<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
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
CORNERSTONE IMAGING, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(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:
-----------------------------------------------------------------------
<PAGE>
CORNERSTONE IMAGING, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 4, 1997
------------------------
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
CORNERSTONE IMAGING, INC. (the "Company"), which will be held at the Company's
principal executive offices, 1710 Fortune Drive, San Jose, California, at 9:00
a.m. on June 4, 1997, for the following purposes:
1. To elect directors to serve for the ensuing year or until their
successors are elected;
2. To approve an amendment to the Company's 1993 Stock Option/Stock
Issuance Plan to increase the number of shares of Common Stock for
issuance thereunder by 400,000 shares to 2,474,852 shares;
3. To ratify the selection of Coopers & Lybrand L.L.P. as independent
public accountants for the Company for the fiscal year ending December
31, 1997; and
4. To act upon such other business as may properly come before the meeting
or at any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on April 15, 1997, as
the record date for determining those stockholders who will be entitled to vote
at the meeting. The stock transfer books will not be closed between the record
date and the date of the meeting.
Representation of at least a majority of all outstanding shares of Common
Stock of Cornerstone Imaging, Inc. is required to constitute a quorum.
Accordingly, it is important that your shares be represented at the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. You may revoke
your proxy at any time prior to the time it is voted. If you attend the Annual
Meeting and vote by ballot, your proxy will be revoked automatically and only
your vote at the Annual Meeting will be counted.
Sincerely,
[SIG]
Thomas T. van Overbeek
PRESIDENT AND CHIEF EXECUTIVE OFFICER
San Jose, California
April 29, 1997
<PAGE>
STOCKHOLDERS SHOULD READ THE ENTIRE PROXY STATEMENT
CAREFULLY PRIOR TO RETURNING THEIR PROXIES
------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS OF
CORNERSTONE IMAGING, INC.
TO BE HELD JUNE 4, 1997
------------------------
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of CORNERSTONE IMAGING, INC. ("Cornerstone" or the "Company")
of proxies to be voted at the Annual Meeting of Stockholders which will be held
at 9:00 a.m. on June 4, 1997, at the Company's principal executive offices, 1710
Fortune Drive, San Jose, California, or at any adjournments or postponements
thereof, for the purposes set forth in the accompanying Notice of Annual Meeting
of Stockholders. This Proxy Statement and the proxy card were first mailed to
stockholders on or about April 23, 1997.
VOTING RIGHTS AND SOLICITATION
The close of business on April 15, 1997, was the record date for
stockholders entitled to notice of and to vote at the Annual Meeting. As of that
date, Cornerstone had 7,554,506 shares of common stock, $.01 par value per share
(the "Common Stock"), issued and outstanding, exclusive of treasury stock. All
of the shares of the Company's Common Stock outstanding on the record date are
entitled to vote at the Annual Meeting, and stockholders of record entitled to
vote at the meeting will have one (1) vote for each share so held on the matters
to be voted upon.
Shares of the Company's Common Stock represented by proxies in the
accompanying form that are properly executed and returned to Cornerstone will be
voted at the Annual Meeting of Stockholders in accordance with the stockholders'
instructions contained therein. In the absence of contrary instructions, shares
represented by such proxies will be voted FOR the election of each of the
directors as described herein under "Proposal 1--Election of Directors," FOR
approval of the amendment to the Cornerstone 1993 Stock Option/Stock Issuance
Plan as described herein under "Proposal 2--Approval of Amendment to the 1993
Stock Option/Stock Issuance Plan," and FOR ratification of the selection of
accountants as described herein under "Proposal 3--Ratification of Selection of
Independent Public Accountants." Management does not know of any matters to be
presented at this Annual Meeting other than those set forth in this Proxy
Statement and in the Notice accompanying this Proxy Statement. If other matters
should properly come before the meeting, the proxy holders will vote on such
matters in accordance with their best judgment. Any stockholder has the right to
revoke his or her proxy at any time before it is voted.
The entire cost of soliciting proxies will be borne by Cornerstone. Proxies
will be solicited principally through the use of the mails, but, if deemed
desirable, may be solicited personally or by telephone, facsimile or special
letter by officers and regular Cornerstone employees for no additional
compensation. The Company has engaged The First National Bank of Boston ("Bank
of Boston") to provide routine advice and services for proxy distribution and
collection. Bank of Boston will receive approximately $5,000 from the Company
per annum for such advice and services. Arrangements may be made with brokerage
houses and other custodians, nominees and fiduciaries to send proxies and proxy
material to the beneficial owners of the Company's Common Stock, and such
persons may be reimbursed for their expenses.
VOTES REQUIRED
PROPOSAL 1. Directors are elected by a plurality of the affirmative votes
cast by those shares present in person, or represented by proxy, and entitled to
vote at the Annual Meeting. The six nominees for director receiving the highest
number of affirmative votes will be elected. Abstentions and broker non-votes
will not be counted toward a nominee's total. Stockholders may not cumulate
votes in the election of directors.
PROPOSAL 2. Approval of the adoption of the amendment to the Company's 1993
Stock Option/Stock Issuance Plan requires the affirmative vote of a majority of
those shares present in person, or represented by proxy, and entitled to vote at
the Annual Meeting. Abstentions will be treated as votes against the
<PAGE>
proposal. Broker non-votes will be treated as not entitled to vote on this
matter and thus will have no effect on the outcome of the vote.
PROPOSAL 3. Ratification of the appointment of Coopers & Lybrand L.L.P. as
the Company's independent public accountants for the fiscal year ending December
31, 1997, requires the affirmative vote of a majority of those shares present in
person, or represented by proxy, and cast either affirmatively or negatively at
the Annual Meeting. Abstentions and broker non-votes will not be counted as
having been voted on the proposal.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be considered at the 1998 Annual Meeting
of Stockholders must be received by Cornerstone no later than December 22, 1997.
The proposal must be mailed to the Company's principal executive offices, 1710
Fortune Drive, San Jose, California 95131, Attention: Corporate Secretary. Such
proposals may be included in next year's proxy statement if they comply with
certain rules and regulations promulgated by the Securities and Exchange
Commission.
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL 1:
ELECTION OF DIRECTORS
The nominees for the Board of Directors (the "Board") are set forth below.
The proxy holders intend to vote all proxies received by them in the
accompanying form for the nominees for directors listed below. In the event any
nominee is unable or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for any nominee who shall be designated by
the present Board of Directors to fill the vacancy. In the event that additional
persons are nominated for election as directors, the proxy holders intend to
vote all proxies received by them for the nominees listed below. As of the date
of this Proxy Statement, the Board of Directors is not aware of any nominee who
is unable or will decline to serve as a director. Ms. Margaret Fisher, formerly
a director of the Company, resigned from such position in November 1996, and
will not be seeking election as a director at the 1997 Annual Meeting.
NOMINEES TO BOARD OF DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR
NAME SINCE AGE
- ---------------------------- ----------- ---
<S> <C> <C>
James Crawford, III 1991 51
E. David Crockett 1989 60
Stephen J. Sheafor 1986 47
Bruce Silver 1995 48
Daniel D. Tompkins 1992 56
Thomas T. van Overbeek 1988 47
</TABLE>
Mr. van Overbeek joined Cornerstone as President and was elected to the
Board of Directors in 1988. He was elected Chief Executive Officer in July,
1990. Prior to joining Cornerstone, Mr. van Overbeek held various positions from
March, 1984, to May, 1988, at Western Digital Corporation-Paradise Systems, most
recently as President of Paradise Systems. Paradise Systems is a manufacturer of
video products for personal computers.
Dr. Sheafor co-founded the Company in January, 1986, and served as Secretary
from 1986 until June, 1993. From July, 1990 to October, 1995, he served as Vice
President of Engineering. He is currently a director of the Company and has
served on the Board since 1986, other than a short absence during 1989.
2
<PAGE>
Dr. Sheafor received his B.A. and M.S.E.E. degrees from Rice University. He
received a Ph.D. in electrical engineering from the University of Illinois and a
M.B.A. from the University of Santa Clara.
