk" and "Sources of Supply." The Company
expects that it will continue to face unforeseen product development challenges
which may cause it to miss the estimated availability dates for its products.
SHORT PRODUCT LIVES AND TECHNOLOGICAL CHANGE
The market for multimedia projection products is characterized by
rapidly evolving technology and short product lives, with new products
frequently capturing significant market share. Anticipated product releases (and
particularly products incorporating new technology) by the Company or its
competitors often cause customers to delay purchases of existing products until
such new products are available. Any delays in purchases can significantly
impact the Company's results of operations.
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<PAGE> 16
The Company's future success depends on its ability to continue to
develop and manufacture, or to distribute under private label arrangements,
competitive products on a timely basis, particularly enhancements to and new
generations of multimedia projectors. For example, in the second quarter of
fiscal 1997 the majority of the Company's sales were generated by products
introduced within the preceding 6 months. Historically, many of the Company's
products have achieved peak sales within a few months after their introduction.
The Company's broadening product line must be frequently refreshed with improved
products to maintain parity with competitors' products. The increasing number of
large competitors in the multimedia projection industry has made it more
difficult to foresee the successive waves of product introductions in the
industry. See "Competition." Furthermore, the Company does not have the internal
resources necessary to be first to market with improved products and features
simultaneously across its entire product line. Therefore, the Company must
increasingly rely on its evolving business alliances to supplement products
developed and produced internally by the Company. There can be no assurance that
the Company's current or future products will continue to achieve market
acceptance, or that the Company will be able to develop or expand production of
and deliver new products in a timely manner. See "Development Risk."
Many of the Company's competitors currently offer projectors that
directly compete with the Company's existing projector products on a
price/performance, feature and/or availability basis. The Company believes that
the sale of such products by the Company's competitors adversely affected sales
of the Company's projectors during the first and second quarters of fiscal 1996
and the first and second quarters of fiscal 1997. Although the Company continues
to introduce enhanced versions and new generations of its projector products,
there can be no assurance that the Company will be able to recapture market
share. More specifically, the Company has announced the release of numerous new
products during fiscal 1997. Such new products are expected to account for the
majority of the Company's sales during the second half of fiscal 1997. This
product transition is dependent upon timely delivery, resolution of technical
challenges and availability issues, price and feature/function competitiveness,
and overall market acceptance by distribution and end-user customers. See
"Sources of Supply," "Competition," "Variability of Quarterly or Annual
Results," and "Channels of Distribution." There can be no assurance that the new
product transition will be successful, or that the Company will be in a position
to transition to improved products in response to competitors' subsequent
product introductions which are expected during the remainder of fiscal 1997.
In any product transition, as new products are announced, the Company may deem
it necessary to substantially reduce prices on the then-present models and/or
write off certain inventory as obsolete.
In addition to the evolutionary changes in products and technologies
described above, several new technologies are currently in production or under
development by the Company or its competitors, including polysilicon LCD
modules, digital micromirrors, reflective silicon panels, and higher resolution
(SVGA and XGA) controllers. The Company or one or more of its competitors may
introduce additional products based on new technologies from time to time. The
Company believes that polysilicon LCD technology, which has been developed and
is owned by numerous Japanese companies, and digital micromirror technology,
which has been developed and is owned by one U.S. company, will both continue
to improve on a price/performance basis. See "Competition." Further, the Company
believes that the demand will increase for higher resolution (SVGA and XGA
resolution) projectors, and there will be a corresponding reduced demand for VGA
resolution projectors. There can be no assurance that the Company will be able
to respond to these technological shifts in a timely manner. In the past, the
company or companies that first introduce new features or technologies into the
marketplace have gained significant market share. The Company has lost market
share in this way in the past and may do so again in the future.
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<PAGE> 17
DEVELOPMENT RISK
The Company currently designs, manufactures and distributes its own
products, and also distributes products designed and manufactured by others. The
design, manufacture and marketing of multimedia projector products is
complicated by rapidly evolving light valve technologies, lamp technologies,
electronic control circuitry and optics. As projection products become smaller
and smaller, the Company faces extraordinarily complex engineering challenges in
integrating electrical, mechanical, optical, thermal, and software designs into
a compact unit. Further, the Company must repeatedly make complex choices
regarding which technologies to pursue, product make versus buy determinations,
and the development of differentiating product features. As a result, in
developing its new products, the Company exposes itself to enormous technical
and financial risks. In the past, the Company has discontinued certain
development efforts based on changing expectations of the respective products'
marketability or producability and may do so again in the future. Many of the
challenges faced by the Company in developing new products involve key
components produced by vendors who themselves face engineering or procurement
challenges that the Company has little or no ability to anticipate or resolve.
The Company continues to face the development risks described above and
expects to face other unforeseen development risks, which may cause substantial
delays in the development and introduction of new products.
SOURCES OF SUPPLY
Certain products and components which the Company resells or uses to
manufacture its products are available only from single sources. Although the
Company generally buys products and components under purchase orders and does
not have long-term agreements with its suppliers, the Company expects that its
suppliers will continue to attempt to meet the Company's requirements. For
certain of these items, the process of qualifying a replacement supplier and
receiving replacement supplies could take several months. For example, should a
mold for plastic componentry break or become unusable, repair or replacement
could take several months. The Company does not maintain sufficient inventory to
allow it to fill customer orders without interruption for more than a few weeks.
Therefore, an extended interruption in the supply of products or components
would have a material adverse effect on the Company's results of operations.
Three of the Company's major suppliers, Sanyo, Sharp and Hitachi, also compete
or have competed with the Company. See "Competition." The Company purchases many
of its products and components from suppliers located outside the United States.
Policies adopted by the Company's suppliers, trading policies adopted by the
United States (such as anti-dumping or other duties on imported components) or
foreign governments, or fluctuations in foreign exchange rates may at any time
restrict the availability of products or components or increase their cost. The
Company has experienced product and component shortages in the past and expects
that it could again experience product and component shortages in the future,
particularly in the months immediately following the introduction of new
products. See "Development Risk."
COMPETITION
The Company's ability to compete in the highly competitive multimedia
projection products market depends on factors both within and outside its
control, including the success and timing of product introductions by the
Company and its competitors, product price, performance and features,
availability, product distribution and customer support. The Company believes
that new competitors may enter the market and that new or existing competitors
will introduce products which directly compete with the Company's existing
products on a performance and price basis. The Company's insight into its
competition and their development plans/dates is extremely limited and,
therefore, it is generally unable to forecast the impact of new competitive
products.
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<PAGE> 18
Some of the Company's current or potential competitors have greater
financial, technical, manufacturing and marketing resources than the Company and
have lower cost and/or profit structures and may be in a position to introduce
products incorporating advanced technologies ahead of the Company. A number of
large electronics and computer manufacturers such as Apple, Hewlett-Packard,
Compaq, Kyocera, Samsung and Texas Instruments, among others, have the resources
to enter the projection products market in direct competition with the Company,
employing potentially superior technologies and/or cost structures.
Announcements by one or more of the large manufacturers could cause customers to
delay or cease altogether purchases of the Company's products, which would have
a material adverse effect on the Company's results of operations. For example,
since the beginning of 1995, Epson, Fujitsu, Hitachi, 3M, IBM, Matsushita,
Philips, NEC, Sanyo, Sony and Toshiba have each introduced or announced new
products addressing the same markets as certain of the Company's products.
Competition between the Company and its competitors in the market for multimedia
projectors has been and is expected to continue to be intense.
