<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
[_] Confidential, for Use of the Commission Only
(as Permitted by Rule 14a-6(e)(2))
LEVEL ONE COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:_________________________________________________
(2) Form, Schedule or Registration Statement No.:___________________________
(3) Filing Party:___________________________________________________________
(4) Date Filed:_____________________________________________________________
Notes:
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JULY 18, 1996
The Annual Meeting of the Shareholders of LEVEL ONE COMMUNICATIONS,
INCORPORATED ("Level One" or the "Company") will be held at the Company's
facilities at 9800 Old Placerville Road, Sacramento, California, on Thursday,
July 18, 1996, at 9 A.M. for the following purposes:
1. To elect Directors of the Company.
2. To amend the 1993 Stock Purchase Plan to permit employees to
participate after 90 days of employment with the Company.
3. To amend the 1993 Stock Option Plan to provide for an additional
2,000,000 shares; to provide for automatic grants to non-employee, non-
affiliate directors vesting at 2,000 shares per year; and to limit the
number of options that may be granted to any individual, to conform with
the requirements of Internal Revenue Code Section 162(m).
4. To ratify the selection of Arthur Andersen & Co. as the Company's
certified public accountants.
5. To consider and act upon such other matters as may properly come
before the meeting.
The Board of Directors has fixed the close of business on May 21, 1996, as
the record date for determination of the shareholders entitled to notice of
and to vote in person or by proxy at the Annual Meeting.
Whether or not you presently plan to attend the meeting in person, the Board
of Directors urges you to date, sign, and promptly return the enclosed proxy.
Your giving of such proxy does not preclude your right to vote in person if
you attend the meeting. A postage-prepaid envelope is enclosed for your
convenience in returning the signed proxy.
Your early attention to the proxy will be appreciated.
By Order of the Board of Directors
Robert S. Pepper
Chairman of the Board
Sacramento, California
Dated: June 26, 1996
A COPY OF THE COMPANY'S ANNUAL REPORT FOR FISCAL YEAR 1995 AND A PROXY
STATEMENT ACCOMPANY THIS NOTICE.
<PAGE>
LEVEL ONE COMMUNICATIONS, INCORPORATED
9750 GOETHE ROAD, SACRAMENTO, CA 95827
----------------
PROXY STATEMENT
----------------
A Notice of the Annual Meeting of Shareholders of LEVEL ONE COMMUNICATIONS,
INCORPORATED is set forth on the preceding page and enclosed herewith is a
form of proxy solicited by the Board of Directors of the Company. The cost of
this solicitation will be borne by the Company. In addition to solicitation by
mail, the officers and employees of the Company may solicit proxies personally
or by telephone or facsimile, without additional compensation. Except as
described above, the Company does not currently intend to solicit proxies
other than by mail.
This proxy statement is being first sent to shareholders on or about June
26, 1996.
Only shareholders of record as of the close of business on May 21, 1996, are
entitled to notice of and to vote at such meeting or at any adjournment
thereof. The outstanding stock of the Company on the record date entitled to
vote consisted of 12,971,201 shares of common stock.
The holders of the outstanding common stock are entitled to one vote per
share. With respect to the election of directors, holders of common stock are
entitled to one vote per share for each director position. Upon request made
prior to the commencement of voting, each shareholder will be accorded
cumulative voting rights, under which such shareholder will be entitled to as
many votes as equals the number of shares of stock held, multiplied by the
number of directorship positions to be filled (six), all of which votes may be
cast for a single candidate or distributed among any or all of the candidates
in such proportions as such shareholder sees fit. If no request is made to
cumulate votes, each shareholder shall be deemed to have cast one vote per
share for each director for whom a vote is cast.
If a shareholder abstains from voting as to any matter, or if a broker
returns a "non-vote" proxy as to any matter (indicating a lack of authority to
vote on such matter), then the shares held by such shareholder or broker will
be deemed present at the meeting for purposes of determining a quorum but will
not be counted for purposes of calculating the vote with respect to such
matter. Because shareholder approval under California law requires the
affirmative vote of at least a majority of that number of shares needed to
constitute a quorum (in addition to any other applicable requirements), in
certain instances an abstention or a broker non-vote can have the same effect
as a negative vote.
All shares represented by valid proxies received by the Company prior to the
meeting will be voted as specified in the proxy; if no specification is made
and if discretionary authority is conferred by the shareholder, the shares
will be voted FOR the election of nominees and the proposals described below.
A shareholder giving a proxy has the power to revoke it any time prior to its
exercise by delivering to the Secretary of the Company a written revocation or
a duly executed proxy bearing a later date, or by attending the meeting and
voting the shares in person.
1
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Six positions are to be voted upon at the Annual Meeting, for directors to
serve until the 1997 annual meeting and until their successors have been duly
elected and qualified. All six nominees are currently serving as members of
the Board of Directors.
The Company currently has six directors: Dr. Robert S. Pepper, Chairman of
the Board and President and Chief Executive Officer of the Company; Thomas J.
Connors; Dr. Paul R. Gray; Martin Jurick; Dr. Henry Kressel; and Joseph P.
Landy. Certain information with respect to each of the Directors is set forth
herein under the caption "Directors and Officers of the Company".
Each nominee has consented to be named in this proxy statement and has
consented to serve as a director, if so elected. The Company has no reason to
believe that any of the nominees will not be available to serve. If, however,
any nominee should for any reason become unable or unwilling to serve, the
shares represented by proxies received by the Company will (unless otherwise
directed) be voted for the election of such other person as the Board of
Directors may recommend, in place of the unavailable nominee.
The nominees receiving the highest number of affirmative votes of the shares
entitled to be voted for them, up to the number of directors to be elected by
such shares, shall be elected at the Annual Meeting. Shares present or
represented at the Annual Meeting and not voting shall not be counted as
affirmative votes.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE SLATE
OF DIRECTORS PROPOSED BY THE BOARD OF DIRECTORS.
DIRECTORS AND OFFICERS OF THE COMPANY
The executive officers and directors of the Company and their ages as of May
1, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Robert S. Pepper, Ph.D................. 60 President, Chief Executive
Officer and Chairman of the
Board of Directors
J. Francois Crepin..................... 49 Vice President, Business
Development
George Holmes.......................... 33 Vice President, Worldwide Sales
John Kehoe............................. 50 Vice President and Chief
Financial Officer
Daniel S. Koellen...................... 38 Vice President, Quality and
Reliability
Manuel D. Yuen......................... 55 Vice President, Operations
Thomas J. Connors(1)(2)................ 67 Director
Paul Gray, Ph.D........................ 53 Director
Martin Jurick(2)....................... 58 Director
Henry Kressel, Ph.D.(2)................ 62 Director
Joseph P. Landy(1)..................... 35 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Dr. Pepper joined the Company in July 1986 as President, Chief Executive
Officer and a director. He became Chairman of the Board of Directors in
January 1993 and also served as Acting Chief Financial Officer from November
1992 to September 1993. From 1979 until 1984, Dr. Pepper was Vice President
and General Manager of the Solid State division of RCA Corporation. Prior to
joining RCA, Dr. Pepper had spent over 15 years in the semiconductor industry,
including serving as Vice President and General Manager of the
2
<PAGE>
Semiconductor Division at Analog Devices Corporation. Dr. Pepper holds B.S.,
M.S. and Ph.D. degrees in Electrical Engineering from the University of
California at Berkeley.
Mr. Crepin joined the Company in December 1986 as Vice President, Marketing
and Sales, and has held different positions within the Company prior to
becoming Vice President of Business Development in 1994. Prior to joining the
Company, Mr. Crepin served for 17 years at National Semiconductor Corporation,
the last four of which were spent as Director of Worldwide Telecom Marketing.
Mr. Crepin served as Director of Strategic Planning for Information
Communications for LSI Logic Corporation prior to joining Level One. Mr.
Crepin holds an M.B.A. from the University of Paris and a B.S. in Mathematics
and Science from Grenoble University.
Mr. Kehoe joined the Company in October 1995 as Vice President and Chief
Financial Officer. Immediately prior to joining the Company Mr. Kehoe served
as Senior Vice President and Chief Financial Officer for Focus Surgery, Inc.,
a medical device manufacturer. From 1992 to 1993 he served as Vice President,
Finance and Chief Financial Officer for Celeritek, Inc., a microwave systems
company. From 1989 to 1992 he served as Vice President, Finance and Chief
Financial Officer of Poqet Computer Corp., a computer manufacturer. Prior to
1989 he worked in various financial and CFO positions for approximately 14
years with high technology companies, including Texas Instruments. Mr. Kehoe
holds an MBA from Fordham University and a BBA from Manhattan College.
Mr. Koellen has been responsible for the Quality and Reliability function
since he joined the Company in January 1989, serving as Manager until January
1992, then as Director until January 1993 when he was promoted to the position
of Vice President of Quality and Reliability in January 1993. From 1985 to
1989, Mr. Koellen was Lead Failure Analysis Engineer for the Denver Aerospace
Division of Martin Marietta Corp., an aerospace defense contractor. Prior to
joining Martin Marietta, Mr. Koellen managed the surface analysis laboratory
for Mostek Corporation, a supplier of dynamic random access memory integrated
circuits. Mr. Koellen holds an M.S. in Engineering and Applied Science from
Southern Methodist University and a B.S. in Applied Mathematics, Engineering
and Physics from the University of Wisconsin.
Mr. Yuen was Director of Operations from the time he joined the Company in
February 1991 until January 1992, when he was promoted to Vice President of
Operations. Prior to joining the Company, Mr. Yuen spent over 20 years at
National Semiconductor Corporation, a semiconductor manufacturer, as Director
of its Santa Clara foundry from 1986 to 1987 and as Vice President--Military
Aerospace Division from 1987 to 1989. From 1989 to 1991, Mr. Yuen was a self-
employed real estate investor. Mr. Yuen holds a B.S. and an M.S. in Electrical
Engineering from the University of California at Berkeley.
Mr. Holmes joined the Company in August, 1994 as Vice President, Worldwide
Sales. Prior to joining the Company, he had been employed since 1985 by
Telecom Solutions, a division of Symmetricom, Inc. From 1993-1994 he served as
Telecom Solutions' Assistant Vice President for New Business Development; from
1992-1993 he was Executive Director of Sales, Global Synchronization Products;
from 1990-1992 he was Director of Sales, OEM, Inter-exchange Carrier Products
and International Products; from 1989-1990 he was National Sales Manager for
the Analog solutions group. He has a Bachelors degree in Business from the
University of Puget Sound and a Diploma in International Business from
Nijenrode, Hogeschool voor Benrijfskunde (the Netherlands Graduate School of
Business).