Dr. Crockett has been a director since March, 1989, and has been Chairman of
the Board since April, 1992. Since September, 1994, Dr. Crockett has been a
general partner of Aspen Ventures West Management Company, L.P., the general
partner of Aspen Ventures West II, L.P., a venture capital fund. Dr. Crockett
has also been a general partner of Aspen Ventures Partners, L.P. ("Aspen"), a
venture capital fund, since April, 1991. From December, 1987, to April, 1991, he
was a vice president of 3i Ventures, a venture capital fund and the predecessor
of Aspen. Dr. Crockett is a director of Herman Miller, Inc. and Metatec Corp.
Mr. Crawford has been a director since February, 1991. He is a general
partner of Frontenac Company, a venture capital fund that he joined in
September, 1992. From February, 1984, to August, 1992, Mr. Crawford was a
general partner of William Blair Venture Management Co. ("Blair Management
Co."), the general partner of William Blair Venture Partners III, a venture
capital fund. He was also a general partner of William Blair & Company, an
investment bank and brokerage affiliated with Blair Management Co., from
January, 1987, to August, 1992.
Mr. Silver has been a director since July, 1995. Since October, 1994, Mr.
Silver has been a principal of Bruce Silver Associates, a document imaging
consulting firm that he founded in 1994. Prior to founding Bruce Silver
Associates, Mr. Silver was a vice president of BIS Strategic Decisions from May,
1990, until October, 1994.
Mr. Tompkins has been a director since June, 1992. Since June, 1994, Mr.
Tompkins has been the managing general partner of DT Associates, a partnership
which is the managing general partner of Novus Ventures, a venture capital
partnership licensed as an S.B.I.P. by the Small Business Administration. From
March, 1988, until October, 1993, he was the managing general partner of DSC
Associates, which was the general partner of DSC Ventures, a venture capital
firm. Mr. Tompkins is a director of two private companies.
There are no family relationships among executive officers or directors of
the Company.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1996, the Board of Directors of
the Company held a total of five meetings. During this period, each director
attended or participated in at least 75% of the aggregate of (i) the total
number of meetings of the Board and (ii) the total number of meetings held by
all committees of the Board on which they were members.
The Company has an Audit Committee and a Compensation Committee of the Board
of Directors. There is no nominating committee or committee performing the
functions of such committee.
The Audit Committee meets with the Company's financial management and its
independent accountants at various times during each year and reviews internal
control conditions, audit plans and results, and financial reporting procedures.
This Committee, consisting of Dr. Crawford and Mr. Tompkins, held one meeting
during fiscal 1996.
The Compensation Committee reviews and approves the Company's compensation
arrangements for management. This Committee, consisting of Dr. Crockett and Mr.
Tompkins held two meeting during fiscal 1996.
DIRECTOR REMUNERATION
Non-employee members of the Board are each paid a fee of $3,000 per calendar
quarter and are reimbursed for all out-of-pocket costs incurred in connection
with their attendance at Board and committee meetings.
3
<PAGE>
Under the automatic option grant program in effect under the Company's 1993
Stock Option/Stock Issuance Plan, an individual who first becomes a non-employee
member of the Board will receive an automatic option grant for 10,000 shares of
the Company's Common Stock upon commencement of Board service, and each
individual with six or more months of Board service will receive an automatic
option grant for an additional 2,500 shares at each Annual Stockholders Meeting
at which he or she continues to serve as a non-employee Board member. See
Proposal 2.
No other compensation is paid to the non-employee members of the Board with
respect to their service on the Board.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
election of each of the above nominees.
PROPOSAL 2:
APPROVAL OF AMENDMENT TO THE 1993 STOCK OPTION/STOCK ISSUANCE PLAN
The stockholders are being asked to vote on a proposal to amend the 1993
Stock Option/Stock Issuance Plan (the "1993 Plan"). The 1993 Plan was amended by
the Board of Directors (the "Board") on February 14, 1997, to increase the
number of shares of Common Stock authorized for issuance thereunder by 400,000
shares to 2,474,852 shares. The 1993 Plan was adopted by the Board on August 11,
1993, to be effective on September 8, 1993 (the date of the Company's initial
public offering, the "Effective Date") to provide a means whereby employees,
officers, directors, consultants, and independent advisers of the Company or
parent or subsidiary corporations may be given an opportunity to purchase shares
of Common Stock. The 1993 Plan is the successor to the Employee Stock Option
Plan and Key Employee Stock Purchase Plan (the "Predecessor Plans"), and all
outstanding stock options under the Predecessor Plans have been incorporated
into the 1993 Plan. The Board believes the amendment is necessary in order to
provide the Company with a sufficient reserve of Common Stock for future option
grants needed to attract, employ, and retain employees, directors, and
consultants of outstanding ability.
The principal terms and provisions of the 1993 Plan as modified by the
recent amendment are summarized below. The summary, however, does not purport to
be a complete description of all the provisions of the 1993 Plan. Any
stockholder of the Company who wishes to obtain a copy of the actual plan
document may do so by written request to the Corporate Secretary at the
Company's principal executive offices in San Jose.
STRUCTURE
The 1993 Plan includes three separate equity incentive programs: (i) a
Discretionary Option Grant Program, under which eligible individuals may be
granted options to purchase shares of Common Stock at an exercise price not less
than 85% of their fair market value on the grant date, (ii) an Automatic Option
Grant Program, under which option grants will automatically be made to eligible
non-employee members of the Board to purchase shares of Common Stock at an
exercise price equal to their fair market value on the grant date, and (iii) a
Stock Issuance Program, under which eligible individuals may be issued shares of
Common Stock directly, through the immediate purchase of the shares or as a
bonus tied to the performance of services or the Company's attainment of
financial objectives, at a price not less than 85% of their fair market value on
the stock issuance date.
Options granted under the Discretionary Option Grant Program may be either
incentive stock options designed to meet the requirements of Section 422 of the
Internal Revenue Code (the "Code") or non-statutory options not intended to
satisfy such requirements. All grants under the Automatic Option Grant Program
will be non-statutory options.
4
<PAGE>
SECURITIES SUBJECT TO THE 1993 PLAN
2,474,852 shares of Common Stock have been reserved for issuance over the
ten-year term of the 1993 Plan, including the increase of 400,000 shares that is
the subject of this Proposal 2. The 1993 Plan has been amended on several
occasions, including an amendment to increase the share reserve by 500,000
shares, approved in 1996.
Shares of Common Stock will be drawn from either the Company's authorized
but unissued shares of Common Stock or from reacquired shares of Common Stock,
including shares repurchased by the Company on the open market. Should an option
(including outstanding options incorporated into the 1993 Plan from the
Predecessor Plans) expire or terminate for any reason prior to exercise in full
(including options canceled in accordance with the cancellation-regrant
provisions of the 1993 Plan), the shares subject to the portion of the option
not so exercised will be available for subsequent issuance under the 1993 Plan.
Shares subject to any option surrendered or canceled in accordance with the
stock appreciation right provisions of the 1993 Plan and all stock issuances
under the 1993 Plan, whether or not the shares are subsequently reacquired by
the Company pursuant to its repurchase rights under the 1993 Plan, will reduce
on a share-for-share basis the number of shares of Common Stock available for
subsequent issuance.
No individual participating in the 1993 Plan may be granted stock options
and direct stock issuances for more than 500,000 shares of Common Stock in the
aggregate over the term of the 1993 Plan, exclusive of option grants or stock
awards made prior to January 1, 1996.
PLAN ADMINISTRATION
The 1993 Plan (other than the Automatic Option Grant Program) will be
administered by a committee (the "Committee") comprised of two or more
non-employee Board members appointed by the Board. The Committee will have
discretion (subject to the provisions of the 1993 Plan) to authorize stock
option grants and direct stock issuances. Options may be granted to employees
and consultants who are not officers or directors subject to the short-swing
profit restrictions of the Federal securities laws by a secondary committee
comprised of one or more Board members. All grants under the Automatic Option
Grant Program will be made in compliance with the provisions of the program, and
no administrative discretion will be exercised by the Committee with respect to
the automatic grants.