PRICE REDUCTIONS
The Company has in the past significantly reduced prices on its product
lines and may do so again in the future in response to competitive pricing
pressures. The Company expects price competition to continue to be intense and
therefore expects continued downward pressure on its gross margins. The Company
believes that certain of its competitors have the financial resources to, and
may, sell competitive products at cost or potentially below cost in an effort to
gain market share.
The Company provides price protection to its dealers and distributors
such that, if the Company reduces the price of its products, dealers and
distributors are entitled to a credit for the difference between the new,
reduced price and the price of products purchased and still held in their
inventory at the time of the price reduction. Any significant price reduction
and the associated price protection would have a material adverse impact on
sales and gross margins and therefore on the Company's results of operations for
the period in which the price reduction occurs, unless such price reduction were
offset by higher unit volume resulting from the price reduction. For example,
the Company's series of price reductions early in fiscal 1996 ranged up to 17%
and did have a material adverse effect on the results of operations during the
first and second quarters of fiscal 1996. The Company also reduced prices
ranging up to approximately 25% on certain of its multimedia projection products
subsequent to the end of fiscal 1996 and thereafter experienced a revenue
decline on those products in the first quarter of fiscal 1997. The Company
believes that such decline was primarily attributable to the fact that the price
reduction was not offset by higher unit volumes. Future price reductions are
expected and will likely have a similar material adverse effect.
VARIABILITY OF QUARTERLY OR ANNUAL RESULTS
A significant portion of the Company's shipments typically occur in the
last month of a quarter. Although the Company attempts to ship products to its
customers as promptly as practicable upon receipt of a purchase order, minor
timing differences between the receipt of customer purchase orders and the
Company's shipments to fill such orders can have a significant impact on the
Company's quarterly or annual results. These timing differences may be caused by
customers' ordering patterns or business cycles, or by the Company's production
capacity, component availability or technical challenges. When, as often
happens, significant variations occur between forecasts and actual orders (see
"Forecasts"), the Company is often unable to reduce its fixed short-term
expenses proportionately and in a timely manner, which at times has had an
adverse effect on operating results and could have a similar effect in the
future. For example, during fiscal 1996, the Company and its suppliers
encountered technological barriers and manufacturing process problems on several
of its new integrated projector products. The Company was therefore unable to
obtain enough components to meet the initial demand for
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<PAGE> 19
certain of its newer products. When breakthroughs were made on some of these new
products, the Company was able to ship a large volume of products to fill past
due orders. Component availability, quality control, production yield, and
technological factors have caused variations in quarterly and annual results in
the past, and are expected to cause further volatility in future periods. The
Company's new projector products introduced or expected to be introduced during
fiscal 1997 are subject to similar technical challenges and are also critically
dependent on the availability of supplier products and/or key components such as
LCD panels, light valves and power supplies. See "Development Risk."
The Company's rate of year-over-year revenue growth slowed
significantly in the second quarter of fiscal 1997 compared to the year earlier
period. The Company does not expect to achieve in the future either the rates of
growth experienced by the Company in fiscal years 1992 through 1996 or the rates
of growth projected for the multimedia projection products industry as a whole.
The Company believes that the projections by third parties of total unit demand
growth in the multimedia projection products industry will be partly or entirely
offset by continued price erosion in the industry. See "Price Reductions."
VOLATILITY OF STOCK PRICE
The trading price of the Company's stock has been and is expected to
continue to be subject to immediate and wide fluctuations due to factors both
within and outside the Company's control, including but not limited to one or
more of the following: variations in operating results or financial position,
new product introductions or price changes by the Company or its competitors,
changes in product mix, product reviews by trade publications, estimates or
statements made by analysts regarding the Company or its industry, perceptions
formed at major trade shows regarding the Company or its industry, stock market
price fluctuations, and litigation. As is the case with many other technology
companies, fluctuations in the market price of the Company's stock have resulted
in class action stockholder lawsuits against the Company. See "Stockholder
Lawsuits." The defense of such lawsuits could have a material adverse effect on
the Company's results of operations, whether or not any such lawsuits are
meritorious.
The Company believes that the variability of its quarterly and annual
operating results contributes to the volatility of the price of the Company's
common stock in the public market. As a result, investors should expect that
market reactions to announcements of the Company's actual or expected results of
operations for a particular quarter or annual period could be immediate and
severe. For example, during each of the first two quarters of fiscal 1996 and
during the first quarter of fiscal 1997, the Company announced that it expected
to experience a decline in revenues and/or earnings due to the effect of new
products introduced by competitors and limited availability of certain of the
Company's new products and related components. Each of these announcements
caused a sudden drop in the price of the Company's stock. Consistent with the
prior announcement during the first quarter of fiscal 1997, the Company
subsequently reported a loss from operations for the first quarter of fiscal
1997. The Company expects that future transitions to new products may also
result in a loss from operations in one or more fiscal quarters in the future
thereby likely causing a sudden drop in the price of the Company's stock at
those times.
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<PAGE> 20
STOCKHOLDER LAWSUITS
Three putative class action securities lawsuits have recently been
filed against the Company. The lawsuits allege that the Company and certain of
its officers and directors engaged in a scheme to defraud investors by making a
series of positive statements about the Company that were allegedly known to be
false and misleading when made. The Company believes that the lawsuits are
without merit, and the Company intends to vigorously defend the lawsuits.
Alleged damages in the recently filed lawsuits are unspecified, but
theoretically an adverse verdict could bankrupt the Company and result in a
total loss of each stockholder's investment. The Company intends to expend
significant financial and managerial resources in defense of the lawsuits to
protect its business interests and the interests of its stockholders. Defense
costs alone could have a material adverse effect on future results. The Company
is subject to Generally Accepted Accounting Principles and to the rules of the
Securities and Exchange Commission, which do not permit the provision for any
loss that may result from the resolution of litigation whose outcome cannot
presently be determined.
The Company believes that the volatility of its business and of the
market for stocks of high technology companies makes it inevitable that the
Company's stock will continue to fluctuate substantially in price. In addition,
most or all of the Company's officers and directors have, as part of their
compensation packages, stock option arrangements with finite lives and which
expire ninety (90) days after the termination of employment. As a result, the
Company expects that its directors, officers and other employees will from time
to time exercise stock options and subsequently lawfully sell the stock thus
acquired in the midst of continuing fluctuations in the price of the Company's
stock. The Company believes that its stock price volatility and the occasional
lawful sale of stock by its directors and officers will make it susceptible to
meritless shareholder class action lawsuits in the future.
CHANNELS OF DISTRIBUTION
The Company sells its products primarily through independent
presentation specialists, personal computer dealers and distributors, and
through private label and OEM arrangements. These presentation specialists,
dealers and distributors ("resellers") may carry competing product lines and
could reduce or discontinue sales of the Company's products at any time. There
can be no assurance that these resellers will devote the resources necessary to
provide effective sales and marketing support to the Company. In addition, to
the extent that private label and OEM customers do not purchase products as
anticipated or switch to a different supplier on short notice, the Company may
be holding customized inventories which are not salable to other customers and
inventory write-downs may result. The Company's major private label customer is
currently phasing-out purchases of certain of the Company's products. In fiscal
1996, private label sales represented approximately 15% of the Company's
business. Any further phase-out of sales to this private label customer or
phase-out of sales to any other private label or OEM customers, or any reduction
in sales to presentation specialists, dealers and distributors, may have a
material adverse effect.