Mr. Connors has been a director of the Company since April 1991. Since 1980,
Mr. Connors has been the principal of TJC Investments, an independent
consulting firm that works with companies in the semiconductor and
semiconductor-related industries. Previously, Mr. Connors was employed by
Motorola, Inc., a semiconductor manufacturing company, where he last served as
Vice President and General Manager of the Semiconductor Division. Mr. Connors
is also a member of the Board of Directors of Zilog, Inc., Open Vision
Technologies, Inc., and SGS-Thomson Microelectronics, Inc., a wholly-owned
subsidiary of SGS-N.V.
Dr. Gray has been a director since April 1994. Since 1978, Dr. Gray has been
a professor in the Electrical Engineering and Computer Sciences Department at
the University of California, Berkeley, serving as Vice
3
<PAGE>
Chairman of the department from 1988 to 1990, as Chairman of the department
from 1990 to 1993, and, commencing in July 1996, as Dean of the College of
Engineering. He served as a director of Microlinear Corporation from 1988 to
1991. He has published more than 100 papers in the electrical engineering
field, has served on numerous industry committees, and holds 10 patents.
Mr. Jurick has been a director of the Company since April 1991. Since 1984,
Mr. Jurick has been Senior Vice President of Silicon Systems, Inc. ("SSI"), a
semiconductor manufacturing company, where he has been employed since 1973.
SSI is a wholly owned subsidiary of TDK Corporation. Mr. Jurick also serves as
a director of SSI and of Microsemi Corp.
Dr. Kressel has been a director of the Company since August 1987. Since
1985, Dr. Kressel has been Managing Director at E.M. Warburg, Pincus & Co.,
Inc. ("EMW"), an investment firm, where he has been employed since 1983. Prior
to joining EMW, Dr. Kressel spent 20 years at RCA Laboratories, where he
became a Staff Vice President. Dr. Kressel is also a member of the Board of
Directors of Zilog, Inc., Maxis, Inc., and Trescom International.
Mr. Landy has been a director of the Company since January 1991 and was
appointed Secretary of the Company in July 1993. Since January 1994, Mr. Landy
has served as a Managing Director at E.M. Warburg, Pincus & Co., Inc. ("EMW"),
an investment firm, where he has been employed since 1985. Prior to joining
EMW, Mr. Landy was employed by Dean Witter Realty, Inc., the real estate
investment banking affiliate of Dean Witter Reynolds, Inc., as a financial
analyst.
Directors are elected by the shareholders at each annual meeting to serve
until the next annual meeting of shareholders or until their successors are
duly elected and qualified. Officers are elected to serve, subject to the
discretion of the Board of Directors, until their successors are appointed.
There are no family relationships between any directors or executive officers.
Non-employee Directors of the Company who are not affiliated with
shareholders owning 10% or more of the Company's stock receive $1,800 per day
for each day devoted to Company Board or committee meetings. The Company
reimburses each director for reasonable expenses of attending meetings of the
Board of Directors and any committees thereof. Upon adoption of Proposal 3 set
forth herein, non-affiliated non-employee directors shall be entitled to
annual automatic option grants averaging 2,000 shares per year.
There are no agreements or other arrangements or understandings pursuant to
which any director of the Company will be selected as a director or nominee.
The Board of Directors of the Company met nine times during the fiscal year
ended December 30, 1995. The Board of Directors has an Audit Committee and a
Compensation Committee. During the fiscal year ended December 30, 1995, each
director attended or participated in 75% or more of the aggregate of (i) all
meetings of the Board of Directors held during the period in which such
director served and (ii) all meetings of committees of the Board on which such
director served.
The Audit Committee of the Board of Directors currently consists of
Directors Connors and Landy. The Audit Committee recommends the engagement of
independent auditors, consults with the independent auditors regarding the
scope of annual audits and reviews the Company's system of internal accounting
controls. The Audit Committee met once for the fiscal year ended December 30,
1995.
The Compensation Committee of the Board of Directors currently consists of
Directors Connors, Jurick and Kressel. The Compensation Committee establishes
the compensation by the Company to its executive officers. The Compensation
Committee met three times for the fiscal year ended December 30, 1995.
4
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee currently consists of directors
Connors, Jurick and Kressel. The Compensation Committee reviews and approves,
subject to approval by the Board of Directors with respect to the Chief
Executive Officer, the compensation of the Company's executive officers.
Mr. Connors was paid $118,800 during 1995 for consulting services rendered
under an agreement with the Company. The Company has agreed to pay Mr. Connors
$10,800 per month for consulting services. In addition, Mr. Connors is
reimbursed for expenses incurred in connection with such services and receives
additional compensation in the event he performs services beyond those
required under the agreement. During fiscal 1995 Mr. Connors was granted an
option to purchase 15,000 shares of the Company's stock at an exercise price
of $16.50.
During 1995, the Company paid SSI, of which Mr. Jurick is an executive
officer, $75,000 pursuant to a cross-licensing agreement relating to certain
of the two companies' respective technologies.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the four other highest paid executive officers
whose compensation for the 1995 fiscal year was in excess of $100,000
(collectively the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
------------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION($)(2)
- --------------------------- ---- ----------- ----------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Robert S. Pepper, Ph.D. 1995 227,172 90,000 -- 4,280
President, Chief Execu-
tive Officer and 1994 196,794 50,000 120,000 78,632
Chairman of the Board 1993 191,058 50,000 105,356 3,750
George B. Holmes 1995 130,916 149,582 60,000 4,205
Vice President, Sales 1994 41,556 20,000 -- 433
J. Francois Crepin 1995 133,306 12,143 35,500 4,284
Vice President, Business
Development 1994 124,650 9,500 -- 8,530
1993 120,857 -- 13,500 3,236
Manuel D. Yuen(3) 1995 123,520 13,000 33,000 2,443
Vice President, Opera-
tions 1994 110,778 10,000 -- 2,853
1993 104,418 -- 37,500 2,857
Daniel S. Koellen 1995 111,266 11,852 23,100 3,120
Vice President, Quality
& Reliability 1994 98,566 11,000 -- 2,869
1993 90,597 -- 27,000 2,675
</TABLE>
- --------
(1) Annual compensation amounts include amounts deferred at the election of
the Named Officer pursuant to the Company's 401(k) plan.
(2) Other annual compensation represents the Company's 401(k) matching
contributions. In addition, the Company reimbursed the underwriting
commissions paid by employees who sold shares in the February 9, 1994,
public offering of the Company's common stock; Messrs. Pepper and Crepin
were reimbursed $75,240 and $4,860, respectively.
(3) At December 30, 1995, Mr. Yuen held 3,000 shares of restricted stock,
which vested on March 11, 1996. At December 30, 1995, such shares were
valued at an aggregate of $54,000, based on the closing sale price for the
Company's stock on December 29, 1995 (the last trading day of fiscal 1995)
of $18.00 per share.
5
<PAGE>
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE 1993 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1993 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the shareholders in July
1993. A total of 450,000 shares of Common Stock has been reserved for issuance
thereunder.
PROPOSED AMENDMENT TO THE PURCHASE PLAN
Presently the Purchase Plan provides that an employee must have been
employed by the Company for at least one year in order to participate. In
February 1996, the Board of Directors approved an amendment to the Purchase
Plan to permit participation by employees who have been employed by the
Company for 90 days. Proposal 2 seeks shareholder approval of this amendment.
The Board considers the earlier participation date an important element to
the future success of the Purchase Plan as an employee incentive program. The
Board believes that the Purchase Plan is an integral component of the
Company's benefits program that is intended to provide employees with an
incentive to exert maximum effort for the success of the Company and to
participate in that success through the acquisition of the Company's Common
Stock. As of May 1, 1996, approximately 50% of the Company's eligible
employees were participating in the Purchase Plan.
The affirmative vote of a majority of the votes cast will be required to
approve the amendment to the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
The essential provisions of the Purchase Plan are outlined below.
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors.
ELIGIBILITY
Only employees may participate in the Purchase Plan. For this purpose, an
"employee" is any person who is regularly employed at least twenty (20) hours
per week and five (5) months per calendar year by the Company or any of its
majority-owned subsidiaries. As of February 16, 1996 (the last enrollment
date), there were approximately 240 employees eligible to participate in the
Purchase Plan, of whom approximately 120 were participants.
OFFERING PERIOD
Participants in the Purchase Plan are eligible to purchase shares of the
Company's Common Stock based on payroll deductions within two annual six-month
offering periods, one commencing on each February 16 and ending on each August
15, and the second commencing on each August 16 and ending on each February
15. The offering periods shall continue until the Purchase Plan is terminated.
The beginning date of each offering period is the "Offering Date"; the end
date of each offering period is the "Exercise Date".
PURCHASE PRICE
The purchase price per share at which shares will be sold in an offering
under the Purchase Plan is the lower of (i) eighty-five percent (85%) of the
fair market value of a share of Common Stock on the Offering Date or (ii)
eighty-five percent (85%) of the fair market value of a share of Common Stock
on the Exercise Date. The
6
<PAGE>
fair market value of the Common Stock on a given date shall be the closing
price as reported in the Wall Street Journal. As of June 18, 1996, such price
as $19.25.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the offering period. The Purchase Plan provides that the aggregate of such
payroll deductions during the offering period shall not exceed eight percent
(8%) of total compensation during the offering period. During the offering
period, a participant may discontinue his or her participation in the Purchase
Plan, and may decrease but not increase the rate of payroll deductions.
TERMINATION OF PARTICIPATION
Termination of a participant's employment for any reason, including
retirement or death, cancels his or her participation in the Purchase Plan
immediately. A participant may also withdraw voluntarily.
AMENDMENT AND TERMINATION OF THE PLAN
The Board may at any time amend or terminate the Purchase Plan, except that
no such termination shall adversely affect the existing rights of any
participant to purchase stock as of the date of such termination. Under the
Purchase Plan, an amendment to increase the number of shares reserved for
issuance, to materially modify the requirements for eligibility, to extend the
term of the Purchase Plan, to reduce the purchase price for shares under the
Purchase Plan formula, or to materially increase the benefits to participants,
requires the approval of the shareholders of the Company. The Purchase Plan
will terminate in July 2008, unless terminated earlier by the Board.
TAX INFORMATION
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and
423 of the Internal Revenue Code of 1986, as amended (the "Code"). Under these
provisions, no income will be taxable to a participant until the shares
purchased under the Purchase Plan are sold or otherwise disposed of. Upon sale
or other disposition of the shares, the participant will generally be subject
to tax and the amount of the tax will depend upon the holding period. If the
shares are sold or otherwise disposed of more than two (2) years from the
Offering Date or one (1) year from the date of purchase, the participant will
recognize ordinary income measured as the lesser of (a) the excess of the fair
market value of the shares at the time of such sale or disposition over the
purchase price, or (b) an amount equal to 15% of the fair market value of the
shares as of the Offering Date. If the shares are sold or otherwise disposed
of before the expiration of this holding period, the participant will
recognize ordinary income generally measured as the excess of the fair market
value of the shares on the date the shares are purchased over the purchase
price. Any additional gain or loss on such sale or disposition will be long-
term or short-term capital gain or loss, depending on the holding period. The
Company generally is not entitled to a deduction for amounts taxed as ordinary
income or capital gain to a participant, except to the extent of ordinary
income recognized by participants upon a sale or disposition of shares prior
to the expiration of the holding period(s) described above and subject to the
limitation on deductibility set forth in Section 162(m) of the Code.