The Committee (or Board or secondary committee to the extent acting as plan
administrator) has full authority (subject to the express provisions of the 1993
Plan) to determine the eligible individuals who are to receive grants under the
1993 Plan and stock awards under the Stock Issuance Program, the number of
shares to be covered by each granted option and stock award, the date or dates
on which each option is to become exercisable, the maximum term for which each
option is to remain outstanding, whether a granted option will be an incentive
stock option ("Incentive Stock Option") which satisfies the requirements of
section 422 of the Code or a non-statutory option not intended to meet such
requirements, and the remaining provisions of the option grant and stock
issuance.
ELIGIBILITY
Officers and other employees, non-employee members of the Board who do not
serve on the Committee, and independent consultants and advisors to the Company
(or any parent or subsidiary corporation) will be eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs. Non-employee members of
the Board are eligible to participate in the Automatic Option Grant Program.
As of March 31, 1997 it was estimated that five executive officers and
approximately 220 other employees were eligible to participate in the 1993 Plan
and four non-employee Board members were eligible to participate in the
Automatic Option Grant Program.
5
<PAGE>
VALUATION
The fair market value per share of Common Stock on any relevant date under
the 1993 Plan will be the closing price per share on that date on The Nasdaq
National Market ("Nasdaq"). If there is no reported closing price for such date,
then the closing price for the last previous date for which such quotation
exists will be determinative of fair market value. The fair market value of
Common Stock on March 31, 1997, as reported on Nasdaq, was $7.25 per share.
DISCRETIONARY OPTION GRANT PROGRAM
PRICE AND EXERCISABILITY
Under the Discretionary Option Grant Program, the exercise price per share
of Common Stock subject to an Incentive Stock Option will not be less than 100%
of the fair market value per share on the grant date. The exercise price per
share of the Common Stock subject to a non-statutory option may not be less than
85% of the fair market value of that security on the grant date, except that
grants intended to be exempt from the $1 million limitation on compensation
deductions will be made at 100% of fair market value. No option will have a
maximum term in excess of ten years measured from the grant date. The Committee
has discretion to grant options (i) that are immediately exercisable for vested
or unvested shares or (ii) that become exercisable in installments for vested
shares over the optionee's period of service.
The exercise price may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date. Options may also be exercised through
a same-day sale program, pursuant to which a designated brokerage firm is to
effect the immediate sale of the shares purchased under the option and pay over
to the Company, out of the sale proceeds on the settlement date, sufficient
funds to cover the exercise price for the purchased shares plus all applicable
withholding taxes. The Committee may also assist any optionee (including an
officer or director) in the exercise of his or her outstanding options by (a)
authorizing a Company loan to the optionee, or (b) permitting the optionee to
pay the exercise price in installments over a period of years. The terms and
conditions of any such loan or installment payment will be established by the
Committee in its sole discretion.
TERMINATION OF SERVICE
Any option held by the optionee at the time of cessation of service will
normally not remain exercisable beyond the limited period designated by the
Committee (not to exceed 36 months) at the time of the option grant. During that
period, the option will generally be exercisable only for the number of shares
in which the optionee is vested at the time of cessation of service. Under no
circumstances, however, may any option be exercised after the specified
expiration date of the option term. The Committee may extend the period
following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability of
such options in whole or in part at any time while the options remain
outstanding.
Any unvested shares of Common Stock will be subject to repurchase by the
Company, at the original exercise price paid per share, upon the optionee's
cessation of service prior to vesting in those shares. The Committee will have
complete discretion in establishing the vesting schedule for any such unvested
shares and will have full authority to cancel the Company's outstanding
repurchase rights with respect to those shares in whole or in part at any time.
The optionee does not have any stockholder rights with respect to the option
shares until the option is exercised and the exercise price is paid for the
purchased shares. Options are not assignable or transferable other than by will
or by the laws of inheritance following the optionee's death, and the option
may, during the optionee's lifetime, be exercised only by the optionee.
6
<PAGE>
INCENTIVE STOCK OPTIONS
Incentive Stock Options may only be granted to individuals who are employees
of the Company or its parent or subsidiary corporation. During the calendar
year, the aggregate fair market value (determined as of the grant date(s)) of
the Common Stock for which one or more options granted to any employee under the
1993 Plan (or any other option plan of the Company or its parent or subsidiary
corporations) may for the first time become exercisable as Incentive Stock
Options cannot exceed $100,000.
TANDEM STOCK APPRECIATION RIGHTS
The Committee is authorized to issue tandem stock appreciation rights in
connection with option grants under the Discretionary Option Grant Program.
Tandem stock appreciation rights provide the holders with the right to surrender
their options for an appreciation distribution from the Company equal in amount
to the excess of (i) the fair market value of the vested shares of Common Stock
subject to the surrendered option over (ii) the aggregate exercise price payable
for such vested shares. Such appreciation distribution may, in the discretion of
the Committee, be made in cash or in shares of Common Stock.
LIMITED STOCK APPRECIATION RIGHTS
Officers of the Company subject to the short-swing profit restrictions of
the Federal securities laws may be granted limited stock appreciation rights in
connection with their option grants, at the discretion of the Committee. Any
option with such a limited stock appreciation right in effect for at least six
months may be surrendered to the Company upon the successful completion of a
hostile tender offer for securities possessing more than 50% of the combined
voting power of the Company's outstanding securities. In return for the
surrendered option, the officer will be entitled to a cash distribution from the
Company in an amount per vested share of Common Stock subject to the surrendered
option equal to the excess of (i) the price per share of Common Stock paid in
such hostile tender offer over (ii) the option exercise price.
The Committee will have the authority to effect, on one or more separate
occasions, the cancellation of outstanding options under the Discretionary
Option Grant Program (including outstanding options incorporated from the
Predecessor Plans) and to issue replacement options with an exercise price based
on the market price of Common Stock at the time of the new grant.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who was serving as
a non-employee Board member on November 5, 1993, was automatically granted a
non-statutory option to purchase 10,000 shares of Common Stock. In addition,
each individual who first becomes a non-employee Board member after November 5,
1993, whether through election by the Company's stockholders or appointment by
the Board, will be automatically granted at the time of such election or
appointment a non-statutory option to purchase 10,000 shares of Common Stock. On
the date of each Annual Stockholders Meeting, beginning with the 1995 Annual
Meeting, each individual who is then serving as a non-employee Board member,
whether or not standing for re-election at that meeting, will automatically be
granted a non-statutory option to purchase 2,500 shares of Common Stock,
provided such individual has served as a Board member for at least six months.
No non-employee Board member who has previously been in the employ of the
Company or any parent or subsidiary corporation will be eligible to receive an
automatic option grant.
The exercise price per share of the Common Stock subject to an automatic
option grant will equal the fair market value per share of Common Stock on the
automatic grant date. Each option will have a term of ten years measured from
the grant date. Each 10,000-share option will become exercisable for the option
shares in a series of four equal annual installments over the first four years
of the optionee's period of Board service. Each 2,500-share option will become
exercisable for the option shares on the fourth anniversary of the automatic
grant date provided the optionee remains in Board service. The option will
7
<PAGE>
remain exercisable for a three-month period following the optionee's cessation
of Board service for any reason other than death and for a twelve-month period
following death. In no event, however, may the option be exercised after the
expiration date of the option term. During the applicable exercise period, the
option may not be exercised for more than the number of shares (if any) in which
the optionee is vested at the time of the optionee's cessation of Board service.
However, should the optionee die while serving as a Board member and holding one
or more automatic option grants that had been outstanding for at least one year,
then each such option will become fully vested and remain exercisable for a
twelve-month period following such optionee's death and may be exercised by the
personal representative of the optionee's estate or the person to whom the grant
is transferred by the optionee's will or the laws of inheritance.