Shifts in end-user preferences or the entry of a major new competitor
(see "Competition," above) may alter the relative importance of the channels of
distribution discussed above or may create entirely new channels of
distribution. The Company may incur significant costs in order to expand its
presence in existing channels of distribution or establish a presence in new
channels, which could have a material adverse effect on the Company's results of
operations.
CREDIT RISKS
Many of the resellers discussed above are small organizations with
limited capital. The Company continuously monitors and manages the credit it
extends to its resellers; however, there can be no assurance that one or more of
the resellers will not become insolvent. In the event of such insolvency, the
Company could experience disruptions in its distribution as well as a loss of
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<PAGE> 21
some or all of any outstanding accounts receivable. The Company's objective is
to increase international sales, including sales in emerging markets such as
China and Latin America. The Company believes that the credit risks associated
with resellers in emerging markets are materially greater than those associated
with the U.S. and European markets.
INTELLECTUAL PROPERTY RIGHTS
From time to time, certain companies have asserted patent, copyright
and other intellectual property claims relevant to the Company's business and
the Company expects that this will continue. The Company evaluates each claim
relating to its products and, if appropriate, seeks a license. The Company has
previously been involved in intellectual property litigation with one of its
principal competitors in fiscal 1991 and 1992. During the course of the
litigation one of the Company's suppliers refused to supply components for a
product that was the subject of the dispute, and certain of the Company's
dealers declined to carry the product. As a result, the Company found it
necessary to redesign the disputed product family. The cumulative effect of the
litigation contributed to the Company's losses in fiscal 1991. Although the
eventual settlement in March 1992 was financially immaterial, if any future
legal action were to arise in which the Company's products should be found to
infringe upon intellectual property rights, the Company could be enjoined from
further infringement and required to pay damages, which could have a material
adverse effect on the Company's results of operations.
DEPENDENCE ON EXPORT SALES
For fiscal 1995, 1996, and in the first six months of fiscal 1997,
sales outside the United States and Canada represented approximately 38%, 39%
and 34%, respectively, of the Company's total sales. Sales outside the United
States are subject to the normal risks of international business activities,
such as protective tariff, export and import controls, transportation delays and
interruptions, and changes in demand resulting from fluctuations in exchange
rates. With respect to exchange rates, virtually all of the Company's products
sold in international markets are denominated in U.S. dollars. An increase in
the value of the U.S. dollar relative to foreign currencies could make the
Company's products less price competitive in foreign markets. Any increase in
international sales may subject the Company to greater currency fluctuation risk
than it has faced in the past.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW; THE COMPANY'S CHARTER DOCUMENTS
Certain provisions of Delaware law and the charter documents of the
Company may have the effect of delaying, deferring or preventing changes in
control or management of the Company. The Company is subject to the provisions
of Section 203 of the Delaware General Corporation Law, which has the effect of
restricting changes in control of a company. The Company's Board of Directors
has authority to issue up to 5,000,000 shares of Preferred Stock and to fix the
rights, preferences, privileges and restrictions, including voting rights, of
such shares without any further vote or action by the stockholders.
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<PAGE> 22
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
See Note 4 of the Consolidated Financial Statements.
ITEM 2: CHANGES IN SECURITIES
Not applicable.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Company's annual meeting of stockholders was held on August
14, 1996.
b) Not applicable
c) At the annual meeting of shareholders on August 14, 1996, the
shareholders approved a new Stock Option Plan which provides for
incentive and non-qualified options to purchase up to 500,000
shares of common stock to be granted to certain key employees,
directors and other individuals to purchase shares of the
Company's common stock. The Plan also provides for additional
options, equal to the number of options granted under the
terminated 1986 Stock Option Plan that expire unexercised, not to
exceed an additional 500,000 shares. Incentive stock options may
be granted at prices not less than the fair market value at the
date of grant, and generally become exercisable in equal annual
increments over four years. Options issued under the Plan
generally expire seven years after the date of grant. The vote
was 1,639,844 affirmative, 855,510 negative, and 3,746,454 not
voted.
ITEM 5: OTHER INFORMATION
Not applicable.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
#10.1--Amended and Restated 1996 Stock Plan
#10.2--Amended and Restated 1986 Stock Option Plan
#27 --Financial Data Schedule
b. No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1996.
22
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
PROXIMA CORPORATION
Dated: November 12, 1996 s/ John E. Rehfeld
----------------------------------------
JOHN E. REHFELD
President and Chief Executive Officer
Dated: November 12, 1996 s/ Dennis Whittler
----------------------------------------
DENNIS A. WHITTLER
Vice President, Finance
23
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EXHIBIT INDEX
Exhibit No. Description Page No.
10.1 Amended and Restated 1996 Stock Plan 25-58
10.2 Amended and Restated 1986 Stock Option Plan 59-75
27 Financial Data Schedule 76
24
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED
PROXIMA CORPORATION
1996 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code and the applicable laws of any
foreign country or jurisdiction where Options or Stock Purchase Rights are, or
will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a Committee appointed by the Board in accordance
with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Proxima Corporation, a Delaware corporation.
(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services and who is compensated
for such services.
(i) "Continuous Status as an Employee, Director or Consultant" means
that (i) the employment relationship with, (ii) the relationship as a Director
of or (iii) the consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee,
Director 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
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<PAGE> 2
personal leave approved by an authorized representative of the Company. For
purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st 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.
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(n) "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 or The Nasdaq SmallCap Market of The Nasdaq Stock Market, 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 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 regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock 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, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
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(r) "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.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Option Agreement" means a written or electronic agreement between
the Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(u) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
(v) "Optioned Stock" means the Common Stock subject to an Option or
Stock Purchase Right.
(w) "Optionee" means an Employee, Director or Consultant who holds an
outstanding Option or Stock Purchase Right.
(x) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(y) "Plan" means this 1996 Stock Plan.
(z) "Restricted Stock" means shares of Common Stock acquired pursuant
to a grant of Stock Purchase Rights under Section 11 below.
(aa) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(bb) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(cc) "Section 16(b)" means Section 16(b) of the Securities Exchange
Act of 1934, as amended.
(dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "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 13 of
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 500,000
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Shares, plus any Shares added to the Plan as a result of termination of options
under the 1986 Stock Option Plan, which amount shall not exceed 500,000 Shares.
The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares that 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, whether upon exercise of an Option or a Right, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if Shares of Restricted Stock are repurchased by the Company
at their original purchase price, such Shares shall become available for future
grant under the Plan
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be administered
by different bodies with respect to different groups of Optionees.
(ii) Section 162(m). To the extent that the Administrator
determines it is to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, 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(n) of the Plan;
(ii) to select the Employees, Directors and Consultants to whom
Options and Stock Purchase Rights may be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights, or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
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<PAGE> 5
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the time or times when
Options or Stock Purchase Rights may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or Stock
Purchase Right or the shares of Common Stock relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;
(xii) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined as of the date that the amount of tax
to be withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;
(xiii) to institute an Option Exchange Program;
(xiv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
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5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees, Directors and Consultants. Incentive Stock Options may be
granted only to Employees. If otherwise eligible, an Employee, Director or
Consultant who has been granted an Option or Stock Purchase Right may be granted
additional Options or Stock Purchase Rights.