The foregoing is only a summary of the effect of federal income taxation
laws upon the participant and the Company with respect to the shares purchased
under the Purchase Plan, does not purport to be complete, and does not discuss
the tax consequences of a participant's death or the income tax laws of any
municipality, state or foreign country in which the participant may reside.
PARTICIPATION IN THE PURCHASE PLAN
Participation in the Purchase Plan is voluntary and is dependent on each
eligible employee's election to participate and his or her respective
determination as to the level of payroll deductions. Accordingly, future
7
<PAGE>
purchases under the Purchase Plan are not determinable. The following table
sets forth information with respect to the shares purchased during 1995 by (i)
the Named Officers, (ii) all current executive officers as a group, (iii) all
current non-executive officers as a group, and (iv) all other employees as a
group.
<TABLE>
<CAPTION>
NUMBER OF
NAME (OR GROUP) AND POSITION SHARES DOLLARS (1)
---------------------------- --------- -----------
<S> <C> <C>
Robert S. Pepper...................................... 0 0
George B. Holmes...................................... 0 0
J. Francois Crepin.................................... 731 $ 4,213
Daniel S. Koellen..................................... 361 2,089
Manuel Yuen........................................... 669 3,862
All current executive officers as a group (6 persons). 1,761 $10,164
All current directors who are not executive officers
as a group (5)....................................... 0 0
All other employees excluding executive officers as a
group (66 persons)................................... 12,938 $73,449
</TABLE>
- --------
(1) Market value on the date of purchase, minus the purchase price under the
Purchase Plan.
PROPOSAL 3
APPROVAL OF AMENDMENTS TO THE 1993 STOCK OPTION PLAN
In July 1993, the Board of Directors and the shareholders approved the
Company's 1993 Stock Option Plan (the "1993 Option Plan"). Under the 1993
Option Plan, options to purchase up to 1,050,000 shares of Common Stock may be
granted to employees, directors and consultants of the Company or its
subsidiaries. The 1993 Option Plan is administered by a stock option committee
consisting of disinterested directors (the "Option Committee"). Each option
granted under the 1993 Option Plan must be exercised within a period fixed by
the Option Committee, which period may not exceed ten years from the date of
grant of the option. Unless otherwise designated as "incentive stock options"
intended to qualify under Section 422 of the Code, options which are granted
under the 1993 Option Plan are intended to be "nonstatutory stock options."
The 1993 Option Plan expires in July 2008.
Stock options play a key role in the Company's ability to recruit, reward
and retain executives, key employees and directors. Technology companies have
historically used stock options as an important part of recruitment and
retention packages. The Company competes directly with these technology
companies for experienced executives and professionals and must be able to
offer comparable packages to attract the caliber of individual that the
Company believes is necessary to provide the growth that shareholders desire.
The Company's growth is largely responsible for the need to increase shares
issuable under the 1993 Option Plan. Management believes that the ability to
retain management and key employees of the Company by providing ongoing
incentives and to maintain an option pool for use in future hiring is vital to
the Company's growth.
PROPOSED AMENDMENT TO THE OPTION PLAN
On December 21, 1995, the Board of Directors increased the shares reserved
for issuance under the Option Plan by an additional 2,000,000 shares, bringing
the total shares reserved for issuance under the Option Plan to 3,050,000
shares, and to provide for automatic option grants for non-employee and non-
affiliate directors, to vest at 2,000 shares per year per grant over a five-
year period, and to conform to the requirements of Internal Revenue Code Rule
162(m).
Proposal 3 seeks shareholder approval of these amendments.
8
<PAGE>
VOTE REQUIRED
The affirmative vote of a majority of the votes cast will be required to
approve the amendments to the Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
The essential provisions of the Option Plan are outlined below.
ADMINISTRATION
The Option Plan is administered by the Option Committee of the Board of
Directors.
ELIGIBILITY
The Option Plan provides that options and stock purchase rights may be
granted to any person, including officers and directors, employed by the
Company or its majority-owned subsidiaries and to consultants to the Company.
Incentive stock options may be granted only to employees, including officers.
The Option Committee of the Board of Directors approves the participants, the
time or times at which options and stock purchase rights shall be granted and
the number of shares to be subject to each. In making such determination,
there is taken into account the duties and responsibilities of the employee,
the value of the employee's services, his or her present and potential
contributions to the success of the Company and other relevant factors. As of
May 1, 1996, there were approximately 330 employees currently eligible to
participate in the Option Plan.
TERMS OF OPTIONS
The terms of options granted under the Option Plan are determined by the
Option Committee. Each option is evidenced by a stock option agreement between
the Company and the employee or consultant to whom such option is granted and
is normally subject to the following additional terms and conditions:
(a) EXERCISE OF THE OPTION: The Option Committee may determine when
options shall become exercisable. The Company's current policy is that each
Option Agreement provides that shares covered by the option are subject to
vesting over time. Shares subject to an initial option grant normally vest
over five (5) years at the rate of twenty percent (20%) of the shares
annually. The Company may at any time or from time to time accelerate the
vesting of any outstanding option. The purchase price of the shares
purchased upon exercise of any option shall be paid in cash, check or other
shares of Common Stock.
(b) EXERCISE PRICE: The exercise price under the Option Plan is
determined by the Option Committee. In the case of an incentive stock
option granted to an employee, the exercise price shall not be less than
100% of the fair market value of the Common Stock on the date the option is
granted. For a nonstatutory option or a stock purchase right, the price
shall not be less than eighty-five percent (85%) of the fair market value
on the date of grant. In the case of an option or stock purchase right
granted to a shareholder who, immediately prior to such grant, owns stock
representing more than ten percent (10%) of the voting power or value of
all classes of stock of the Company, the exercise price must not be less
than 110% of such fair market value.
(c) TERMINATION OF EMPLOYMENT: If the optionee's status as an employee or
consultant terminates for any reason other than death or disability,
options under the Option Plan may be exercised not later than three (3)
months after such termination and may be exercised only to the extent such
option was exercisable and vested on the date of termination.
(d) DISABILITY OF OPTIONEE: If an optionee should become totally and
permanently disabled while employed by the Company, options may be
exercised within twelve (12) months after termination of employment due to
such disability, but only to the extent such options were exercisable and
vested on the date of termination.
(e) DEATH OF OPTIONEE: If an optionee should die while employed by the
Company, options may be exercised at any time within twelve (12) months
after death, but only to the extent the options would have been exercisable
and vested at the date of death.
9
<PAGE>
(f) TERMINATION OF OPTIONS: Incentive stock options granted under the
Option Plan expire ten (10) years from the date of grant and nonstatutory
stock options granted under the Option Plan expire ten (10) years and one
(1) day from the date of grant, unless otherwise provided in the option
agreement. However, in the case of an option granted to an employee 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 not be greater than
five (5) years.
AUTOMATIC GRANTS TO NON-EMPLOYEE, NON-AFFILIATE DIRECTORS
On December 31 of each year beginning with December 31, 1996, each current
member of the Board of Directors who is not an employee of the Company or a
representative of shareholders owning more than ten percent (10%) of the
outstanding shares of the Company, shall automatically receive an option to
purchase 2,000 shares. Such option shall become exercisable four years after
the date of grant. Any future new non-employee, non-affiliate director would
receive an initial automatic grant of an option to purchase 10,000 shares,
vesting 20% annually, and, two years after the initial grant, an additional
annual automatic grant of an option to purchase 2,000 shares exercisable four
years after the date of grant.
PERFORMANCE-BASED COMPENSATION LIMITATIONS
No employee shall be granted, in any fiscal year of the Company, options to
purchase more than 500,000 shares. The Company may, however, upon an
employee's initial employment, grant an option to purchase up to an additional
500,000 shares. The foregoing limitations, which shall be adjusted
proportionately in connection with any change in the Company's capitalization
(such as a stock split), are intended to satisfy the requirements applicable
to options intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change is made in the Company's capitalization that results
from a stock split or payment of a stock dividend (but only on Common Stock)
or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration, appropriate adjustment shall be
made in the exercise price and in the number of shares subject to the option.
In the event of a proposed dissolution or liquidation of the Company, each
unexercised option will terminate immediately prior to the consummation of
such proposed action.
In the event of a proposed sale of all or substantially all of the assets of
the Company, or the merger of the Company with or into another corporation,
the options shall be assumed or an equivalent option shall be substituted by
the successor corporation. If no such assumption or substitution is made, the
Board shall notify the participant that the option shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice and
the option will terminate upon the expiration of such period.
AMENDMENT AND TERMINATION
The Board may amend or terminate the Option Plan from time to time in such
respects as the Board may deem advisable; provided that any increase in the
number of shares subject to the Option Plan shall require shareholder
approval. The Plan will terminate on July 7, 2008, unless terminated earlier
by the Board.
TAX INFORMATION
Options granted under the Option Plan may be either "incentive stock
options," as defined in Section 422 of the Code, or nonstatutory options.
An optionee who is granted an incentive stock option generally will not
recognize taxable income either at the time the option is granted or upon its
exercise, although the exercise may subject the optionee to the
10
<PAGE>
alternative minimum tax. Upon the sale or exchange of the shares more than two
years after grant of the option and one year after exercising the option, any
gain or loss will be treated as long-term capital gain or loss. If these
holding periods are not satisfied, the optionee will recognize ordinary income
at the time of sale or exchange equal to the difference between the exercise
price and the lower of (i) the fair market value of the shares at the date of
the option exercise or (ii) the sale price of the shares. A different rule for
measuring ordinary income on such a premature disposition may apply if the
optionee is also an officer, director, or 10% shareholder of the Company. In
such event, the Company will be entitled to a deduction in the same amount as
the ordinary income recognized by the optionee.
An option that does not qualify as an incentive stock option is a
nonstatutory option. A participant does not recognize taxable income at the
time he or she is granted a nonstatutory option. However, upon its exercise,
the optionee will recognize taxable income generally measured by the excess of
the then fair market value of the shares purchased over the purchase price.
Any taxable income recognized in connection with an option exercise by an
optionee who is also an employee of the Company will be subject to tax
withholding by the Company. Upon resale of such shares by the optionee, any
difference between the sale price and the optionee's purchase price, to the
extent not recognized as taxable income as described above, will be treated as
long-term or short- term capital gain or loss, depending on the holding
period.
The Company will be entitled to a tax deduction in the same amount as the
ordinary income recognized by the optionee with respect to shares acquired
upon exercise of a nonstatutory option.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Option Plan, does not purport to be complete, and does not
discuss the tax consequences of the optionee's death or the income tax laws of
any municipality, state or foreign country in which an optionee may reside.