Each automatic option grant will become exercisable in full upon the
occurrence of certain changes in control or ownership of the Company, as
explained in more detail below in the subsection entitled Option/ Vesting
Acceleration. Upon the successful completion of a hostile tender offer for
securities possessing more than 50% of the combined voting power of the
Company's outstanding securities, each automatic option grant that has been
outstanding for at least six months may be surrendered to the Company for a cash
distribution per surrendered option share in an amount equal to the excess of
(i) the price per share of Common Stock paid in such tender offer over (ii) the
exercise price payable for such share.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share not
less than 85% of the fair market value, payable in cash or through a promissory
note payable to the Company, or as a bonus for past services. Shares issued
under the Stock Issuance Program may either be vested upon issuance or subject
to a vesting schedule tied to the participant's period of service or the
attainment of designated performance goals. Unvested shares will be subject to
certain transfer restrictions and to repurchase or cancellation by the Company
upon either the participant s cessation of service prior to vesting in those
shares or the non-attainment of the applicable performance goals. The Committee
has discretion to accelerate the vesting of any issued shares in whole or in
part at any time. Individuals holding shares under the Stock Issuance Program
will have full stockholder rights with respect to those shares, whether the
shares are vested or unvested.
GENERAL PROVISIONS
OPTION/VESTING ACCELERATION
Outstanding options under the 1993 Plan will become immediately exercisable
in full, and unvested shares issued under the 1993 Plan will become fully
vested, in the event of certain changes in the ownership or control of the
Company. The transactions that will trigger such option/vesting acceleration are
as follows:
CORPORATE TRANSACTION: any one of the following stockholder-approved
transactions:
- a merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated,
- the sale, transfer or other disposition of all or substantially all of the
Company's assets in complete liquidation or dissolution of the Company, or
- any reverse merger in which the Company is the surviving entity but in
which securities possessing more than 50% of the total combined voting
power of the Company's outstanding securities are transferred to a person
or persons different from those who held such securities immediately prior
to the merger.
8
<PAGE>
CHANGE IN CONTROL: a change in ownership or control of the Company effected
through either of the following transactions:
- any person or related group of persons (other than the Company or a person
that directly or indirectly controls, is controlled by, or is under common
control with, the Company) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Act of 1934, as amended) of securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders, which the Board does not recommend such stockholders to
accept; or
- a change in the composition of the Board over a period of 36 consecutive
months or less such that a majority of the Board members (rounded up to
the next whole number) ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who either
(i) have been Board members continuously since the beginning of such
period or (ii) have been elected or nominated for election as Board
members during such period by at least a majority of the Board members
described in clause (i) who were still in office at the time such election
or nomination was approved by the Board.
Immediately following the consummation of a Corporate Transaction, all
outstanding options under the 1993 Plan will, to the extent not previously
exercised by the optionees or assumed by the successor corporation (or its
parent company), terminate and cease to be exercisable. Options under the 1993
Plan that are accelerated in connection with a Change in Control will remain so
exercisable until the expiration or sooner termination of the option term.
Certain outstanding stock options under the Predecessor Plans that were
incorporated into the 1993 Plan do not contain any automatic acceleration
provisions that would allow the option to become immediately exercisable upon a
Corporate Transaction or change in control of the Company, and certain other
such incorporated options will accelerate on an acquisition subject to certain
limitations. The Committee has discretion to extend the automatic acceleration
provisions of the 1993 Plan to any or all stock options incorporated from the
Predecessor Plans.
The acceleration of options or vesting of shares in the event of a Corporate
Transaction or Change in Control may be seen as an anti-takeover provision and
may have the effect of discouraging a merger proposal, a takeover attempt or
other efforts to gain control of the Company.
CHANGES IN CAPITALIZATION
In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the maximum number and/or class of securities issuable under the
1993 Plan, (ii) the maximum number and/or class of securities for which any one
individual may be granted stock options and direct share issuances in the
aggregate over the term of the 1993 Plan, (iii) the number and/or class of
securities and price per share in effect under each outstanding option,
including options from the Predecessor Plans incorporated into the 1993 Plan
and, (iv) the number and/or class of securities for which automatic option
grants will subsequently be made under the Automatic Option Grant Program per
non-employee Board member.
SPECIAL TAX ELECTION
The Committee may provide one or more holders of non-statutory options or
unvested shares under the Discretionary Option Grant or Stock Issuance Program
with the right to have the Company withhold a portion of the shares of Common
Stock otherwise issuable to such individuals in satisfaction of the
9
<PAGE>
Federal, state and local income and employment tax liability incurred by such
individuals in connection with the exercise of those options or the vesting of
the shares. Alternatively, the Committee may allow such individuals to deliver
previously acquired shares of Common Stock in payment of such tax liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1993 Plan in any or all respects
whatsoever. However, no such amendment may adversely affect the rights of
existing optionees or holders of unvested shares without their consent. In
addition, the Board may not, without the approval of the Company's stockholders,
(i) materially increase the maximum number of shares issuable under the 1993
Plan, (except in connection with certain changes in the Company s capital
structure), (ii) materially modify the eligibility requirements for option
grants or share issuances or (iii) otherwise materially increase the benefits
accruing to participants under the 1993 Plan.
Unless sooner terminated by the Board, the 1993 Plan will in all events
terminate on August 10, 2003. Each stock option or unvested share issuance
outstanding at the time of such termination will remain in force in accordance
with the provisions of the instruments evidencing such grant or issuance.
As of March 31, 1997, options covering 1,698,487 shares were outstanding
under the 1993 Plan, 252,284 shares remained available for future option grant
assuming approval of Proposal 2 and 491,006 shares have been issued under the
1993 Plan. The expiration dates for all such options range from April 4, 1997 to
March 24, 2007.
NEW PLAN BENEFITS
Because the 1993 Plan is discretionary, benefits to be received by
individual optionees are not determinable. However, each of Messrs. Crawford,
Silver, and Tompkins and Dr. Crockett will receive an option grant to purchase
2,500 shares under the Automatic Option Grant Program on the date of the Annual
Meeting with an exercise price per share equal to the closing price per share of
Common Stock on the date of the Annual Meeting.
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS GRANTED UNDER THE 1993 PLAN
Options granted under the 1993 Plan may be either incentive stock options
that satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options that are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
INCENTIVE STOCK OPTIONS. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. However, the amount by which the fair market
value (at the time of exercise) of the purchases shares exceeds the exercise
price paid for those shares will constitute an adjustment to income for purposes
of the alternative minimum tax. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of disposition. For Federal tax purposes, dispositions are divided into
two categories: (i) qualifying and (ii) disqualifying. The optionee will make a
qualifying disposition of the purchased shares if the sale or other disposition
of such shares is made after the optionee has held the shares for more than two
(2) years after the grant date of the option and more than one (1) year after
the exercise date. If the optionee fails to satisfy either of these two holding
periods prior to the sale or other disposition of the purchased shares, then a
disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying disposition
of the shares, then generally the excess of (i) the fair market value of those
shares on the date the option was exercised over (ii) the exercise price paid
for the shares will be taxable as ordinary income. Any additional gain
recognized upon the disposition will be a capital gain.
10
<PAGE>
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction for the taxable
year in which such disposition occurs equal to the amount of ordinary income
recognized by the optionee. In no other instance will the Company be allowed a
deduction with respect to the optionee s disposition of the purchased shares.
The Company anticipates that any compensation deemed paid by the Company upon
one or more disqualifying dispositions of incentive stock option shares by the
Company's executive officers will remain deductible by the Company and will not
have to be taken into account for purposes of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain
executive officers of the Company.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income in the year in which the option is exercised equal to the excess
of the fair market value of the purchased shares on the exercise date over the
exercise price paid for the shares, and the optionee (if an employee or former
employee) will be required to satisfy the tax withholding requirements
applicable to such income.
Special provisions of the Internal Revenue Code apply to the acquisition of
Common Stock under a non-statutory option if the purchased shares are subject to
repurchase by the Company. These special provisions may be summarized as
follows:
(i) If the shares acquired upon exercise of the non-statutory option are
subject to repurchase by the Company at the original exercise price in the
event of the optionee's termination of service prior to vesting in such
shares, the optionee will not recognize any taxable income at the time of
exercise but will have to report as ordinary income, as and when the
Company's repurchase right lapses, an amount equal to the excess of (a) the
fair market value of the shares on the date such repurchase right lapses
with respect to such shares over (b) the exercise price paid for the shares.