6. Limitations.
(a) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
employment or consulting relationship with the Company, nor shall they interfere
in any way with the Optionee's right or the Company's right to terminate such
employment or consulting relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options and
Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options and Stock Purchase Rights to purchase more than 200,000 Shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options and Stock Purchase Rights to purchase up to an
additional 400,000 Shares, which shall not count against the limit set forth in
subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option or Stock Purchase Right is cancelled in the
same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 13), the cancelled Option or
Stock Purchase Right will be counted against the limits set forth in subsections
(i) and (ii) above. For this purpose, if the exercise price of an Option or
Stock Purchase Right is reduced, the transaction will be treated as a
cancellation of the Option or Stock Purchase Right and the grant of a new Option
or Stock Purchase Right.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
effective upon the earlier to occur of its adoption by the Board or its approval
by the stockholders of the Company as described in Section 19 of the Plan. It
shall continue in effect for a term of ten (10) years unless terminated earlier
under Section 15 of the Plan.
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8. Term of Option. The term of each Option shall be stated in the Notice of
Grant; provided, however, that in the case of an Incentive Stock Option, the
term shall be ten (10) years from the date of grant or such shorter term as may
be provided in the Notice of Grant. Moreover, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock 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 Incentive Stock Option shall be five (5) years from the date of grant or
such shorter term as may be provided in the Notice of Grant.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive Stock
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 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 paragraph (A) immediately above, 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, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, options may be granted with
a per share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
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<PAGE> 8
(iv) other Shares (A) that 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, and (B) in the case of Shares acquired upon
exercise of an option, that have been owned by the Optionee for more than six
months on the date of surrender.
(v) 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, a sale of all or a portion of
the Shares acquired pursuant thereto and delivery to the Company of the sale or
loan proceeds required to pay the exercise price;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) other consideration and method of payment for the issuance
of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as may be determined by the Administrator
and set forth in the Option Agreement. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter 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.
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(b) Termination of Employment Relationship, Directorship or Consulting
Relationship. Upon termination of an Optionee's Continuous Status as an
Employee, Director or Consultant, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Notice of Grant to the extent that he or she is
entitled to exercise it on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Notice of Grant).
In the absence of a specified time in the Notice of Grant, the Option shall
remain exercisable for three (3) months following the Optionee's termination. In
the case of an Incentive Stock Option, such period of time for exercise shall
not exceed three (3) months from the date of termination. If, on the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the Shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
Notwithstanding the above, in the event of changes in an Optionee's
status between Employee, Director or Consultant, the Optionee's Continuous
Status as an Employee, Director or Consultant shall not automatically terminate
solely as a result of such changes in status. In such event, an 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
three months and one day following the date Optionee's status as an employee
terminated.
(c) Disability of Optionee. Upon termination of an Optionee's
Continuous Status as an Employee, Director or Consultant as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any time
within twelve (12) months from the date of termination, but only to the extent
that the Optionee is entitled to exercise it on the date of termination (and in
no event later than the expiration of the term of the Option as set forth in the
Notice of Grant). If, on the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. Upon 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
acquires the right to exercise the Option by bequest or inheritance, but only to
the extent that the Optionee would have been entitled to exercise the Option on
the date of death. If, at the time of death, the Optionee is 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 the Optionee's
estate or the person who acquires 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) 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.
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11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment relationship, directorship or consulting relationship
with the Company for any reason (including death or Disability). The purchase
price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement
shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at a rate determined by the Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. An Option or
Stock Purchase Right 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.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, 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
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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, 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 or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the Optionee shall have the right to exercise the Option or
Stock Purchase Right as to all of the Optioned Stock, including Shares as to
which it would not otherwise be exercisable. If an Option or Stock Purchase
Right is exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the Optionee that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase or receive, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets 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 or sale of assets 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 or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, 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 or sale of assets.
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14. Date of Grant. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain stockholder
approval of any Plan amendment to the extent necessary or desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted). Such stockholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule or
regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares 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, Applicable Laws, and the requirements of any stock
exchange or quotation system upon which the Shares may then be listed or quoted,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right 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.
17. Inability to Obtain Authority. 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.
18. 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.
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19. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the manner and to the degree required under Applicable Laws and the rules of
any stock exchange or quotation system upon which the Common Stock is listed.
Approved by Board of Directors: 6-25-96
Ratified by Stockholders: 8-14-96
Amended and Restated by Board: 9-25-96
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1996 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
Twenty five percent (25%) of the Shares subject to the Option shall
vest one year after the Vesting Commencement Date, and 25% of the Shares subject
to the Option shall vest at the end of each year thereafter, provided that
Optionee's Continuous Status as an Employee, Director or Consultant has not
terminated on such dates.
<PAGE> 15
Termination Period:
This Option may be exercised for 90 days after termination of the
Optionee's employment or consulting relationship with the Company. Upon the
death or Disability of the Optionee, this Option may be exercised for such
longer period as is provided in the Plan. In the event of changes in the
Optionee's status between Employee, Director or Consultant, this Option
Agreement shall remain in effect. In no event shall this Option be exercised
later than the Term/Expiration Date as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock
Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option
under Section 422 of the Code. However, if this Option is intended to be an
Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code
Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant and
the applicable provisions of the Plan and this Option Agreement. In the event of
Optionee's death, Disability or other termination of Optionee's employment or
consulting relationship, the exercisability of the Option is governed by the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery
of an exercise notice, in the form attached as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall be
signed by the Optionee and shall be delivered in person or by certified mail to
the Secretary of the Company. The Exercise Notice shall be accompanied by
payment of the aggregate Exercise Price as to all Exercised Shares. This Option
shall be deemed to be exercised upon receipt by the Company of such fully
executed Exercise Notice accompanied by such aggregate Exercise Price.
<PAGE> 16
No Shares shall be issued pursuant to the exercise of this
Option unless such issuance and exercise comply with all relevant provisions of
law and the requirements of any stock exchange or quotation service upon which
the Shares are then listed. Assuming such compliance, for income tax purposes
the Exercised Shares shall be considered transferred to the Optionee on the date
the Option is exercised with respect to such Exercised Shares.
(c) Method of Payment. Payment of the aggregate Exercise
Price shall be by any of the following, or a combination, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) 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, a sale
of all or a portion of the Shares acquired pursuant thereto and delivery to the
Company of the sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares (i) that have a
Fair Market Value on the date of surrender equal to the aggregate Exercise Price
of the Exercised Shares, AND (ii) in the case of Shares acquired upon exercise
of an option, that have been owned by the Optionee for more than six (6) months
on the date of surrender.
4. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal and state tax consequences
relating to this Option, as of the date of this Option, are set forth below.
THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE
SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING
THIS OPTION OR DISPOSING OF THE SHARES.
<PAGE> 17
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur
regular federal income tax and state income tax liability upon exercise of a
NSO. The Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the Fair
Market Value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price. If the Optionee is an Employee or a former Employee,
the Company will be required to withhold from his or her compensation or collect
from Optionee and pay to the applicable taxing authorities an amount in cash
equal to a percentage of this compensation income at the time of exercise, and
may refuse to honor the exercise and refuse to deliver Shares if such
withholding amounts are not delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies
as an ISO, the Optionee will have no regular federal income tax or state income
tax liability upon its exercise, although the excess, if any, of the Fair Market
Value of the Exercised Shares on the date of exercise over their aggregate
Exercise Price will be treated as an adjustment to alternative minimum taxable
income for federal tax purposes and may subject the Optionee to alternative
minimum tax in the year of exercise. In the event that the Optionee undergoes a
change of status from Employee to Director or Consultant, any Incentive Stock
Option of the Optionee that remains unexercised shall cease to qualify as an
Incentive Stock Option and will be treated for tax purposes as a Nonstatutory
Stock Option on the ninety-first (91st) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least
one year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at
least one year after exercise and two years after the grant date, any gain
realized on disposition of the Shares will be treated as long-term capital gain
for federal income tax purposes. If the Optionee disposes of ISO Shares within
one year after exercise or two years after the grant date, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the lesser of (A) the difference between the Fair
Market Value of the Shares acquired on the date of exercise and the aggregate
Exercise Price, or (B) the difference between the sale price of such Shares and
the aggregate Exercise Price.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
<PAGE> 18
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by California law except for that body of
law pertaining to conflict of laws.