PARTICIPATION IN THE OPTION PLAN
Option Grants in Last Fiscal Year and Year-End Option Values
The following table sets forth certain information concerning grants of
stock options to each of the Named Officers during the fiscal year ended
December 30, 1995. The options listed were granted under the 1993 Option Plan.
In accordance with the rules of the Securities and Exchange Commission, also
shown is the potential realizable value based on the assumed rates of stock
price appreciation of 5% and 10%, compounded annually, from the date the
option was granted over the full option term. These amounts represent certain
assumed rates of appreciation only and do not represent the Company's estimate
of future stock price. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(1)
OPTIONS IN PRICE EXPIRATION ---------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
---- ----------- ----------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Pepper, Ph.D.. -- -- -- -- -- --
J. Francois Crepin...... 35,500 4.5% 16.50 4/26/05 368,502 933,931
George B. Holmes........ 60,000 7.7% 16.13 8/16/04 564,831 1,408,042
Manuel D. Yuen.......... 33,000 4.2% 16.50 4/26/05 342,551 868,161
Daniel S. Koellen....... 23,100 3.0% 16.50 4/26/05 239,786 607,713
</TABLE>
- --------
(1) There is no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price
appreciation over the 5-year option term will be at the assumed 5% and 10%
levels or at any other defined level. Unless the market price of the
Common Stock appreciates over the option term, no value will be realized
from the option grants made to the executive officers.
11
<PAGE>
The following table provides information with respect to the Named Officers
concerning the exercise of options during the last fiscal year and unexercised
options held as of December 30, 1995:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END (#) AT FISCAL YEAR END(1) ($)
ACQUIRED VALUE ------------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Pepper, Ph.D.. -- -- 115,238 155,118 2,030,109 1,098,662
J. Francois Crepin...... -- -- 9,000 40,000 140,966 123,733
George B. Holmes........ -- -- 12,000 48,000 22,500 90,000
Manuel D. Yuen.......... -- -- 34,000 59,000 598,966 507,533
Daniel S. Koellen....... -- -- 18,200 40,000 320,623 332,372
</TABLE>
- --------
(1) Based upon the market price of $18.00 per share, which was the closing
price per share on the NASDAQ National Market System on the last trading
day of the 1995 fiscal year, less the option exercise price payable per
share.
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has reappointed Arthur Andersen & Co. as the
Company's independent certified public accountants. Arthur Andersen & Co. have
been the Company's certified public accountants since the fall of 1990.
Although not required to do so by California law, the Company currently
intends to seek shareholder ratification of the appointment of the Company's
auditors at each annual meeting. Ratification requires the affirmative vote of
a majority of the outstanding shares of the Company's common stock represented
and entitled to vote at the Annual Meeting. Shares present or represented at
the Annual Meeting and not voting shall not be counted as affirmative votes.
In the event the necessary vote is not obtained, the matter will be returned
to the Board of Directors for consideration of alternatives.
Representatives of Arthur Andersen & Co. are expected to be in attendance at
the Annual Meeting, with opportunity to make a statement if they so desire and
to be available to answer shareholders' questions as presented.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN & CO. AS THE COMPANY'S
AUDITORS.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for the
administration of the compensation programs in effect for the Company's
executive officers. These programs have been designed to ensure that the
compensation paid to the executive officers is substantially linked to both
Company and individual performance.
12
<PAGE>
EXECUTIVE COMPENSATION PRINCIPLES
The design and implementation of the Company's executive compensation
programs are based on a series of general principles. These principles may be
summarized as follows:
. Align the interests of management and shareholders to build shareholder
value by the encouragement of consistent, long-term Company growth.
. Attract and retain key executive officers essential to the long-term
success of the Company.
. Reward executive officers for long-term corporate success by facilitating
their ability to acquire an ownership interest in the Company.
. Provide direct linkage between the compensation payable to executive
officers and the Company's attainment of annual and long-term financial
goals and targets.
. Emphasize reward for performance at the individual and corporate level.
COMPONENTS OF EXECUTIVE COMPENSATION
The components of the Company's executive compensation programs are as
follows, with a detailed summary provided below: Base Salary; Cash Bonus;
Long-Term Incentives; and Benefits and Perquisites.
Each component is calibrated to a competitive market position, with market
information provided by compensation surveys and information collected by the
Company's Compensation Committee.
BASE SALARY
The base salary for each executive officer is determined on the basis of
individual performance, the functions performed by the executive officer and
the scope of the executive officer's ongoing responsibilities, and the salary
levels in effect for comparable positions based on information provided by the
compensation surveys referenced above and information for comparable companies
in the semiconductor and high technology industries. The weight given to each
of these factors varies from individual to individual. In general, base salary
is intended to be competitive within the relevant industry and geographic
market.
Each executive officer's base salary is reviewed annually to ensure
appropriateness, and changes to base salary are made to reflect competitive
market increases and individual factors. During 1995, Company performance did
not play a significant role in the determination of base salary.
CASH BONUS
Executive officers other than Robert S. Pepper and George B. Holmes earned
cash bonuses for the 1995 fiscal year pursuant to the Company's executive
bonus program. Under this program, executive officers earn a bonus that is
based on the Company's profitability. Mr. Holmes, Vice President of World-Wide
Sales, was awarded a bonus based on achievement of specified sales targets.
Dr. Pepper's bonus is described under the heading "Chief Executive Officer
Compensation" below.
LONG-TERM INCENTIVES
Long-term incentives are provided through stock option grants. These option
grants are intended to motivate the executive officers to manage the business
to improve long-term Company performance. Customarily, option grants are made
with exercise prices equal to the market price of the shares on the date of
grant and will be of no value unless the market price of the Company's
outstanding common shares appreciates, thereby aligning a substantial part of
the executive officer's compensation package with the return realized by the
shareholders.
The size of each option grant is designed to create a meaningful opportunity
for stock ownership and is based upon several factors, including relevant
information contained in the compensation surveys described
13
<PAGE>
above, an assessment of the option grants of comparable companies, and the
expected individual future performance and contribution of each executive
officer.
Each option grant allows the executive officer to acquire shares of the
Company's common stock at a fixed price per share (customarily the market
price on the grant date) over a specified period of time (customarily five
years for the initial grant). The option generally vests in equal
installments, contingent upon the executive officer's continued employment
with the Company. The Company customarily makes additional annual grants so
that in any year an executive officer's latest vesting options vest four years
into the future.
Accordingly, the option will provide a return to the executive officer only
if the executive officer remains employed by the Company and the market price
of the underlying shares appreciates over the option term.
BENEFITS AND PERQUISITES
The benefits and perquisites component of executive compensation is
generally similar to that which is offered to all of the Company's employees.
CHIEF EXECUTIVE OFFICER (CEO) COMPENSATION
In setting the compensation payable to the Chief Executive Officer, Robert
S. Pepper, Ph.D., the goal is to provide compensation competitive with other
companies in the industry while at the same time making a significant
percentage of his earnings subject to consistent, positive, long-term Company
performance. In general, the factors utilized in determining Dr. Pepper's
compensation were similar to those applied to the other executive officers in
the manner described in the preceding paragraphs. Additionally, with respect
to Dr. Pepper's bonus compensation, the Compensation Committee set a series of
revenue, earnings and management activity targets for the Company. Payment of
a bonus to Dr. Pepper was contingent on achievement of at least the lowest of
each of the revenue and earnings targets. Dr. Pepper was, in addition,
eligible for additional bonus amounts in the discretion of the committee if
the targets were achieved, up to a maximum of $120,000.
Dr. Pepper received a 15.4% base salary increase for the period of 1995 over
1994, and a cash bonus of $90,000. In addition, the Company 401(k) Plan
contribution for Dr. Pepper was $4,280 in 1995.
COMPENSATION COMMITTEE MEMBERS:
Thomas Connors
Martin Jurick
Henry Kressel, Ph.D.
14
<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph indicating cumulative monthly total return
(assuming reinvestment of dividends) for the fiscal year ended December 30,
1995 on $100 invested alternatively in the Company's common stock, the index
for NASDAQ United States issuers prepared by the Center for Research in
Security Prices, and a "peer group" of companies engaged in semiconductor
manufacture for the telecommunications industry selected by the Company. The
index level for all series was set to $100 on August 19, 1993, the date of the
Company's initial public offering of its common stock, with the Company's
beginning stock price set at $19.00 per share, the closing price on such date.
Each line represents a monthly index level derived from compounded daily
returns including all dividends.
The companies selected for the peer group were Analog Devices, Inc., Cirrus
Logic, Inc., Exar Corp., Microchip Technology, Inc., Sierra Semiconductor
Corp., Brooktree Corp., Dallas Semiconductor Corp., Linear Technology Corp.,
Maxim Integrated Products, Inc., and Zilog, Inc. The returns of each issuer in
the peer group are reweighted daily, using the stock market capitalization for
the prior day.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG LEVEL ONE COMMUNICATIONS INC.