(ii) The optionee may, however, elect under Section 83(b) of the
Internal Revenue Code to include as ordinary income in the year of exercise
of the non-statutory option an amount equal to the excess of (a) the fair
market value of the purchased shares on the exercise date (determined as if
the shares were not subject to the Company's repurchase right) over (b) the
exercise price paid for such shares. If the Section 83(b) election is made,
the optionee will not recognize any additional income as and when the
repurchase right lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee. The Company anticipates that the compensation deemed paid by the
Company upon the exercise of non-statutory options with exercise prices equal to
the fair market value of the option shares on the grant date will remain
deductible by the Company and will not have to be taken into account for
purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company.
STOCK APPRECIATION RIGHTS. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. The Company will be entitled to a business
expense deduction equal to the appreciation distribution for the taxable year of
the Company in which the ordinary income is recognized by the optionee.
STOCK ISSUANCES. The tax principles applicable to direct stock issuances
under the 1993 Plan will be substantially the same as those summarized above for
the exercise of nonstatutory option grants.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote on Proposal 2 at the 1997
Annual Meeting is required for approval of the
11
<PAGE>
amendment to the 1993 Plan. SHOULD SUCH STOCKHOLDER APPROVAL NOT BE OBTAINED,
THEN THE AMENDMENT TO THE 1993 PLAN WILL NOT BECOME EFFECTIVE, AND ALL
OUTSTANDING OPTIONS GRANTED ON THE BASIS OF THE 400,000 SHARE INCREASE WILL
TERMINATE WITHOUT EVER BECOMING EXERCISABLE FOR ANY OF THE OPTION SHARES.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
approval of the amendment to the 1993 Plan.
PROPOSAL 3:
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Coopers & Lybrand L.L.P. served as independent public
accountants for the Company for the fiscal year ended December 31, 1996. The
Board of Directors desires the firm to continue in this capacity for the current
fiscal year. Accordingly, a resolution will be presented to the meeting to
ratify the selection of Coopers & Lybrand L.L.P. by the Board of Directors as
independent public accountants to audit the accounts and records of the Company
for the fiscal year ending December 31, 1997, and to perform other appropriate
services. In the event that stockholders fail to ratify the selection of Coopers
& Lybrand L.L.P., the Board of Directors would reconsider such selection. Even
if the selection is ratified, the Board of Directors in its discretion may
direct the appointment of a different independent auditing firm at any time
during the year if the Board of Directors believes that such a change would be
in the best interests of the Company and its stockholders.
A representative of Coopers & Lybrand L.L.P. will be present at the Annual
Meeting to respond to appropriate questions and to make a statement if such
representative desires to do so.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
ratification of the selection of Coopers & Lybrand L.L.P. to serve as the
Company's independent auditors for the fiscal year ending December 31, 1997.
12
<PAGE>
OWNERSHIP OF SECURITIES
MANAGEMENT AND DIRECTORS
The following table sets forth the beneficial ownership of the Company's
Common Stock as of March 31, 1997, by each director, each executive officer
named in the Summary Compensation Table in the "Executive Compensation" section
below, and all directors and executive officers as a group. All shares are
subject to the named person's sole voting and investment power except where
otherwise indicated.
<TABLE>
<CAPTION>
APPROXIMATE
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME OWNED OWNED(1)
- --------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
James Crawford III (2)................................................................. 10,725 *
E. David Crockett (3).................................................................. 31,206 *
Stephen J. Sheafor (4)................................................................. 201,652 2.66%
Bruce Silver (5)....................................................................... 4,600 *
Daniel D. Tompkins (6)................................................................. 51,300 *
Thomas T. van Overbeek (7)............................................................. 255,374 3.35
John Finegan (8)....................................................................... 62,763 *
Johannes P. Schmidt (9)................................................................ 62,665 *
Kenneth E. Westrick (10)............................................................... 117,351 1.55
George Yule (11)....................................................................... 31,573 *
All current directors and executive officers as a group (14 persons)(12)............... 893,007 11.77
</TABLE>
- ------------------------
* Less than one percent of the outstanding Common Stock.
(1) Percentage of beneficial ownership is calculated assuming 7,554,256 shares
of Common Stock were outstanding on March 31, 1997. This percentage also
includes Common Stock of which such individual or entity has the right to
acquire beneficial ownership within sixty days of March 31, 1997, including
but not limited to the exercise of an option; however, such Common Stock
shall not be deemed outstanding for the purpose of computing the percentage
owned by any other individual or entity. Such calculation is required by
General Rule 13d-3(1)(i) under the Securities Exchange Act of 1934.
(2) Includes 7,500 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 31,
1997.
(3) Includes 7,500 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 31,
1997. Also includes 15,644 shares owned by Aspen Venture Partners, L.P. Dr.
Crockett, a director of the Company, is a general partner of Aspen Venture
Partners, which is the general partner of Aspen Venture Partners, L.P. Dr.
Crockett disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest in such shares arising from his interest in Aspen
Venture Partners, L.P.
(4) Includes 30,000 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 31,
1997, and 1,665 shares registered in the name of Cindy J. Lindsay, Mr.
Sheafor's wife. Also includes 12,000 shares held by Mr. Sheafor as custodian
for the registered owners, and for which Mr. Sheafor disclaims beneficial
ownership.
(5) Includes 2,500 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 31,
1997
(6) Includes 7,500 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 31,
1997.
13
<PAGE>
(7) Includes 65,625 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 31,
1997.
(8) Includes 25,780 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 31,
1997.
(9) Includes 36,250 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 31,
1997.
(10) Includes 25,781 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 31,
1997.
(11) Includes 11,718 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 31,
1997.
(12) Includes 266,637 shares purchasable under stock options that are currently
exercisable or that will become exercisable within sixty days of March 31,
1997.
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the only persons,
other than directors and executive officers, who beneficially owned (to the
Company's knowledge) more than 5% of the Common Stock of Cornerstone as of March
31, 1997.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Kopp Investment Advisers................................................................... 1,865,523 24.69%
6600 France Avenue South, Suite 672
Edina, Minnesota 55435
</TABLE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission (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 Section 16(a)
reports they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that there was compliance for the fiscal year ended December
31, 1996, with all Section 16(a) filing requirements applicable to the Company's
officers, directors and greater than ten percent beneficial owners.
14
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and each of the Company's four other highest-paid
executive officers (the "Named Executives") (as determined as of the end of the
last fiscal year) for services rendered in all capacities to the Company and its
subsidiaries for the three fiscal years ended December 31, 1996. No executive
officers who would have otherwise been includible in such table on the basis of
salary and bonus earned for the 1996 fiscal year have resigned or terminated
employment during the fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -----------
----------------------------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY OTHER ANNUAL UNDERLYING COMPENSATION
POSITION FISCAL YEAR ($)(1) BONUS($) COMPENSATION($)(2) OPTIONS(#) ($)(3)
- -------------------------- ----------- --------- ----------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas T. van Overbeek ... 1996 250,000 50,000 0 100,000 1,000
President, Chief 1995 212,500 80,000 0 50,000 1,000
Executive Officer and 1994 198,005 80,000 0 0 1,000
Director
John Finegan ............. 1996 145,000 40,000 0 50,000 1,000
Chief Financial Officer 1995 131,125 59,000 0 0 1,000
and Secretary 1994 126,500 54,000 0 25,000 1,000
Johannes P. Schmidt 1996 145,000 35,000 0 115,000 1,000
(4) .................... 1995 119,167 50,000 0 25,000 1,000
Vice President, 1994 50,000 35,000 0 40,000 1,000
Operations
Kenneth E. Westrick ...... 1996 150,000 35,000 0 70,000 1,000
Vice President and 1995 140,333 54,000 0 0 1,000
General Manager of 1994 122,600 54,000 57,407(5) 40,000 1,000
Display Products
George Yule .............. 1996 140,000 40,000 0 30,000 1,000
Vice President, 1995 127,700 56,350 0 15,000 1,000
Operations 1994 123,600 49,000 0 15,000 1,000
</TABLE>
- ------------------------
(1) Includes salary deferred under the Company's 401(k) Plan.
(2) In accordance with Commission rules, perquisites constituting in the
aggregate less than $50,000 or 10% of total salary and bonus are not shown.