8. NO GUARANTEE OF EMPLOYMENT. OPTIONEE ACKNOWLEDGES AND AGREES THAT
THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY
CONTINUING SERVICE AS AN EMPLOYEE, DIRECTOR OR CONSULTANT AT THE WILL OF THE
COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR
PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS AN EMPLOYEE, DIRECTOR OR CONSULTANT FOR THE VESTING PERIOD, FOR
ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT RELATIONSHIP, DIRECTORSHIP OR
CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: PROXIMA CORPORATION
___________________________________ By:_________________________________
Signature
___________________________________ ____________________________________
Print Name Print Name
___________________________________ Title:_______________________________
Residence Address
___________________________________
<PAGE> 19
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
---------------------------------------
Spouse of Optionee
<PAGE> 20
EXHIBIT A
1996 STOCK PLAN
EXERCISE NOTICE
PROXIMA CORPORATION
9440 Carroll Park Drive
San Diego, CA 92121
Attention: Corporate Secretary
1. Exercise of Option. Effective as of today, ________________, 199__,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Proxima Corporation (the "Company") under
and pursuant to the 1996 Stock Plan (the "Plan") and the Stock Option Agreement
dated , 19___ (the "Option Agreement"). The purchase price for the
Shares shall be $ , as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Stockholder. 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 stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after 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 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their
<PAGE> 21
entirety all prior undertakings and agreements of the Company and Purchaser with
respect to the subject matter hereof, and may not be modified adversely to the
Purchaser's interest except by means of a writing signed by the Company and
Purchaser. This agreement is governed by California law except for that body of
law pertaining to conflict of laws.
Submitted by: Accepted by:
PURCHASER: PROXIMA CORPORATION
__________________________________ By: _________________________________
Signature
__________________________________ _____________________________________
Print Name Print Name
Its:_________________________________
Address: Address:
___________________________ 9440 Carroll Park Drive
___________________________ San Diego, CA 92121
<PAGE> 22
1996 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the
Company, subject to the Company's Repurchase Option and your ongoing Continuous
Status as an Employee, Director or Consultant (as described in the Plan and the
attached Restricted Stock Purchase Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE
OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Stock Purchase Right is granted under and
governed by the terms and conditions of the 1996 Stock Plan and the Restricted
Stock Purchase Agreement, attached hereto as Exhibit A-1, both of which are made
a part of this document. You further agree to execute the attached Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.
GRANTEE: PROXIMA CORPORATION
___________________________ By: ___________________________
Signature
___________________________ _____________________________________
Print Name Print Name
Its:_________________________________
<PAGE> 23
EXHIBIT A-1
1996 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser")
is an Employee, Director or Consultant of the Company, and the Purchaser's
continued participation is considered by the Company to be important for the
Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as an incentive for the Purchaser to participate
in the affairs of the Company, the Administrator has granted to the Purchaser a
Stock Purchase Right subject to the terms and conditions of the Plan and the
Notice of Grant, which are incorporated herein by reference, and pursuant to
this Restricted Stock Purchase Agreement (the "Agreement");
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser
and the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
(a) In the event the Purchaser's Continuous Status as an
Employee, Director or Consultant terminates for any or no reason (including
death or disability) before all of the Shares are released from the Company's
Repurchase Option (see Section 4), the Company shall, upon the date of such
termination (as reasonably fixed and determined by the Company) have an
irrevocable, exclusive option (the "Repurchase Option"), for a period of sixty
(60) days from such date, to repurchase at the original purchase price per share
(the "Repurchase Price") up to that number of shares that constitute the
Unreleased Shares (as defined in Section 4). The Repurchase Option shall be
exercised by the Company by delivering written notice to the Purchaser or the
Purchaser's executor (with a copy to the Escrow Holder) AND, at the Company's
option, (i) by delivering to the Purchaser or the Purchaser's executor cash or a
check in the amount of the aggregate Repurchase Price, or (ii) by cancelling an
amount of the Purchaser's indebtedness to the Company equal to the aggregate
Repurchase Price, or (iii) by a combination of (i) and (ii) so that the combined
payment and cancellation of indebtedness equals the aggregate Repurchase Price.
Upon delivery of such notice and the payment of the aggregate Repurchase Price,
the Company shall become the legal and beneficial owner of the Shares being
repurchased and all rights and
<PAGE> 24
interests therein or relating thereto, and the Company shall have the right to
retain and transfer to its own name the number of Shares being repurchased by
the Company.
(b) Whenever the Company shall have the right to repurchase
Shares hereunder, the Company may designate and assign one or more employees,
officers, directors or stockholders of the Company or other persons or
organizations to exercise all or a part of the Company's purchase rights under
this Agreement and purchase all or a part of such Shares. If the Fair Market
Value of the Shares to be repurchased on the date of such designation or
assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of such
Shares, then each such designee or assignee shall pay the Company cash equal to
the difference between the Repurchase FMV and the aggregate Repurchase Price of
such Shares.
4. Release of Shares From Repurchase Option.
(a) Twenty five percent (25%) of the Shares shall be released
from the Company's Repurchase Option one year after the Date of Grant and 25% of
the Shares shall be released at the end of each year thereafter, provided that
the Purchaser's Continuous Status as an Employee, Director or Consultant has not
terminated prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase
Option shall be delivered to the Purchaser at the Purchaser's request (see
Section 6).
5. Restriction on Transfer. Except for the escrow described in Section
6 or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
Agreement, the Company may require the spouse of Purchaser, if any, to execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4.
<PAGE> 25
(b) The Escrow Holder shall not be liable for any act it may
do or omit to do with respect to holding the Unreleased Shares in escrow while
acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase
Option hereunder, the Escrow Holder, upon receipt of written notice of such
exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all
the rights of a stockholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares issued
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares that may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's
own tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Purchaser understands that the Purchaser
(and not the Company) shall be responsible for the Purchaser's own tax liability
that may arise as a result of the transactions contemplated by this Agreement.