NASDAQ STOCK MARKET AND SELF-DETERMINED
<TABLE>
<CAPTION>
Measurement Period LEVEL ONE NASDAQ SELF-
(Fiscal Month Covered) COMMUNICATIONS INC. STOCK MARKET DETERMINED
- ---------------------- ------------------- ------------ ----------
<S> <C> <C> <C>
Measurement Pt-12/31/90 $ 0.000 $ 49.731 $ 31.821
1/31/91 0.000 55.244 37.670
2/28/91 0.000 60.558 44.179
3/28/91 0.000 64.611 47.648
4/30/91 0.000 65.019 47.767
5/31/91 0.000 68.004 50.304
6/28/91 0.000 63.863 42.915
7/31/91 0.000 67.644 46.113
8/30/91 0.000 71.006 48.459
9/30/91 0.000 71.268 45.912
10/31/91 0.000 73.632 52.146
11/29/91 0.000 71.162 44.634
12/31/91 0.000 79.852 52.267
1/31/92 0.000 84.521 61.981
2/28/92 0.000 86.436 63.942
3/31/92 0.000 82.356 56.036
4/30/92 0.000 78.825 57.576
5/29/92 0.000 79.849 54.686
6/30/92 0.000 76.727 53.109
7/31/92 0.000 79.444 55.244
8/31/92 0.000 77.016 57.954
9/30/92 0.000 79.881 63.914
10/30/92 0.000 83.027 65.028
11/30/92 0.000 89.632 73.677
12/31/92 0.000 92.932 79.195
1/29/93 0.000 95.578 79.025
2/26/93 0.000 92.012 72.477
3/31/93 0.000 94.676 78.629
4/30/93 0.000 90.635 72.733
5/28/93 0.000 96.049 81.420
6/30/93 0.000 96.494 82.194
7/30/93 0.000 96.608 88.661
8/19/93 100.000 100.000 100.000
8/31/93 94.736 101.601 98.046
9/30/93 101.316 104.627 109.489
10/29/93 115.789 106.979 104.974
11/30/93 106.140 103.788 103.953
12/31/93 127.193 106.681 110.565
1/31/94 125.000 109.919 120.459
2/28/94 117.105 108.892 123.182
3/31/94 101.316 102.194 113.739
4/29/94 103.289 100.867 120.688
5/31/94 97.367 101.114 120.509
6/30/94 96.052 97.418 120.806
7/29/94 105.263 99.418 110.688
8/31/94 123.684 105.755 125.209
9/30/94 168.420 105.483 128.111
10/31/94 94.736 107.556 135.271
11/30/94 64.474 103.988 129.395
12/30/94 81.578 104.281 133.354
1/31/95 67.105 104.828 127.126
2/28/95 86.841 110.367 145.116
3/31/95 88.158 113.634 153.279
4/28/95 80.921 117.206 167.407
5/31/95 82.894 120.241 180.443
6/30/95 113.158 129.980 206.621
7/31/95 138.157 139.515 241.163
8/31/95 130.263 142.352 259.894
9/29/95 123.684 145.626 260.110
10/31/95 118.421 144.717 241.483
11/30/95 110.526 148.122 231.080
12/29/95 94.736 147.358 207.544
</TABLE>
15
<PAGE>
PRINCIPAL AND MANAGEMENT SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 21, 1996, by (i) each person
(or group of affiliated persons) known by the Company to own beneficially more
than 5% of the Company's Common Stock, (ii) each of the Company's directors,
(iii) each Named Officer, and (iv) the Company's directors and executive
officers as a group. Except as indicated in the footnotes to this table, the
persons named herein, based on information provided by such persons, have sole
voting and investment power with respect to all shares of Common Stock shown
as beneficially owned by them, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
--------------------
DIRECTORS, NAMED OFFICERS AND 5% SHAREHOLDERS NUMBER PERCENT(1)
--------------------------------------------- --------- ----------
<S> <C> <C>
Warburg, Pincus Capital Company, L.P.(2)................. 4,569,666 34.7%
466 Lexington Avenue
New York, New York 10017
Kopp Investment Advisors, Inc. (3)....................... 2,267,382 17.5%
6600 France Avenue South, Suite 672
Edina, Minnesota 55435
Robert S. Pepper, Ph.D.(4)............................... 245,689 1.9%
Thomas J. Connors (5).................................... 84,000 *
Paul Gray, Ph.D.(6)...................................... 9,000 *
Martin Jurick (7)........................................ 10,000 *
Henry Kressel, Ph.D. (2)(8).............................. 4,569,666 34.7%
Joseph P. Landy (2)(8)................................... 4,569,666 34.7%
J. Francois Crepin (9)................................... 28,570 *
George B. Holmes (10).................................... 12,000 *
Daniel S. Koellen (11)................................... 38,883 *
Manuel D. Yuen (12)...................................... 66,346 *
All Executive Officers and Directors as a group (11
persons)(13)............................................ 5,064,154 37.4%
</TABLE>
- --------
(1) Percent ownership is based on 12,971,201 shares of Common Stock
outstanding as of May 21, 1996 plus shares issuable pursuant to options
or warrants held by the person or class in question that are exercisable
within 60 days after May 21, 1996.
(2) Shares held of record by Warburg, Pincus Capital Company, L.P.
("Warburg"). The sole general partner of Warburg is Warburg, Pincus &
Co., a New York general partnership ("WPC"). Lionel I. Pincus is the
controlling general partner of WPC. E. M. Warburg, Pincus & Co., Inc.
("EMW"), through a wholly-owned subsidiary, manages Warburg. WPC owns all
of the outstanding stock of EMW and, as the sole general partner of
Warburg, has a 20% interest in the profits of Warburg. EMW owns 0.9% of
the limited partnership interests in Warburg. Each of Dr. Kressel and Mr.
Landy is a director of the Company, and each is a managing director of
EMW and a general partner of WPC. As such, Dr. Kressel and Mr. Landy may
be deemed to have an indirect pecuniary interest (within the meaning of
Rule 16a-1 under the Securities Exchange Act of 1934) in an indeterminate
portion of the shares beneficially owned by Warburg, EMW and WPC.
Includes 202,746 shares issuable under warrants exercisable within 60
days of May 21, 1996.
(3) Includes 2,183,382 shares over which Kopp Investment Advisors, Inc.
exercises investment discretion, but for which it is not the record
holder nor does it exercise voting power; 10,000 shares which Kopp
Investment Advisors, Inc., owns directly; 4,000 shares owned by Kopp
Investment Advisors, Inc., Profit
16
<PAGE>
Sharing Plan; 50,000 shares owned by LeRoy C. Kopp; and 20,000 shares
owned by Caring and Sharing Foundation.
(4) Includes 120,333 shares held of record by the Robert S. and Star Pepper
Trust, and 140,356 shares issuable under stock options held by Dr. Pepper
exercisable within 60 days of May 21, 1996.
(5) Includes 40,000 shares issuable under stock options held by Mr. Connors
exercisable within 60 days of May 21, 1996.
(6) Includes 9,000 shares issuable under stock options held by Dr. Gray
exercisable within 60 days of May 21, 1996.
(7) Includes 2,000 shares issuable under stock options held by Mr. Jurick
exercisable within 60 days of May 21, 1996.
(8) Shares held of record by Warburg. Both Dr. Kressel and Mr. Landy are
managing directors of EMW and general partners of WPC. All of the shares
indicated as owned by both Dr. Kressel and Mr. Landy are owned directly
by Warburg and are included because of their affiliation with Warburg.
Both Dr. Kressel and Mr. Landy disclaim beneficial ownership of such
shares.
(9) Includes 10,000 shares issuable under stock options held by Mr. Crepin
exercisable within 60 days of May 21, 1996.
(10) Includes 12,000 shares issuable under stock options held by Mr. Holmes
exercisable within 60 days of May 21, 1996.
(11) Includes 28,200 shares issuable under stock options held by Mr. Koellen
exercisable within 60 days of May 21, 1996.
(12) Includes 51,000 shares issuable under stock options held by Mr. Yuen
exercisable within 60 days of May 21, 1996.
(13) Includes an aggregate of 495,302 shares issuable upon exercise of
warrants and stock options held by executive officers and directors
exercisable within 60 days of May 21, 1996. See footnotes (2), (4), (5),
(6), (7), (8), (9), (10), (11), and (12) above.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than ten percent (10%) of a registered class of the
Company's equity securities, to file with the SEC initial reports of ownership
and reports of changes in ownership of common stock and other equity
securities of the Company. Officers, directors and greater than ten percent
beneficial owners are required by SEC regulation to furnish the Company with
copies of all reports they file under Section 16(a).
To the Company's knowledge, based solely on its review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were
complied with during the fiscal year ended December 30, 1995.
SUBMISSION OF SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Shareholders are advised that any proposal which a shareholder wishes to
have presented at the 1997 Annual Meeting and included in the Company's proxy
statement for such meeting must be received by the Company, at its principal
office, 9750 Goethe Road, Sacramento, California 95827, Attn: Mr. John Kehoe,
no later than December 31, 1996. Such proposals may be included in next year's
proxy statement if they comply with certain regulations promulgated by the
SEC.
17
<PAGE>
OTHER MATTERS
The Company does not know of any matter other than those discussed in the
foregoing materials contemplated for action at the Annual Meeting. Should any
other matter be properly brought before the Meeting, the holders of the
proxies herein solicited will vote thereon in their discretion.
By Order of the Board of Directors
Robert S. Pepper
Chairman of the Board
Sacramento, California
Dated: June 26, 1996
18
<PAGE>
APPENDIX A
TO THE 1996 PROXY STATEMENT
LEVEL ONE COMMUNICATIONS, INCORPORATED
EMPLOYEE STOCK PURCHASE PLAN
As amended through June 4, 1996
This EMPLOYEE STOCK PURCHASE PLAN (the Plan), has been adopted by the Board
of Directors of LEVEL ONE COMMUNICATIONS, INCORPORATED, a California corporation
(the Company), effective July 7, 1993, and reflects all amendments through June
4, 1996.
1. Purpose. The purpose of the Plan is to enable to the Company to
attract, retain and motivate employees of the Company to devote themselves to
the greater success and prosperity of the Company. The Plan is intended to
qualify as an employee stock purchase plan under Section 423 of the Internal
Revenue Code. The provisions of the Plan shall, accordingly, be construed so as
to extend and limit participation in a manner consistent with the requirements
of Section 423.
2. Definitions. As used herein, the following definitions shall apply:
(a) Administrator shall mean the Board or the Compensation Committee of the
Companys Board of Directors or another committee of the Board designated to
administer the Plan; provided, however, that following the Registration Date the
Administrator shall be constituted so as to comply with Rule 16b-3 promulgated
under the Exchange Act.
(b) Board shall mean the Board of Directors of the Company.
(c) Code shall mean the Internal Revenue Code of 1986, as amended.
(d) Compensation shall mean the annual base rate of pay of a Participant,
including commissions, but excluding overtime, bonuses, income with respect to
stock options or other stock purchases, moving expense reimbursements, shift
differentials, or pay for work outside the regular work schedule.
(e) Disinterested Person shall mean a person who has not at any time within
one year prior to service as a member of the Administrator (or during such
service) been granted or awarded Options or other equity securities pursuant to
the Plan or any other plan of the Company or any Parent or Subsidiary.
Notwithstanding the foregoing, a member of the Committee shall not fail to be a
Disinterested Person merely because he or she participates in a plan meeting the
requirements of Rule 16b-3(c) (2) (i) (A) or (B) promulgated under the Exchange
Act.
(f) Exchange Act shall mean the Securities Exchange Act of 1934, as
amended.
(g) Eligible Employee shall mean any regular employee of the Company or any
Parent or Subsidiary whose date of hire was at least ninety days prior to the
commencement of an Offering Period and who is customarily employed for more than
twenty (20) hours per week and five (5) months per year in any calendar year.
<PAGE>
(h) Fair Market Value of a share of Stock shall be determined in good faith
by the Board, using such criteria as it deems relevant; provided, however, that
following the Registration Date, Fair Market Value shall mean the closing price
of the stock on the NASDAQ National Market System, other NASDAQ listing, or any
national securities exchange on which the Stock is listed, in each case as
quoted in The Wall Street Journal. In the event the stock is not traded on the
date as of which the Fair Market Value is to be determined, Fair Market Value
shall be determined as of the next preceding date on which the Stock is traded.
(i) [Reserved]
(j) Offering Commencement Date shall mean the first day of each Offering
Period.
(k) Offering Period shall, unless the Administrator has established a
shorter period, mean a 6-month period during which contributions for the
purchase of Stock under the Plan may be made, commencing each February 16 and
August 16, respectively, and ending each August 15 and February 15,
respectively.
(l) Option shall mean the right of a Participant to purchase Stock during
the applicable Offering Period.
(m) Parent shall mean a parent corporation, whether now or hereafter
existing, as defined by Section 424(e) of the Code.