(3) All other compensation includes a matching contribution to the Company's
401(k) Plan.
(4) Mr. Schmidt joined the Company on July 5, 1994.
(5) Other annual compensation includes the amount paid to various tax
authorities by the Company for tax equalization in connection with Mr.
Westrick's employment overseas.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options made under the Company s 1993 Stock Option/Stock Issuance Plan for the
1996 fiscal year to the named executive officers.
15
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
- --------------------------------------------------------------------------------- RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------
NAME GRANTED(#)(1) FISCAL YEAR SHARE(3) DATE 5%($)(4) 10%($)(4)
- --------------------------- ----------- ------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas T. van Overbeek..... 100,000 7.42% $ 8.625 4/30/06 $ 542,422 $1,374,602
John Finegan............... 50,000 3.71 8.625 4/30/06 271,210 687,301
Johannes P. Schmidt........ 115,000 8.54 8.625 4/30/06 623,785 1,580,793
Kenneth E. Westrick........ 70,000 5.20 8.625 4/30/06 379,694 962,222
George Yule................ 30,000 2.22 8.625 4/30/06 162,726 412,380
</TABLE>
- ------------------------
(1) The options listed in the table were granted under the 1993 Stock
Option/Stock Issuance Plan. For a complete description of the 1993 Plan, see
Proposal 2.
(2) All of the options granted become exercisable as follows: 25% upon the
completion of each of the first and second years of service measured from
the vesting date, and an additional 6.25% upon the completion of each full
calendar quarter elapsed thereafter, until the option is fully vested upon
the completion of the fourth year of service from the vesting date. The
options were granted and began vesting on May 1, 1996. Each option will
become exercisable and then terminate in the event the Company is acquired
by a merger or in the event of a liquidation or acquisition of the Company,
unless the option is assumed by the acquiring entity. Each option has a
maximum term of 10 years, subject to earlier termination in the event of the
optionee's cessation of service with the Company.
(3) The exercise price of each option may be paid in cash, in shares of Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares and the
federal and state tax liability incurred in connection with such exercise.
The optionee may be permitted, subject to the approval of the plan
administrator, to apply a portion of the shares purchased under the option
(or to deliver existing shares of Common Stock) in satisfaction of such tax
liability. The plan administrator also has the authority to reprice
outstanding options through the cancellation of those options and the grant
of replacement options with an exercise price equal to the fair market value
of the option shares on the regrant date.
(4) The five percent (5%) and ten percent (10%) assumed annual rates of
compounded stock price appreciation are mandated by the rules of the
Commission. 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 10-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 does in fact appreciate over the option term, no value will be
realized from the option grants.
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the executive
officers named on the Summary Compensation Table concerning the exercise of
options during the 1996 fiscal year and unexercised options held as of the end
of the 1996 fiscal year.
16
<PAGE>
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
OPTIONS AT FISCAL AT FISCAL
SHARES YEAR-END(#)(3) YEAR-END($)(2)(3)
ACQUIRED ON VALUE ---------------------------- --------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE(4) UNEXERCISABLE EXERCISABLE(4) UNEXERCISABLE
- ---------------------------- ----------- ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas T. van Overbeek...... 61,750 $ 882,253 50,000 75,000 $ 36,094 $ 5,156
John Finegan................ 782 5,552 14,843 47,657 0 0
Johannes P. Schmidt......... 0 0 15,625 99,375 0 0
Kenneth E. Westrick......... 7,421 41,929 17,031 55,313 13,244 0
George Yule................. 16,000 116,475 10,780 24,220 8,014 6,236
</TABLE>
- ------------------------
(1) Based on the fair market value of the shares on the exercise date less the
exercise price paid for the shares.
(2) Based on the fair market value of the shares on the last day of the fiscal
year ($7.25 per share) less the exercise price payable for such shares.
(3) Prices and shares restated to account for a 1 to 4 split in the Company's
Common Stock on September 3, 1993.
(4) Includes shares that, upon exercise, are subject to repurchase by the
Company.
COMPENSATION COMMITTEE REPORT ON 1996 CANCELLATION AND REGRANT OF OPTIONS
On May 1, 1996, the Compensation Committee approved the cancellation and
regrant of all outstanding options with an exercise price above $8.625, the then
fair market value of the Company's Common Stock. Each optionee had the
opportunity to elect to retain his or her old options (the "Prior Option") or
accept a new option with an exercise price of $8.625 (the "Option Shares"). Each
new option has a maximum term of ten years and on August 1, 1996 becomes
exercisable for the greater of (i) 6.25% of the Option Shares or (ii) 50% of the
number of Option Shares vested under the Prior Option. With respect to the
remaining shares, they are to vest in successive quarterly installments of 6.25%
of the Option Shares, assuming continued employment with the Company or one of
its subsidiaries. Out of 192 optionees holding old options, all optionees,
including all executive officers, agreed to the cancellation of their old
options in exchange for new options. Automatic option grants to the non-employee
directors were not eligible for participation in the cancellation-regrant
program.
The Committee approved the cancellation-regrant program because it believes
that equity interests are a significant factor in the Company's ability to
attract and retain key employees and consultants that are critical to the
Company's long-term success. As a result of the decrease in the fair market
value of the Common Stock, the Committee believed that the Company's ability to
retain existing employees and to attract talented individuals in the future
would be impaired. Accordingly, the Committee approved the cancellation-regrant
program as a means of ensuring that optionees have a meaningful equity interest
in the Company.
Compensation Committee
Mr. E. David Crockett, Chairman
Mr. Daniel D. Tompkins
17
<PAGE>
TEN-YEAR HISTORICAL INFORMATION REGARDING REPRICING, REPLACEMENT OR CANCELLATION
AND REGRANT OF OPTIONS
The following table sets forth certain information concerning the repricing,
replacement or cancellation and regrant of options, within the last ten fiscal
years, of options held by the Named Executives:
10-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
OPTION
NUMBER OF TERM
SECURITIES MARKET PRICE EXERCISE REMAINING
UNDERLYING OF STOCK AT PRICE AT TIME AT DATE
OPTIONS TIME OF OF REPRICING NEW OF
REPRICED OR REPRICING OR OR EXERCISE REPRICING
AMENDED AMENDMENT AMENDMENT PRICE OR
NAME DATE (#) ($) ($) ($) AMENDMENT
- ------------------------------ --------- ------------- ------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas T. van Overbeek........ 5/1/96 50,000 8.625 13.50 8.625 7.5 years
50,000 8.625 13.50 8.625 9.0
John Finegan.................. 5/1/96 10,000 8.625 15.25 8.625 8.5
15,000 8.625 20.25 8.625 8.3
Johannes P. Schmidt........... 5/1/96 40,000 8.625 15.00 8.625 8.9
25,000 8.625 13.75 8.625 8.6
Kenneth E. Westrick........... 5/1/96 10,000 8.625 19.75 8.625 7.8
30,000 8.625 15.25 8.625 8.5
30,000 8.625 13.50 8.625 9.0
George Yule................... 5/1/96 15,000 8.625 18.50 8.625 7.9
15,000 8.625 13.50 8.625 9.0
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is a former or current officer or
employee of the Company or any of its subsidiaries.
REPORT OF THE COMPENSATION COMMITTEE
The following is the Report of the Compensation Committee of the Board of
Directors, describing the compensation policies and rationale applicable to the
Company's executive officers with respect to the compensation paid to such
executive officers for the year ended December 31, 1996.
PURPOSE OF THE COMPENSATION COMMITTEE
The Committee is responsible for determining compensation levels for the
executive officers for each fiscal year based upon a consistent set of policies
and procedures.
COMMITTEE STRUCTURE
The Committee is made up of two independent, non-employee members of the
Board of Directors who meet during the first quarter of each fiscal year to set
executive officer salaries, and as needed thereafter. No prior or current member
of the Committee has any interlocking relationships as defined by the
Commission.
OBJECTIVES OF THE COMPENSATION PROGRAM
The objectives of the compensation program are: (1) to provide a means for
the Company to attract and retain high-quality executives; (2) to tie executive
compensation directly to the Company's business
18
<PAGE>
and performance objectives; and (3) to reward outstanding individual performance
that contributes to the long-term success of the Company.