The Purchaser understands that Section 83 of the Internal Revenue Code of 1986,
as amended (the "Code"), taxes as ordinary income the difference between the
purchase price for the Shares and the Fair Market Value of the Shares as of the
date any restrictions on the Shares lapse. In this
<PAGE> 26
context, "restriction" includes the right of the Company to buy back the Shares
pursuant to the Repurchase Option. The Purchaser understands that the Purchaser
may elect to be taxed at the time the Shares are purchased rather than when and
as the Repurchase Option expires by filing an election under Section 83(b) of
the Code with the IRS within 30 days from the date of purchase. The form for
making this election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
(a) This Agreement shall be governed by the laws of the State
of California, except for that body of law pertaining to conflict of law. This
Agreement, subject to the terms and conditions of the Plan and the Notice of
Grant, represents the entire agreement between the parties with respect to the
purchase of the Shares by the Purchaser. Subject to Section 15(c) of the Plan,
in the event of a conflict between the terms and conditions of the Plan and the
terms and conditions of this Agreement, the terms and conditions of the Plan
shall prevail. Unless otherwise defined herein, the terms defined in the Plan
shall have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing any other provision of this
Agreement. The rights granted both parties hereunder are cumulative and shall
not constitute a waiver of either party's right to assert any other legal remedy
available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
<PAGE> 27
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF
SHARES PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN
EMPLOYEE, DIRECTOR OR CONSULTANT AT THE WILL OF THE COMPANY (AND NOT THROUGH THE
ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS
OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE, DIRECTOR OR
CONSULTANT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S
EMPLOYMENT RELATIONSHIP, DIRECTORSHIP OR CONSULTING RELATIONSHIP AT ANY TIME,
WITH OR WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED: _____________________
PURCHASER: PROXIMA CORPORATION
______________________________ By:____________________________
Signature
______________________________ _______________________________
Print Name Print Name
Title:__________________________
<PAGE> 28
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, _______________________________ , hereby sell,
assign and transfer unto ___________________________________ (__________) shares
of the Common Stock of Proxima Corporation standing in my name of the books of
said corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint ______________ to transfer the said stock on
the books of the within named corporation with full power of substitution in the
premises.
This Stock Assignment may be used only in accordance with the
Restricted Stock Purchase Agreement (the "Agreement")
between________________________ and the undersigned dated ______________, 19__.
Dated: _______________, 19
Signature:______________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE> 29
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
____________________, 19
Corporate Secretary
Proxima Corporation
9440 Carroll Park Drive
San Diego, CA 92121
Dear ____________________ :
As Escrow Agent for both Proxima Corporation, a Delaware corporation
(the "Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively as the "Company") exercises the Company's Repurchase
Option set forth in the Agreement, the Company shall give to Purchaser and you a
written notice specifying the number of shares of stock to be purchased, the
purchase price, and the time for a closing hereunder at the principal office of
the Company. Purchaser and the Company hereby irrevocably authorize and direct
you to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price for the
number of shares of stock being purchased pursuant to the exercise of the
Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a stockholder of the Company while the
stock is held by you.
<PAGE> 30
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after cessation of Purchaser's continuous employment by or
services to the Company, or any parent or subsidiary of the Company, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree, you
shall not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
<PAGE> 31
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, or any appeal has been finally resolved, but you shall be under
no duty whatsoever to institute or defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
COMPANY: PROXIMA CORPORATION
PURCHASER ________________________________
________________________________
ESCROW AGENT: Corporate Secretary
Proxima Corporation
9440 Carroll Park Drive
San Diego, CA 92121
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors
and permitted assigns.
<PAGE> 32
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, except for
that body of law pertaining to conflict of laws.
Very truly yours,
PROXIMA CORPORATION
By: ________________________________
Print Name __________________________
Title ______________________________
PURCHASER:
_____________________________________
(Signature)
_____________________________________
(Print Name)
ESCROW AGENT:
____________________________________
Corporate Secretary
<PAGE> 33
EXHIBIT A-4
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of Proxima Corporation, as set forth in the Agreement, I hereby appoint
my spouse as my attorney-in-fact in respect to the exercise of any rights under
the Agreement and agree to be bound by the provisions of the Agreement insofar
as I may have any rights in said Agreement or any shares issued pursuant thereto
under the community property laws or similar laws relating to marital property
in effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: _______________, 19
___________________________________
Signature of Spouse
<PAGE> 34
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: shares (the "Shares") of the Common Stock of Proxima
Corporation (the "Company").
3. The date on which the property was transferred is: , 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the
Shares based on the continued performance of services by the taxpayer
over time.
5. The fair market value at the time of transfer, determined without
regard to any restriction other than a restriction that by its terms
will never lapse, of such property is: $_______________.
6. The amount (if any) paid for such property is: $_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: ___________________, 19____ _______________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19____ _______________________________________
Spouse of Taxpayer
<PAGE> 1
EXHIBIT 10.2
PROXIMA CORPORATION
AMENDED AND RESTATED 1986 STOCK OPTION PLAN
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 this Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory 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 the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Company" means Proxima Corporation, a California corporation.
(f) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not provided that 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.
(g) "Continuous Status as an Employee" means the absence of any
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; provided, however, that for
purposes of Incentive Stock Options, such leave is for a period of not more than
ninety (90) days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute, or unless provided otherwise pursuant to
Company policy adopted from time to time; or (ii) in the case of transfers
between locations of the Company or between the Company, its Subsidiaries or its
successor.
<PAGE> 2
(h) "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.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" means, as of any date, the value of Stock
determined as follows:
(i) If the Stock is listed on any established stock exchange
or a national market system including without limitation the National Market
System 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 system or exchange (or the exchange with the greatest volume of trading
in Stock) for the last market trading day 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 Stock is quoted on the NASDAQ System (but not on
the National Market System 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 and low asked prices for the Stock; or
(iii) In the absence of an established market for the Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator in accordance with Section 260.140.50 of the California
Corporations Code.
(k) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(l) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(m) "Option" means a stock option granted pursuant to the Plan.
(n) "Optioned Stock" means the Stock subject to an Option.
(o) "Optionee" means an Employee, Consultant or Outside Director
who receives an Option.
(p) "Outside Director" shall mean a Director who is not an
Employee of the Company.
(o) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
<PAGE> 3
(p) "Plan" means this Amended and Restated 1986 Stock Option Plan.
(q) "Share" means a share of the Stock, as adjusted in accordance
with Section 12 of the Plan.
(r) "Stock" means the Common Stock of the Company;
(s) "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 12
of the Plan, the maximum aggregate number of shares of Stock which may be
optioned and sold under the Plan is 2,080,500. The shares may be authorized, but
unissued, or reacquired Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different bodies with respect to different groups of Optionees.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) 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, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Stock, in
accordance with Section 2(j) of the Plan;
<PAGE> 4
(ii) to select the officers, 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 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, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any vesting
acceleration or waiver of forfeiture restrictions regarding any Option or other
award and/or the shares of Stock relating thereto, based in each case on such
factors as the Administrator shall determine, in its sole discretion);
(vii) to determine whether and under what circumstances an
Option may be bought-out for cash under subsection 9(f);
(ix) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an award under
this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount, if any, of any
deemed earnings on any deferred amount during any deferral period); and
(c) to reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the Stock covered by such Option
shall have declined since the date the Option was granted.
5. 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.
6. Eligibility.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. Options
may be granted to Outside Directors only in accordance with the provisions of
Section 11 of this Plan. An Employee, Consultant or Director who has been
granted an Option may, if he is otherwise eligible, be granted an additional
Option or Options.
(b) Each Option shall be designated in a written or electronic
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However,
<PAGE> 5
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee 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.
(c) For purposes of 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.
(d) 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 right or the Company's right
to terminate his employment or consulting relationship at any time, with or
without cause.
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 18 of the Plan. It shall
continue in effect until February 19, 1996 unless sooner terminated under
Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated
in the Option Agreement; provided, however, that in the case of an Incentive
Stock Option, the term shall be no more than ten (10) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an 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.