(n) Participant shall mean an Eligible Employee who elects to participate
in the Plan.
(o) Plan Account shall mean the account established for each Participant
pursuant to the Plan.
(p) Purchase Price shall mean the price at which Participants may purchase
Stock as determined pursuant to the Plan, as set forth in Section 5(d).
(q) Registration Date shall mean the effective date of the first
registration statement filed by the Company pursuant to Section 12(g) of the
Exchange Act with respect to the Common Stock.
(r) Stock shall mean the no par value common stock of the Company.
(s) Subsidiary shall mean a subsidiary corporation, whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. The maximum aggregate number of shares
which shall be offered under the Plan, for the period commencing November 16,
1993, and concluding July 15, 2008, shall be 450,000 shares of stock [as a
result of the Companys 3-2 split in 1994], subject to adjustment as set forth in
Section 10. In the event that any Option granted under the Plan expires or is
terminated for any reason, the shares allocable to the unexercised portion of
such Option shall again be subject to an Option under the Plan.
2
<PAGE>
4. Administration of the Plan. The Plan shall be administered either by:
(i) the full Board, provided that all members of the Board are Disinterested
Persons; or (ii) a committee of two (2) or more directors, each of whom is a
Disinterested Person. The Board shall take all action necessary to administer
the Plan in accordance with the then effective provisions of Rule 16b-3
promulgated under the Exchange Act; provided, however, THAT ANY AMENDMENT TO THE
PLAN REQUIRED FOR COMPLIANCE WITH SUCH PROVISIONS SHALL BE MADE CONSISTENT WITH
THE PROVISIONS OF SECTION 15 OF THE PLAN. THE INTERPRETATION OR CONSTRUCTION OF
THE BOARD OR THE ADMINISTRATOR SHALL BE CONCLUSIVE AND BINDING ON ALL PERSONS.
5. Eligibility and Participation.
(a) Initial Participation. An Eligible Employee may become a Participant
on the Offering Commencement Date by delivering to the Companys payroll office
an enrollment form, authorizing payroll deductions as hereinafter set forth,
within such time as the Administrator shall determine; absent a contrary
determination by the Administrator such forms shall be submitted not less than
ten (10) days prior to the Offering Commencement Date. An Eligible Employee who
did not enroll in the Plan at the Offering Commencement Date, or a person who
becomes an Eligible Employee after an Offering Commencement Date, may enroll in
the Plan for the remainder of the Offering Period as of the beginning of the
next Offering Period, by submitting an enrollment form not less than ten (10)
days prior to the first day of such Offering Period.
(b) Continued Participation. A Participant shall automatically participate
in each successive Offering Period until such time as such Participant withdraws
from the Plan as set forth below. A Participant is not required to file any
additional enrollment forms for subsequent Offering Periods in order to continue
participation in the Plan.
(c) Payroll Deduction. The Participant shall designate on the enrollment
form the percentage of Compensation which he or she elects to have withheld for
the purchase of Stock pursuant to the Plan, which percentage may be 2%, 5% or 8%
of the Participants Compensation. A Participant may reduce (but not increase)
the rate of payroll withholding during an Offering Period by filing an amended
enrollment form with the Administrator at the Companys payroll office not less
than ten (10) days prior to the last day of any Offering Period for which such
change is to be effective; provided, however, that the Administrator may limit
the number of such changes that may be made in any Offering Period; absent a
contrary determination by the Administrator, no more than one change may be made
in any Offering Period. A Participant may increase or decrease the rate of
payroll deduction for any subsequent Offering Period by filing with the Company
a new enrollment form authorizing payroll deductions at least ten (10) days
prior to the Offering Commencement Date for such subsequent Offering Period.
By enrolling in the Plan, a Participant shall be deemed to have elected to
purchase the maximum number of whole shares of Stock which can be purchased with
the amount of the Participants Compensation which is withheld during and at the
end of the Offering Period.
(d) Purchase Price. The Purchase Price for each share of Stock to be
purchased under the Plan at the end of each Offering Period shall be eighty-five
percent (85%) of the Fair Market Value of such share on either (i) the Offering
Commencement Date, or (ii) the last day of such Offering Period, whichever is
less; provided, however, that the Purchase Price shall be at 100% of such Fair
Market Value in the case of a Participant who owns stock possessing more
3
<PAGE>
than 10% of the total combined voting power of all classes of stock of the
Company, its Parent or any Subsidiary.
(e) Contributions. The Purchase Price of the Stock shall be accumulated by
payroll deductions throughout the Offering Period, which shall be applied
automatically to purchase Stock at the Purchase Price at the end of each
OFFERING PERIOD. PAYROLL DEDUCTIONS SHALL COMMENCE ON THE FIRST PAYDAY
FOLLOWING THE OFFERING COMMENCEMENT DATE AND SHALL CONTINUE TO THE END OF THE
OFFERING PERIOD UNLESS SOONER ALTERED OR TERMINATED AS PROVIDED IN THIS PLAN.
(f) Effect of Leave of Absence. During a Company-approved leave of absence
on reduced or no compensation, a Participant may, for such period as the Board
shall deem reasonable, continue as a Participant in the Plan, at his or her
previous level of participation, by making cash payments to the Company on his
or her normal paydays in an amount equal to the difference between the amount of
his or her regular payroll deductions taken while regularly employed by the
Company and the amount of the payroll deduction taken while on such leave of
absence. Failure to pay any installment within ten (10) days after the payday
on which it is due shall be treated as an election by the Participant to reduce
his or her participation in the Plan to the reduced level represented by the
payroll deductions then in effect or, if there are none then being taken, as an
election to withdraw from the Plan.
(g) Purchase of Stock. The company will maintain a Plan Account on its
books in the name of each Participant. On each payday the amount deducted from
the Participants Compensation will be credited to the Participants Plan Account.
No interest shall accrue on any such payroll deductions. As of the last day of
each Offering Period the amount then in the Participants Plan Account will be
divided by the Purchase Price and the amount in the Participants Plan Account
shall be used to purchase the number of whole shares of Stock which result.
Share certificates representing the number of shares of Stock so purchased shall
be issued and delivered to the Participants account as soon as reasonably
practicable after the close of each Offering Period. Any amount remaining in
the Participants Plan Account at the end of an Offering Period after deducting
the amount of the Purchase Price for the number of whole shares issued to the
Participant, shall be retained in the Plan Account for use in the next Offering
Period.
(h) Withdrawal; Re-Entry. A Participant may elect to withdraw from
participation in the Plan at any time up to the last day of an Offering Period
by filing the prescribed form with the Administrator or the Companys payroll
office. At the time of withdrawal the amount then credited to the Participants
Plan Account (and not previously applied to the purchase of Stock) will be
refunded to the participant, in cash, without interest, and the Participants
participation in the Plan shall forthwith terminate. A Participant who
voluntarily elects to withdraw from the Plan may not resume participation in the
Plan until after the expiration of one complete Offering Period, or, for
Participants who are persons subject to Section 16 of the Securities Exchange
Act of 1934, two complete Offering Periods (six (6) months); re-enrollment shall
be made in the same manner as set forth in subsection (a) of this Section 5 for
initial participation in the Plan.
(i) Pro Rata Allocation. In the event that the aggregate number of shares
of Stock which all Participants elect to purchase during an Offering Period
shall exceed the number of shares remaining available for issuance under the
Plan, the number of shares to which each Participant shall become entitled shall
be determined by multiplying the number of shares available for issuance by a
fraction, the numerator of which is the sum of the number of shares the
4
<PAGE>
Participant has elected to purchase and the denominator of which is the sum of
the number of shares which all participants have elected to purchase.
6. Effect of Termination of Employment; Loss of Eligibility. Termination
of a Participants employment for any reason, including retirement, disability,
or death, or the failure of a Participant to remain an Eligible Employee, shall
be treated as a withdrawal under the Plan. A Participant deemed to have
withdrawn under this Section 6 for a reason other than death may elect to have
the sum then remaining in his or her Plan Account retained in the Plan until the
end of the Offering Period then in progress (provided that it will occur within
three (3) months of the date of the withdrawing Participants termination of
employment) for the purchase of Stock at the end of that Offering Period. After
deducting the amount of the Purchase Price for the number of whole shares to be
issued to the Participant, any amount remaining in the Participants Plan Account
shall be refunded to the Participant, in cash, without interest, and the
withdrawn Participants participation in the Plan shall terminate. A transfer by
a Participant from the Company to a Parent or Subsidiary, from one Subsidiary to
another, or from a Parent or Subsidiary to the Company, shall not be treated as
a termination of employment, for purposes of the Plan.
7. Limitation on Stock Ownership. Notwithstanding any provision herein to
the contrary, no employee shall be granted an Option to purchase Stock pursuant
to Section 5: (i) if such employee, immediately after electing to purchase such
Stock, would own Stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any
Parent or Subsidiary, or (ii) if the rights of the employee to purchase Stock
under this and all other qualified employee stock purchase plans of the Company
(or any Parent or Subsidiary of the Company) would accrue (become exercisable)
at a rate that exceeds $25,000 of Fair Market Value of such Stock determined at
the time such right is granted, for each calendar year for which such purchase
right is outstanding at any time. For purposes of the percentage limitation of
the first limitation of this Section 7, ownership of Stock shall be determined
by the attribution rules of Section 425(d) of the Code, and a Participant shall
be considered to own any Stock which the Participant may purchase under
outstanding Options.
8. Options Not Transferable. An 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 and distribution and may be exercised, during the
lifetime of the Participant, only by the Participant. Notwithstanding the
foregoing, consonant with the provisions of Section 425(c)(2) of the Code and
with the approval of the Administrator, Stock may be acquired under the Plan by
the Participant in joint tenancy with another. If the Participant shall in any
manner attempt to transfer, assign or otherwise encumber his or her rights or
interests under the Plan, other than as herein permitted, such act shall be
treated as a withdrawal from the Plan.
9. Tax Treatment of Purchased Shares; Short-Swing Exposure; Holding
Periods. Section 423(a) of the Code specifies that Stock purchased under an
employee stock purchase plan such as this Plan must be held by the Participant
for: (1) two (2) years after enrollment in the Plan; and (ii) one (1) year
after the actual Stock purchase. Any disposition of Stock acquired under the
Plan within the foregoing holding periods may result in the loss of certain tax
advantages to the concerned Participant. Additionally, any disposition of Stock
acquired under the Plan, by a Participant who is a person subject to Section 16
of the Exchange Act, within six (6) months following the acquisition thereof,
will presumptively be subject to short-swing liability pursuant to Section 16(b)
of said Act.
5
<PAGE>
10. Adjustments or Changes in Capitalization, Merger, Liquidation.
Subject to any required action by the shareholders of the Company, proportionate
adjustments shall be made for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
recapitalization, combination, reclassification, the payment of a stock dividend
on the Stock or any other increase or decrease in the number of such 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. 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 issue
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.