ELEMENTS OF COMPENSATION
Each executive officer's compensation package is comprised of three
elements: (1) base compensation, which reflects individual performance and is
designed primarily to be competitive with salary levels in a comparative group,
(2) annual bonus plan compensation payable in cash and tied to the achievement
of financial performance goals established by the Committee, and (3) long-term
stock-based incentive compensation which emphasizes a focus on Company growth
and increased stockholder value.
BASE COMPENSATION
The base compensation for each executive officer is determined using an
analysis of competitive salary ranges provided by an independent public
accounting firm which focuses on companies similar in size and business who
compete with Cornerstone in the recruitment and retention of senior personnel.
The Committee believes that the Company's most direct competitors for executive
talent are not necessarily all of the companies that the Company would use in a
comparison of stockholder returns. Therefore, the compensation comparison group
is not the same as the industry group in the index used in the PERFORMANCE
GRAPH, below.
The Committee considers specifically the following factors in determining
base compensation: (1) a comparison of the Company's growth and financial
performance relative to the performance of competitors, (2) salary levels for
comparable positions in the compensation comparison group and (3) each
executive's responsibility level and financial and strategic objectives for the
subsequent year. The Committee believes that the current base compensation for
executive officers is at the low end of the companies in the compensation
comparison group with which the Company competes for talent.
ANNUAL BONUS PLAN COMPENSATION
The Company's annual bonus plan provides for incentive bonus compensation to
all officers and a number of key employees based on the achievement of specific
corporate performance targets established at the beginning of the fiscal year
relating to revenues and operating profits. For fiscal year 1996, a bonus range
was established such that achievement of planned revenue and operating profits
would result in a specified bonus level. For performance levels over plan, the
bonus compensation amount would increase proportionately. For fiscal year 1996,
revenue and operating profits were significantly below established targets. The
Committee concluded that based on the Company's achievement of profitability in
the third and fourth quarters of fiscal 1996, after substantial first quarter
losses, the executive officers' performances warrant the bonus compensation for
1996 as reflected in the SUMMARY COMPENSATION TABLE above.
The Company's incentive bonus compensation structure was reviewed and
revised for fiscal year 1996 to include specific corporate performance targets
relating to revenues and net profits as well as specific individual performance
objectives.
LONG-TERM STOCK-BASED INCENTIVE COMPENSATION
Long-term incentives are provided through stock option grants. The grants
are designed to align the interests of each executive officer with those of the
stockholders and provide each individual with a significant incentive to manage
the Company from the perspective of an owner with an equity stake in the
business. Each grant generally allows the officer to acquire shares of the
Company's common stock at a fixed price per share (the market price on the grant
date) over a specified period of time (up to 10 years). Each option generally
becomes exercisable in installments over a four year period, contingent upon the
executive officer's continued employment with the Company. Accordingly, the
option will provide a return to the executive officer only if the executive
officer remains employed by the Company during the four year
19
<PAGE>
vesting period, and then only if the market price of the shares appreciates over
the option term. The size of the option grant to each executive officer, based
on the aggregate exercise price, generally is set to a multiple of salary that
the Committee deems appropriate in order to create a meaningful opportunity for
stock ownership based upon the individual's current position with the Company,
but also takes into account comparable awards to individuals in similar
positions in the industry as reflected in external surveys, the individual's
potential for future responsibility and promotion over the option term and the
individual's personal performance in recent periods. The Committee also takes
into account the number of vested and unvested options held by the executive
officer in order to maintain an appropriate amount of equity incentive for that
individual. The weight of these various factors will vary over time and with
respect to each individual. However, the Committee does not adhere to any
specific guidelines as to the relative option holdings of the Company's
executive officers.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Compensation for the Chief Executive Officer is determined by a process
similar to that discussed above for executive officers. Mr. van Overbeek's base
compensation for fiscal 1996 was established by the Board of Directors in 1994
and was increased by the Committee effective September 30, 1995. The Committee
established Mr. van Overbeek's base salary adjustment based on an evaluation of
his personal performance and the objective of having his base salary keep pace
with salaries being paid to similarly situated chief executive officers.
Further, the Committee intends base salary to provide Mr. van Overbeek with a
level of stability and certainty each year and intends that this particular
component of compensation not be affected to any significant degree by Company
performance factors.
The remaining components of Mr. van Overbeek's 1996 compensation, however,
were dependent upon financial performance and provided no dollar guarantees. The
incentive bonus compensation for Mr. van Overbeek for the 1996 fiscal year was
initially dependent on the achievements of specific corporate performance
targets established at the beginning of the fiscal year, as set forth above.
While revenue and operating profits were significantly below established
targets, upon discretionary review by the Compensation Committee, Mr. van
Overbeek was awarded his bonus listed in the SUMMARY COMPENSATION TABLE above,
based on the Company's achievement of profitability in the third and fourth
quarters of fiscal 1996, after substantial losses in the first quarter.
DEDUCTION LIMIT FOR EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code ("Section 162(m)"), enacted in
1993, limits federal income tax deductions for compensation paid to the Chief
Executive Officer and the four other most highly compensated officers of a
public company to $1 million per year, but contains an exception for
performance-based compensation that satisfies certain conditions. The Company
believes that its options satisfy such conditions.
Because it is unlikely that other compensation payable to any Company
executive would exceed the deduction limit in the near future, the Committee has
not yet considered whether it will seek to qualify compensation other than
options for the performance-based exception or will prohibit the payment of
compensation that would exceed the deduction limit. However, in approving the
amount and form of compensation for Company executives, the Committee will
continue to consider all elements of cost to the Company of providing that
compensation.
Submitted by the Compensation Committee of the Company's Board of Directors:
E. DAVID CROCKETT, CHAIRMAN
DANIEL D. TOMPKINS
20
<PAGE>
COMPARISON OF STOCKHOLDER RETURN
This graph reflects a comparison of the cumulative total return (change in
stock price plus reinvested dividends) of the Company's Common Stock price with
the cumulative total returns of the S&P Midcap 400 Index and the S&P High
Technology Composite Index.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CORNERSTONE IMAGING, INC. S&P MIDCAP 400 S&P HIGH TECH COMPOSITE
<S> <C> <C> <C>
9/9/93 $100 $100 $100
Dec-93 $134 $107 $104
Dec-94 $139 $100 $125
Dec-95 $132 $131 $180
Dec-96 $66 $157 $255
</TABLE>
- ------------------------
(1) The graph covers the period from September 9, 1993, the date the Company's
initial public offering commenced, through the fiscal year ended December
31, 1996.
(2) The graph assumes that $100 was invested on September 9, 1993, in the
Company's Common Stock and on August 31, 1993, in each index and that all
dividends were reinvested. No cash dividends have been declared on the
Company's Common Stock.
(3) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
(4) The performance graph and all of the material in the Compensation Committee
Report is not deemed filed with the Securities and Exchange Commission, and
is not incorporated by reference to any filing of the Company under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
whether made before or after the date of this Proxy Statement and
irrespective of any general incorporation language in any such filing.
21
<PAGE>
CERTAIN TRANSACTIONS
Since January 1, 1996, the Company has not engaged in any transaction or had
any relationship with any executive officer or director that is required to be
disclosed pursuant to Item 404 of Regulation S-K.
ANNUAL REPORT
A copy of the Annual Report of the Company for the fiscal year ended
December 31, 1996, has been mailed concurrently with this Proxy Statement to all
stockholders entitled to notice of and to vote at the Annual Meeting. Except for
"Executive Officers" from Part I of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, the Annual Report is not incorporated
into this Proxy Statement and is not considered proxy solicitation material.
FORM 10-K
The Company filed an Annual Report on Form 10-K with the Commission.
Stockholders may obtain a copy of this report, without charge, by writing to Mr.
John Finegan, Secretary, at the Company's executive offices at 1710 Fortune
Drive, San Jose, California 95131.
OTHER MATTERS
Management does not know of any matters to be presented at this Annual
Meeting other than those set forth herein and in the Notice accompanying this
Proxy Statement.