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, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
<PAGE> 6
(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 of the Company's capital stock
which (x) in the case of shares of the Company's capital stock acquired upon
exercise of an Option either have been owned by the Optionee for more than six
months on the date of surrender or were not acquired, directly or indirectly,
from the Company, 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) authorization from the Company to retain from the total
number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, (6) delivery
of a properly executed exercise notice together with irrevocable instructions to
a broker to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, (7) by delivering an irrevocable
subscription agreement for the Shares which irrevocably obligates the option
holder to take and pay for the Shares not more than twelve months after the date
of delivery of the subscription agreement, (8) any combination of the foregoing
methods of payment, (9) or such other consideration and method of payment for
the issuance of Shares to the extent permitted under Applicable Laws as defined
in Section 4(a)(iii) above.
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. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised, and the Optionee
deemed to be a shareholder of the shares being purchased upon exercise, when
written or electronic 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.
<PAGE> 7
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. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee with the
Company (as the case may be), such Optionee may, but only within ninety (90)
days (or such other period of time as is determined by the Board but in no event
less than thirty (30) days, with such determination in the case of an Incentive
Stock Option being made at the time of grant of the Option and not exceeding
ninety (90) days) 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 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. Notwithstanding the provisions of
Section 9(b) above, in the event of termination of an Optionee's Consulting
relationship or Continuous Status as an Employee as a result of his total and
permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may,
but only within twelve (12) months from 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 the Option to the extent otherwise 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 termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
(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 date of the term of
such Option as set forth in the Option Agreement), 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 the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was 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.
(e) 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. The Option 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.
<PAGE> 8
11. Grants to Outside Directors. The provisions set forth in this
Section 11 shall not be amended more than once every six months. All grants of
Options under this Section 11 shall be automatic and non-discretionary and shall
be made strictly in accordance with the following provisions:
(a) No Discretion. No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number of
shares to be covered by Options granted to Outside Directors; provided, however,
that nothing in this Plan shall be construed to prevent an Outside Director from
declining to receive an Option under this Plan.
(b) Annual Option Grants. On the third business day following the
Company's public release of its annual results of operations during the term of
the Plan, each person who is then an Outside Director shall be granted an Option
(an "Annual Option") to purchase 5,000 shares of Common Stock.
(i) the term of the Annual Option shall be ten (10) years;
(ii) the Annual Option shall be exercisable only while the
Outside Director remains a Director or within such period of time after
termination of status as an Outside Director as the Annual Option agreement may
provide, consistent with Section 9(b);
(iii) the exercise price per share of Common Stock shall be
100% of the fair market value on the date of grant of the Annual Option (such
fair market value to be calculated as set forth in Section 8(b) hereof);
(iv) the Annual Option shall vest as follows: 20% of the
shares subject to the Annual Option be vested as of the date of grant and the
remaining 80% of the shares shall vest over the succeeding four years at the
rate of 1/1,460 of such shares for each day following the date of grant.
(c) New Outside Director Options. Each person who becomes an
Outside Director after April 1, 1993 shall be granted an initial option (an
"Initial Option") on a one-time basis, to purchase 10,000 shares of Common Stock
on the date such person becomes a Director. The terms of the Initial Options
shall be identical to the terms of the Annual Options.
12. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option, which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by electing to have the Company withhold
from the Shares to be issued upon exercise of the Option, that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined as of the date
that the amount of tax to be withheld is to be determined (the "Tax
<PAGE> 9
Date"). All elections by an Optionee to have shares withheld for this purpose
shall be made in such form and under such conditions as the Administrator may
deem necessary or advisable.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
13. Adjustments Upon Changes in Capitalization or Merger. Subject to
any required action by the shareholders of the Company, the number of Shares
covered by each outstanding Option, and the number of Shares 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 Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Stock (or Common Stock into which the
Common Stock is convertible) resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Stock, or any other
increase or decrease in the number of issued shares of 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"; and provided further, however, that
no such adjustment shall be made if, in connection with a stock split
consolidation or the like, a corresponding adjustment is made to the "Conversion
Price" of the Common Stock in the Company's Articles of Incorporation. 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 Stock subject to an Option.
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. In the event of a merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event that such successor corporation does not
agree to assume the option or to substitute an equivalent option, the Company
shall notify the Optionee at least 15 days prior to such proposed action and the
Optionee shall be entitled to exercise the Option as to all shares subject to
the Option, whether or not such Option would otherwise be exercisable as to all
such shares. In such event, to the extent such Option is not exercised prior to
the closing of the Merger, the Option shall terminate as of the date of such
closing. 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
<PAGE> 10
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 and the participant, 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.
14. Time of Granting Options. Except with respect to options granted
to Outside Directors (which are governed by Section 11), 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.
15. 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.
16. 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.
<PAGE> 11
17. 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.
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.
18. Agreements. Options shall be evidenced by written or electronic
agreements in such form as the Board shall approve from time to time.
19 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.
20. Information to Optionees. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company. The Company shall not be required
to provide such information if the issuance of Options under the Plan is limited
to key employees whose duties in connection with the Company assure their access
to equivalent information.
<PAGE> 12
PROXIMA CORPORATION
STOCK OPTION AGREEMENT
1. Grant of Option. Proxima Corporation, a California corporation
(the "Company"), hereby grants to the Optionee named in the Notice of Grant (the
"Optionee"), an option (the "Option") to purchase a total number of shares of
Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise
price per share set forth in the Notice of Grant (the "Exercise Price") subject
to the terms, definitions and provisions of the Company's 1986 Stock Plan (the
"Plan") which is incorporated herein by reference. Unless otherwise defined
herein, the terms defined in the Plan shall have the same defined meanings in
this Option.
If designated an Incentive Stock Option, this Option is
intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code.
2. Adjustments for Stock Splits, Recapitalizations.
The Exercise Price and number of Shares subject to this Option (as
set forth on the Notice of Grant) shall be subject to adjustment as follows: If
the Company at any time (i) subdivides (by any stock split, stock dividend or
otherwise) the Common Stock into a greater number of shares, the Exercise Price
in effect immediately prior to such subdivision will be proportionately reduced
and the number of Shares issuable shall be proportionately increased, and (ii)
if the Company at any time combines (by reverse stock split or otherwise) the
Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination will be proportionately increased and the
number of Shares issuable shall be proportionately decreased.
(a) If at any time while this Option is outstanding there shall be
any reclassification or conversion of the Common Stock into another class of
securities (other than a subdivision or combination or shares provided for in
the preceding paragraph), the Optionee shall thereafter be entitled to receive,
during the term hereof and upon payment of the Exercise Price, the number of
shares of stock to which a holder of the Common Stock would have been entitled
upon such reclassification or conversion had the Optionee exercised this Option
immediately prior to such reclassification or conversion.
3. Exercise of Option. This Option shall be exercisable during its
term in accordance with the Exercise Schedule set out in the Notice of Grant and
with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
(i) This Option may not be exercised for a
fraction of a share.
-1-
<PAGE> 13
(ii) In the event of Optionee's death, disability
or other termination of employment, the exercisability of the Option is governed
by Sections 7, 8 and 9 below, subject to the limitation contained in subsection
2(i)(c).
(iii) In no event may this Option be exercised
after the Expiration Date of this Option as set forth in the Notice of Grant.
(b) Method of Exercise. This Option shall be exercisable by
execution and delivery of the Exercise Notice and Stock Purchase Agreement (the
"Exercise Notice") in the form attached as Exhibit A. Such written notice shall
be signed by the Optionee and shall be delivered in person or by certified mail
to the Secretary of the Company. The written notice shall be accompanied by
payment of the Exercise Price. This Option shall be deemed to be exercised upon
receipt by the Company of such written notice accompanied by the Exercise Price.