The Administrator may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the number or class of securities
covered by any Option, as well as the price to be paid therefor, in the event
that the Company effects one or more reorganizations, recapitalizations, rights
offerings, or other increases or reductions of shares of Stock, and in the event
of the Company being consolidated with or merged into any other corporation.
Upon any merger or consolidation, if the Company is not the surviving
corporation, the Options granted under the Plan shall either be assumed by the
new entity or shall terminate in accordance with the provisions of the preceding
sentence.
Unless otherwise determined by the Board, upon the dissolution or
liquidation of the Company the Plan shall terminate and all Options shall
terminate and thereupon become null and void.
11. No Right to Continuing Employment. Neither the establishment nor the
operation of the Plan shall confer upon any Participant or any other person any
right with respect to continuation of employment or other service with the
Company or any Parent or Subsidiary, nor shall the Plan interfere in any way
with the right of the Participant or the right of the Company (or any Parent or
Subsidiary) to terminate such employment or service at any time.
12. Rights as a Shareholder. A Participant shall have no rights as a
shareholder with respect to any shares of Stock he or she may have a right to
purchase under the Plan until the date of issuance of a stock certificate to
such Participant for shares issued pursuant to the Plan.
13. Designation of Beneficiary.
(a) A Participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the Participants Plan Account in the
event of such Participants death subsequent to the end of an offering period but
prior to delivery to him or her of such shares and cash. In addition, a
Participant may file a written designation of a beneficiary who is to receive
any cash from the Participants Plan Account in the event of such Participants
death prior to the end of an OFFERING PERIOD.
(b) Such designation of beneficiary may be changed by the Participant at
any time by written notice. In the event of the death of a Participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such Participants death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the
6
<PAGE>
Participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its discretion, may deliver such
shares and/or cash to the spouse or to any one or more dependents or relatives
of the Participant, or if no spouse, dependent or relative is known to the
Company, then to such other person as the Company may designate.
14. Non-Liability. Neither the Company nor the Board nor the
Administrator, nor any member of the Board or the Administrator, shall be liable
for any action or determination made in good faith with respect to the Plan, any
interpretation thereof or amendment thereto, or any Option granted under it, nor
if, notwithstanding the good faith efforts of the foregoing, it is determined
for any reason, by the Internal Revenue Service or a court of competent
jurisdiction, that any Option granted hereunder, intended to qualify under
Section 423 of the Code, does not qualify.
15. Amendment or Termination of the Plan. The Board shall have the right
to amend, modify or terminate the Plan at any time without notice; provided,
however, that no Participants then existing rights to purchase Stock as of the
date of such termination shall be adversely affected thereby; and provided,
further, that no amendment to the Plan shall be effective unless such amendment
is approved by a vote of the holders of a majority of the outstanding shares of
Common Stock of the Company represented and voting at a duly called meeting of
the shareholders held within twelve months before or after the date upon which
such action is taken by the Board, if such amendment would:
(a) Increase the aggregate number of shares of Stock to be issued under the
Plan (except as set forth in Section 10);
(b) Materially modify the requirements for eligibility to participate in
the Plan;
(c) Extend the term of the Plan;
(d) Alter the Purchase Price formula so as to reduce the price for shares
of Stock to be purchased under the Plan;
(e) Otherwise materially increase the benefits accruing to Participants
under the Plan; or
(f) Knowingly cause the Plan to fail to meet the requirements of an
employee stock purchase plan under Section 423 of the Code.
The Plan shall terminate on July 15, 2008, if it has not been earlier
terminated (or extended) pursuant to this Section 15.
16. Shareholder Approval. The Plan shall be subject to approval by the
affirmative vote of the holders of a majority of the outstanding capital stock
of the Company entitled to vote within twelve (12) months before or after the
Plan is adopted. Any option exercised before shareholder approval is obtained
must be rescinded if shareholder approval is not obtained within twelve (12)
months before or after the Plan is adopted. Stock issued upon the exercise of
such options shall not be counted in determining whether such approval is
obtained.
7
<PAGE>
APPENDIX B
TO THE 1996 PROXY STATEMENT
LEVEL ONE COMMUNICATIONS, INCORPORATED
1993 STOCK OPTION PLAN
Amended and Restated as of December 21, 1995
1. Purposes of the Plan. The purposes of this Stock Plan are:
o to attract and retain the best available personnel for positions of
substantial responsibility
o to provide additional incentive to Employees, Consultants and certain
Outside Directors, and
o to promote the success of the Companys 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. The Plan also provides for automatic grants of Nonstatutory Stock Options
to certain Outside Directors.
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 state corporate and securities laws
and the Code.
(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 Level One Communications, Incorporated, a California
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. The term Consultant shall not include Directors who are paid only
a directors fee by the Company or who are not compensated by the Company for
their services as Directors.
(i) "Continuous Status" means that the employment, directorship or
consulting relationship with the Company, any Parent, or Subsidiary, is not
interrupted or terminated. Continuous Status as an Employee or Consultant shall
not be interrupted by transfers between
<PAGE>
locations of the Company or between the Company, its Parent, any Subsidiary, or
any successor. Continuous Status as an Employee, Outside Director or Consultant
shall not be considered interrupted by any leave of absence approved by the
Company. A leave of absence approved by the Company shall include sick leave,
military leave, or any other personal leave approved by an authorized
representative of the Company. For purposes of Incentive Stock Options, no such
leave may exceed 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 directors 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.
2
<PAGE>
(q) "Grant Summary" means a written notice evidencing certain terms and
conditions of an individual Option grant. The Grant Summary is part of the
Option Agreement.
(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 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.
(w) "Optionee" means an Employee, Consultant or Outside Director who holds
an outstanding option.
(x) "Outside Director" means a member of the Board who is not an Employee.
(y) "Parent" means a parent corporation, whether now or hereafter existing,
as defined in Section 424(e) of the Code.
(z) "Plan" means this Level One Communications, Incorporated, 1993 Stock
Option Plan, amended and restated as of December 21, 1995.
(aa) "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.
(bb) "Section 16(b)" means Section 16(b) of the Securities Exchange Act of
1934, as amended.
(cc) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 12 of the Plan.
(dd) "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 which may be optioned and sold
under the Plan (including Shares for which Options have been granted and are
outstanding as of December 21, 1995) is 3,050,000 Shares. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been exercised
in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
however, that Shares that have actually been issued under the Plan upon
3
<PAGE>
exercise of an Option shall not be returned to the Plan and shall not become
available for future distribution under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.
4. Administration of the Plan
(a) Procedure.
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3, the
Plan may be administered by different bodies with respect to Directors,
Officers who are not Directors, and Employees who are neither Directors nor
Officers.
(a) Administration with Respect to Employees who are Directors and
Officers Subject to Section 16(b). With respect to Option grants made to
Employees who are also Officers or Directors subject to Section 16(b) of
the Exchange Act, the Plan shall be administered by (A) the Board, if
the Board may administer the Plan in a manner complying with the rules
under Rule 16b-3 relating to the disinterested administration of
employee benefit plans under which Section 16(b) exempt discretionary
grants and awards of equity securities are to be made, or (B) a
committee designated by the Board to administer the Plan, which
committee shall be constituted to comply with the rules under Rule 16b-3
relating to the disinterested administration of employee benefit plans
under which Section 16(b) exempt discretionary grants and awards of
equity securities are to be made. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by
the Board. From time to time the Board may increase the size of the
Committee and appoint additional members, remove members (with or
without cause) and substitute new members, fill vacancies (however
caused), and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the rules under Rule
16b-3 relating to the disinterested administration of employee benefit
plans under which Section 16(b) exempt discretionary grants and awards
of equity securities are to be made.
(ii) Administration with Respect to Other Persons. With respect to
Option grants made to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board or
(B) a committee designated by the Board, which committee shall be
constituted to satisfy Applicable Laws. Once appointed, such Committee shall
serve in its designated capacity until otherwise directed by the Board. The
Board may increase the size of the Committee and appoint additional members,
remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by
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 Consultants and Employees to whom Options may be
granted except with respect to automatic option grants made to certain
Outside Directors;
4
<PAGE>
(iii) to determine whether and to what extent Options are granted to
Employees and Consultants hereunder;
(iv) to determine the number of shares of Common Stock to be covered
by each Option granted to Employees and Consultants 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 to Employees and Consultants
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options 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 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 granted to Employees
and Consultants to the then current Fair Market Value if the Fair Market
Value of the Common Stock covered by such Option shall have declined since
the date the Option 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 (subject to Sections 10(b) and
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 previously granted by
the Administrator;
(xii) to institute an Option Exchange Program;
(xiii) to determine the terms and restrictions applicable to Options
granted to Employees and Consultants; and
(xiv) to make all other determinations deemed necessary or advisable
for administering the Plan.
(c) Administration with Respect to Outside Directors. With respect to
Options granted to certain Outside Directors pursuant to Section 10(b) hereof,
the Administrator shall exercise no discretion and such awards shall be
administered solely according to their terms.
(d) Effect of Administrators Decision. The Administrators decisions,
determinations and interpretations shall be final and binding on all Options and
any other holders of Options.
5
<PAGE>
5. Eligibility. Nonstatutory Stock Options may be granted to Employees and
Consultants. Nonstatutory Stock Options may also be granted to Outside
Directors who are neither Employees nor affiliated with Shareholders who
beneficially own 10% or more of the outstanding Shares of the Company.
Incentive Stock Options may be granted only to Employees. If otherwise
eligible, an Employee, Consultant or Outside Director as specified in this
Section who has been granted an Option may be granted additional Options.
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 shall confer upon an Optionee any right
with respect to continuing the Optionees employment or consulting relationship
with the Company, nor shall they interfere in any way with the Optionees right
or the Companys 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 to Employees:
(i) No Employee shall be granted, in any fiscal year of the Company,
Options to purchase more than 500,000 shares.
(ii) In connection with his or her initial employment, an Employee may
be granted Options to purchase up to an additional 500,000 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 Companys capitalization as described in
Section 12.
(iv) If an Option 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 12), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan, as amended and
restated as of December 21, 1995, shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders 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.
6
<PAGE>
8. Term of Option. The term of each Option shall be stated in the Grant
Summary. Unless the Administrator determines otherwise, the term of each
Nonstatutory Stock Option granted under the Plan shall be ten (10) years from
the date such Option is granted. With respect to Options granted to certain
Outside Directors pursuant to Section 10(b) hereof, the term shall be as stated
in Section 10(b). 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 Grant Summary. 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 Grant Summary.
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, but in no case shall be less
than 85% of the Fair Market Value per Share on the date of grant. With
respect to Options granted to certain Outside Directors pursuant to Section
10(b) hereof, the per share exercise price shall be determined pursuant to
Section 10(b).
(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 which 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. However, with respect to
Options granted to certain Outside Directors pursuant to Section 10(b), the
terms and conditions of the grant shall be pursuant to Section 10(b) and the
Administrator shall have no discretion to set the terms of such Options.