(c) Optionee's Representations. In the event the Shares
purchasable pursuant to the exercise of this Option have not been registered
under the Securities Act of 1933, as amended, at the time this Option is
exercised, Optionee shall, concurrently with the exercise of all or any portion
of this Option, deliver to the Company his Investment Representation Statement
in the form attached to the Exercise Notice.
4. Method of Payment. Payment of the Exercise Price shall be by:
(i) cash; or
(ii) check; or
(iii) 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 immediate sale
of the shares through a broker which provides for delivery to the Company from
the sale or loan proceeds of the exercise price; or
(iv) any combination of the foregoing methods of payment.
5. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including the
requirements of any stock exchange upon which the Shares may then be listed and
including any rule under Part 207 of Title 12 of the Code of Federal Regulations
("Regulation G") as promulgated by the Federal Reserve Board. As a condition to
the exercise of this Option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.
6. Termination of Relationship. In the event of termination of
Optionee's consulting relationship or Continuous Status as an Employee, Optionee
may, to the extent otherwise so entitled at the date of such termination (the
"Termination Date"), exercise this Option during the
-2-
<PAGE> 14
Termination Period set out in the Notice of Grant. To the extent that Optionee
was not entitled to exercise this Option at the date of such termination, or if
Optionee does not exercise this Option within the time specified herein, the
Option shall terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section
6 above, in the event of termination of an Optionee's consulting relationship or
Continuous Status as an Employee as a result of total and permanent disability
(as defined in Section 22(e)(3) of the Code), Optionee may, but only within
twelve (12) months from the date of termination of employment (but in no event
later than the Expiration Date of this Option as set forth in the Notice of
Grant), exercise the Option to the extent otherwise so entitled at the date of
such termination. To the extent that Optionee was not entitled to exercise the
Option at the date of termination, or if Optionee does not exercise such Option
(to the extent otherwise so entitled) within the time specified herein, the
Option shall terminate.
8. Death of Optionee. In the event of the death of Optionee during
the term of this Option and while an Employee or Consultant or within ninety
(90) days following termination of Optionee's employment/consultancy
relationship with the Company, this Option may be exercised at any time within
twelve (12) months following the date of death (but in no event later than the
Expiration Date), by Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent the
Optionee could exercise the Option at the date of death.
9. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by him. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
10. Term of Option. This Option may be exercised only prior to the
Expiration Date set out in the Notice of Grant, and may be exercised during such
term only in accordance with the Plan and the terms of this Option. The
limitations set out in Section 7 of the Plan regarding Options designated as
Incentive Stock Options and Options granted to more than ten percent (10%)
shareholders shall apply to this Option.
11. Tax Consequences. Set forth below is a brief summary as of the
date of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT
A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will
be no regular federal income tax liability upon the exercise of the Option,
although 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 for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
-3-
<PAGE> 15
(b) Exercise of Nonqualified Stock Option. If this Option does not
qualify as an ISO, there may be a regular federal income tax liability upon the
exercise of the Option. The Optionee will be treated as having received
compensation 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. If Optionee is an employee, the Company will be required to
withhold from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
(c) Disposition of Shares. In the case of an NSO, if Shares are held
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option 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 disposition of the Shares will also be treated as
long-term capital gain for federal and income tax purposes. If Shares purchased
under an ISO are disposed of within such one-year period or within two years
after the Date of Grant, any gain realized on such disposition will be treated
as compensation income (taxable at ordinary income rates) to the extent of the
excess, if any, of the fair market value of the Shares on the date of exercise
over the Exercise Price.
(d) Notice of Disqualifying Disposition of ISO Shares. If this Option
is an ISO, and if Optionee sells or otherwise disposes of any of the Shares
acquired pursuant to this Option on or before the later of (1) the date two
years after the Date of Grant, or (2) the date one year after exercise of this
Option, the Optionee shall immediately notify the Company in writing of such
disposition. Optionee agrees that Optionee may be subject to income tax
withholding by the Company on the compensation income recognized by the Optionee
from the early disposition by payment in cash or out of the current earnings
paid to the Optionee.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT
TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT
THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY 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 CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
-4-
<PAGE> 16
EXHIBIT A
EXERCISE NOTICE AND STOCK PURCHASE AGREEMENT
Proxima Corporation
9440 Carroll Park Drive
San Diego, California 92121
Attention: Secretary
1. Exercise of Option. Effective as of today, __________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Proxima Corporation (the
"Company") under and pursuant to the Company's 1986 Stock Plan, as amended (the
"Plan") and the [ ] Incentive [ ] Nonqualified Stock Option Agreement dated
______________ (the "Option Agreement").
2. Representations of Optionee.
(a) Optionee acknowledges that Optionee has received, read
and understood the Plan and the Option Agreement and agrees to abide by and be
bound by their terms and conditions.
(b) Optionee understands that Optionee may suffer adverse
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with the purchase or disposition of the
Shares and that Optionee is not relying on the Company for any tax advice.
3. Rights as Shareholder. Subject to the terms and conditions of this
Agreement, Optionee shall have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Optionee delivers full
payment of the Exercise Price until such time as Optionee disposes of the
Shares.
4. Successors and Assigns. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
5. Arbitration. Any dispute or claim arising out of or in connection
with this Agreement shall be settled by binding arbitration. Any such
arbitration shall be conducted in accordance with the Rules of Conciliation and
Arbitration of the American Arbitration
-1-
<PAGE> 17
Association and shall take place in San Diego, California. The arbitration shall
be conducted by one arbitrator; provided that if the parties cannot agree on a
single arbitrator, then the arbitration shall be conducted by a panel of three
arbitrators, one selected by each party and the third selected by the other two
arbitrators. The determination of the arbitrator(s) shall be final and binding
upon the parties.
6. Governing Law; Severability. This Agreement shall be governed by
and construed in accordance with the laws of the State of California excluding
that body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
7. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
8. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
9. Delivery of Payment. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.
10. Entire Agreement. The Plan, Notice of Grant/Option Agreement and,
if applicable, Investment Representation Statement are incorporated herein by
reference. This Agreement, the Plan and the Notice of Grant/Option Agreement
constitute the entire agreement of the parties and supersede in their entirety
all prior undertakings and agreements of the Company and Optionee with respect
to the subject matter hereof, and is governed by California law except for that
body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: PROXIMA CORPORATION
By: ___________________________
______________________________ Its: __________________________
Address: Address:
______________________________ 9440 Carroll Park Drive
______________________________ San Diego, California 92121
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS AND
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH (B) 10-Q FILING FOR THE QUARTER ENDED 9-30-96
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 268
<SECURITIES> 17,319
<RECEIVABLES> 28,641
<ALLOWANCES> 2,476
<INVENTORY> 24,156
<CURRENT-ASSETS> 74,373
<PP&E> 7,350
<DEPRECIATION> 1,730
<TOTAL-ASSETS> 84,527
<CURRENT-LIABILITIES> 14,118
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 79,402
<SALES> 84,527
<TOTAL-REVENUES> 71,260
<CGS> 71,260
<TOTAL-COSTS> 49,752
<OTHER-EXPENSES> 23,945
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,166)
<INCOME-TAX> 365
<INCOME-CONTINUING> (3,531)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,531)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.51)
</TABLE>