(c) Form of Consideration. The Administrator shall determine the acceptable
form of consideration for exercising an Option, including the method of payment
as may be permitted under Sections 408 and 409 of the California General
Corporation Law. 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;
7
<PAGE>
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) 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;
(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 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 Optionees
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the issuance
of Shares to the extent permitted by Applicable Laws.
However, with respect to Options granted to certain Outside Directors
pursuant to Section 10(b) hereof, the consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall
consist entirely of:
(i) cash,
(ii) check,
(iii) other Shares of Common Stock which (i) either have been owned by
the Optionee for more than six (6) months on the date of surrender or were
not acquired, directly or indirectly, from the Company, and (ii) 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,
(iv) delivery of a properly executed exercise notice together with such
other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the
Company of the sale or loan proceeds required to pay the exercise price, or
(v) any combination of such methods of payment.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder, except for Options granted to certain Outside Directors in accordance
with Section 10(b) below,
8
<PAGE>
shall be exercisable according to the terms of the Plan and at such times and
under such conditions as determined by the Administrator and set forth in the
Option Agreement.
An Option may not be exercised for a fraction of a Share or for less
than one hundred (100) shares.
An option shall be deemed exercised when the Company receives: (i)
written 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 stock
certificate evidencing such Shares is 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
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly 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 stock certificate is issued, except as provided in Section 12 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.
(b) Automatic Option Grants to Certain Outside Directors. All grants of
Options to Outside Directors under this Plan shall be automatic and non-
discretionary and shall be made strictly in accordance with the following
provisions:
(i) 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.
(ii) On December 31 of each year (beginning with December 31, 1996),
each person who is then an Outside Director (including any person who first
becomes an Outside Director as of such date), who is not a representative of
shareholders owning more than ten percent (10%) of the outstanding shares of
the Company, and who is vested as with respect to at least 4,000 shares of
Optioned Stock granted (A) pursuant to Section 10(b)(iii) or (B) pursuant to
a grant of Optioned Stock to Outside Directors made prior to December 21,
1995, shall automatically receive an Option to purchase 2,000 Shares.
(iii) Each Outside Director who is not a representative of shareholders
owning more than ten percent (10%) of the outstanding shares of the Company
and who first becomes an Outside Director after December 31, 1995, shall
automatically receive an Option to purchase 10,000 shares on the date such
person becomes an Outside Director.
(iv) The terms of an Option granted pursuant to this Section 10(b)
shall be as follows:
9
<PAGE>
(1) The term of the Option shall be ten (10) years;
(2) except as provided in Section 10(c), 10(d) and 10(e) of this
Plan, the Option shall be exercisable only while the Outside Director
remains a Director;
(3) the exercise price per share of Common Stock shall be 100% of
the Fair Market Value on the date of grant of the Option;
(4) for Options granted pursuant to Section 10(b)(ii), the Options
shall become exercisable on December 31 of the fourth calendar year
after the date of grant; provided, however, that in no event shall any
Option be exercisable prior to obtaining shareholder approval of the
Plan.
(5) for Options granted pursuant to Section 10(b)(iii), the Option
shall become exercisable in installments cumulatively with twenty
percent (20%) of the Optioned Stock becoming exercisable on December 31
of the calendar year after the date of grant and with an additional
twenty percent (20%) of the Optioned Stock becoming exercisable each
calendar year thereafter until one hundred percent (100%) of the
Optioned Stock shall be exercisable; provided, however, that in no event
shall any Option be exercisable prior to obtaining shareholder approval
of the Plan.
(v) The provisions set forth in this Section 10(b) shall not be amended
more than once every six months, other than to comport with changes in the
Code, the Employee Retirement Income Security Act of 1974 as amended, or the
rules or regulations promulgated thereunder.
(c) Termination of Status as Employee, Outside Director or Consultant. Upon
termination of an Optionees Continuous Status as an Employee, Outside Director
or Consultant, other than as provided for in Section 10(d) and 10(e), the
Optionee may exercise his or her Option, but only within such period of time as
is specified in the Grant Summary, and only to the extent that the Optionee was
entitled to exercise it at the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Grant Summary). In
the absence of a specified time in the Grant Summary, the Option shall remain
exercisable for ninety (90) days following the Optionees termination unless
otherwise determined by the Administrator with respect to Options granted to
Employees or Consultants. 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 the Optionees 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 an Optionees change in status
from Consultant to Employee or Employee to Consultant, an Optionees Continuous
Status as an Employee or Consultant shall not automatically terminate solely as
a result of such change in status. However, 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 such change of status.
10
<PAGE>
(d) Disability of Optionee. In the event an Optionee terminates his or her
Continuous Status as a result of the Optionees Disability or the Disability
occurs within a ninety (90) day period after termination of Continuous Status,
the Optionee may exercise his or her Option at any time within twelve (12)
months from the date of such Disability, but only to the extent that the
Optionee was entitled to exercise it at the date of such termination (but in no
event later than the expiration of the term of such Option as set forth in the
Grant Summary). If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(e) Death of Optionee. In the event that an Optionees Continuous Status
terminates due to the death of the Optionee or the Optionees death occurs within
the ninety (90) day period after termination of the Optionees Continuous Status,
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 Grant Summary), by the Optionees estate or by a
person who acquired the right to exercise the option by bequest or inheritance,
but only to the extent that the Optionee was entitled to exercise the Option at
the date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death, the
Optionees estate or a person who acquired the right to exercise the Option by
bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(f) Buyout Provisions. The Administrator may at any time offer to buyout 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. However, no such offer shall be
made by the Administrator to an Optionee granted an Option pursuant to Section
10(b).
(g) Rule 16b-3. Options granted to individuals subject to Section 16 of the
Exchange Act (Insiders) must comply with the applicable provisions of Rule 16b-3
and shall contain such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
11. Non-Transferability of Options. An 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.
12. Adjustments upon Changes in Capitalization, Dissolution, Merger, or Asset
Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
11
<PAGE>
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 of price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Administrator shall notify each Optionee as soon
as practicable prior to the effective date of such proposed transaction, but in
no case shall the Administrator notify each Optionee less than ten days before
the proposed transaction. The Optionee shall 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, except for Shares purchased pursuant
to Section 10(b), the Administrator may provide that any Company repurchase
option applicable to any Shares purchased upon exercise of an Option 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 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 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, the Optionee shall have the right to
exercise the Option as to all of the Optioned Stock, including Shares as to
which it would not otherwise be exercisable. If an Option 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 shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option shall terminate upon the expiration of such period. For the purposes
of this paragraph, the Option 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 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, 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 or sale of
assets.
13. Date of Grant. The date of grant of an Option shall be, for all purposes,
the date on which the Administrator makes the determination granting such
Option, or such other later date as is
12
<PAGE>
determined by the Administrator except as provided in Section 10(b) for grants
made to certain Outside Directors. Notice of the determination shall be provided
to each Optionee within a reasonable time after the date of such grant.
14. Withholding Taxes. In accordance with any applicable administrative
guidelines it establishes, except with respect to grants made pursuant to
Section 10(b), the Administrator may allow a purchaser to pay the amount of
taxes required by law to be withheld as a result of a lapse of restrictions in
connection with Shares purchased pursuant to an Option, by withholding from any
payment of Common Stock due as a result of such purchase or lapse of
restrictions, or by permitting the purchaser to deliver to the Company, Shares
having a Fair Market Value, as determined by the Administrator, equal to the
amount of such required withholding taxes.
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) Shareholder Approval. The company shall obtain shareholder approval of
any Plan amendment to the extent necessary and 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
shareholder 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 unless the exercise of such Option 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, the Company may require the person exercise 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.
17. Liability of the Company.
(a) Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Companys counsel
13
<PAGE>
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.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered by an
Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless shareholder approval
of an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 15(b) of the Plan.
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.
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
manner and to the degree required under applicable federal and state law.
14
<PAGE>
DETACH HERE
LEVEL ONE COMMUNICATIONS, INCORPORATED
9750 Goethe Road, Sacramento, California 95827
P PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JULY 18, 1996
R
The undersigned security holder hereby appoints Robert Pepper, John
O Kehoe, and Joseph P. Landy, and each of them, proxies, each with full
power of substitution to vote all stock of the undersigned at the annual
X meeting of stockholders of LEVEL ONE COMMUNICATIONS, INCORPORATED to be
held on July 18, 1996, at 9:00 A.M., at 9800 Old Placerville Road,
Y Sacramento, California, and at any adjournment thereof, in the manner
indicated and in their discretion on any other business which may
properly come before said meeting, all in accordance with and as more
fully described in the Notice and accompanying Proxy Statement for said
meeting, receipt of which is hereby acknowledged.
THE SECURITIES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ON
THE REVERSE SIDE, BUT IF NO DIRECTION IS INDICATED, THE SHARES REPRESENTED WILL
BE VOTED FOR THE ELECTION OF DIRECTORS NOMINATED BY MANAGEMENT, FOR RATIFICATION
OF THE AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN, FOR RATIFICATION OF THE
AMENDMENTS TO THE 1993 STOCK OPTION PLAN, AND FOR THE RATIFICATION OF ARTHUR
ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS. THIS PROXY IS SOLICITED BY, AND
ON BEHALF OF, THE BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
---------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE | SEE REVERSE |
| SIDE |
---------------
<PAGE>
DETACH HERE
Please mark ----
[ X ] votes as in |
this example. |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES
LISTED BELOW AS DIRECTORS, FOR RATIFICATION OF THE AMENDMENT TO THE
EMPLOYEE STOCK PURCHASE PLAN, FOR RATIFICATION OF THE AMENDMENTS TO THE
1993 STOCK OPTION PLAN, AND FOR THE RATIFICATION OF THE APPOINTMENT OF
ARTHUR ANDERSEN LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS OF THE
COMPANY.
1. To elect Directors.
NOMINEES: Robert S. Pepper, Thomas J. Connors, Paul R. Gray, Martin
Jurick, Henry Kressel, Joseph P. Landy
FOR WITHHELD
[_] [_]
[_]______________________________________
For all nominees except as noted above
Signature: ___________________________ Date: _________________
2. To ratify the amendment to the Employee Stock Purchase Plan.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. To ratify the amendments to the 1993 Stock Option Plan.
FOR AGAINST ABSTAIN
[_] [_] [_]
4. To ratify the selection of Arthur Andersen LLP as independent certified
public accountants for the fiscal year 1996.
FOR AGAINST ABSTAIN
[_] [_] [_]
In their discretion, upon such other matters as may properly come
before the meeting.
MARK HERE MARK HERE
FOR ADDRESS [_] IF YOU PLAN [_]
CHANGE AND TO ATTEND
NOTE AT LEFT THE MEETING
Please sign exactly as name appears hereon. When signing as attorney,
executor, or in another representative capacity, please state title. If a
corporation, please sign in full corporate name by President or other
authorized person.
Signature: ___________________________ Date: _________________