THE BOARD OF DIRECTORS
OF CORNERSTONE IMAGING, INC.
April 29, 1997
San Jose, California
22
<PAGE>
CORNERSTONE IMAGING, INC.
1993 STOCK OPTION/STOCK ISSUANCE PLAN
(as amended and restated through February 14, 1997)
(pending stockholder approval at 1997 Annual Stockholders Meeting)
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
A. This 1993 Stock Option/Stock Issuance Plan ("Plan") is intended
to promote the interests of Cornerstone Imaging, Inc., a Delaware corporation
(the "Corporation"), by providing eligible individuals with the opportunity to
acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to remain in the service
of the Corporation (or its parent or subsidiary corporations).
B. The Plan became effective on September 8, 1993, the first date on
which the shares of the Corporation's common stock were registered under Section
12(g) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Such
date is hereby designated as the IPO Effective Date.
C. This Plan serves as the successor to the Corporation's existing
Employee Stock Option Plan and Key Employee Stock Purchase Plan (the
"Predecessor Plans"), and no further option grants or share issuances shall be
made under the Predecessor Plans from and after the IPO Effective Date. All
outstanding stock options and unvested share issuances under the Predecessor
Plans on the IPO Effective Date are hereby incorporated into this Plan and shall
accordingly be treated as outstanding stock options and unvested share issuances
under this Plan. However, each outstanding option grant and unvested share
issuance so incorporated shall continue to be governed solely by the express
terms and conditions of the instrument evidencing such grant or issuance, and no
provision of this Plan shall be deemed to affect or otherwise modify the rights
or obligations of the holders of such incorporated options with respect to their
acquisition of shares of the Corporation's common stock thereunder. All unvested
shares of the Corporation's common stock outstanding under the Predecessor Plans
on the IPO Effective Date shall continue to be governed solely by the express
terms and conditions of the instruments evidencing such issuances, and no
provision of this Plan shall be deemed to affect or modify the rights or
obligations of the holders of such unvested shares.
<PAGE>
II. DEFINITIONS
A. For purposes of the Plan, the following definitions shall be in
effect:
BOARD: the Corporation's Board of Directors.
CODE: the Internal Revenue Code of 1986, as amended.
COMMON STOCK: shares of the Corporation's common stock.
CHANGE IN CONTROL: a change in ownership or control of the
Corporation effected through either of the following transactions:
a. the acquisition directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders which the Board does not recommend such
stockholders to accept; or
b. a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members (rounded up to the next whole number) ceases, by reason of
one or more proxy contests for the election of Board members, to be
comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in
office at the time such election or nomination was approved by the Board.
CORPORATE TRANSACTION: any of the following stockholder-approved
transactions to which the Corporation is a party:
a. a merger or consolidation in which the Corporation is not
the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Corporation is incorporated,
b. the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation
or dissolution of the Corporation, or
c. any reverse merger in which the Corporation is the surviving
entity but in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation's outstanding securities
are transferred to a person or persons different from those who held such
securities immediately prior to such merger.
2
<PAGE>
EMPLOYEE: an individual who performs services while in the employ of
the Corporation or one or more parent or subsidiary corporations, subject to the
control and direction of the employer entity not only as to the work to be
performed but also as to the manner and method of performance.
FAIR MARKET VALUE: the Fair Market Value per share of Common Stock
determined in accordance with the following provisions:
a. If the Common Stock is not at the time listed or admitted to
trading on any national stock exchange but is traded on the Nasdaq National
Market, the Fair Market Value shall be the closing price per share on the
date in question, as such price is reported on the Nasdaq National Market
or any successor system. If there is no reported closing price for the
Common Stock on the date in question, then the closing price on the last
preceding date for which such quotation exists shall be determinative of
Fair Market Value.
b. If the Common Stock is at the time listed or admitted to
trading on any national stock exchange, then the Fair Market Value shall be
the closing selling price per share on the date in question on the exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common Stock
on such exchange on the date in question, then the Fair Market Value shall
be the closing selling price on the exchange on the last preceding date for
which such quotation exists.
HOSTILE TAKE-OVER: a change in ownership of the Corporation effected
through the following transaction:
a. any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Corporation) directly or
indirectly acquires beneficial ownership (within the meaning of Rule 13d-3
of the 1934 Act) of securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, AND
b. more than fifty percent (50%) of the securities so acquired
in such tender or exchange offer are accepted from holders other than the
officers and directors of the Corporation subject to the short-swing profit
restrictions of Section 16 of the 1934 Act.
OPTIONEE: a person to whom an option is granted under the
Discretionary Option Grant Program or the Automatic Option Grant Program.
3
<PAGE>
PARTICIPANT: a person who is issued Common Stock under the Stock
Issuance Program.
PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the
Optionee or the Participant to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
SERVICE: the performance of services on a periodic basis to the
Corporation (or any parent or subsidiary corporation) in the capacity of an
Employee, a non-employee member of the board of directors or an independent
consultant or advisor, except to the extent otherwise specifically provided in
the applicable stock option agreement.
TAKE-OVER PRICE: the GREATER of (a) the Fair Market Value per share
of Common Stock on the date the option is surrendered to the Corporation in
connection with a Hostile Take-Over or (b) the highest reported price per share
of Common Stock paid by the tender offeror in effecting such Hostile Take-Over.
However, if the surrendered option is an Incentive Option, the Take-Over Price
shall not exceed the clause (a) price per share.
B. The following provisions shall be applicable in determining the
parent and subsidiary corporations of the Corporation:
Any corporation (other than the Corporation) in an unbroken chain
of corporations ending with the Corporation shall be considered to be a
PARENT of the Corporation, provided each such corporation in the unbroken
chain (other than the Corporation) owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
Each corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation shall be considered to
be a SUBSIDIARY of the Corporation, provided each such corporation (other
than the last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
III. STRUCTURE OF THE PLAN
A. STOCK PROGRAMS. The Plan shall be divided into three (3) separate
components: the Discretionary Option Grant Program specified in Article Two, the
Automatic Option Grant Program specified in Article Three and the Stock Issuance
Program specified in Article Four. Under the Discretionary Option Grant Program,
eligible individuals may, at the
4
<PAGE>
discretion of the Plan Administrator, be granted options to purchase shares of
Common Stock in accordance with the provisions of Article Two. Under the
Automatic Option Grant Program, (i) each individual who first joins the Board as
a non-employee director on or after November 5, 1993 will receive an option
grant at that time and (ii) each non-employee director will receive an annual
option grant to purchase shares of Common Stock, both in accordance with the
provisions of Article Three. Under the Stock Issuance Program, eligible
individuals may be issued shares of Common Stock directly, either through the
immediate purchase of such shares at a price not less than eighty-five percent
(85%) of the Fair Market Value of the shares at the time of issuance or as a
bonus tied to the performance of services or the Corporation's attainment of
financial objectives, without any cash payment required of the recipient.
B. GENERAL PROVISIONS. Unless the context clearly indicates
otherwise, the provisions of Articles One and Five shall apply to the
Discretionary Option Grant Program, the Automatic Option Grant Program and the
Stock Issuance Program and shall accordingly govern the interests of all
individuals under the Plan.
IV. ADMINISTRATION OF THE PLAN
The Plan shall be administered in accordance with the following
standards:
A. The Board shall appoint a committee consisting of not less than
two (2) non-employee Board members to administer the Discretionary Option Grant
and Stock Issuance Programs of the Plan, including (without limitation) the
power to grant options under the Discretionary Option Grant Program and approve
stock issuances under the Stock Issuance Program, the power to accelerate the
exercisability of options granted under the Discretionary Option Grant Program
and the vesting of shares issued under the Stock Issuance Program and the power
to administer the option surrender provisions of the Discretionary Option Grant
Program. This committee shall function as the "Primary Committee" under the Plan
and shall have sole and exclusive authority to grant stock options to officers
of the Corporation who are Board members. No non-employee Board member shall be
eligible to serve on the Primary Committee if such individual has, within the
relevant period designated below, received an option grant or direct stock
issuance under this Plan or any other stock plan of the Corporation (or any
parent or subsidiary corporation) other than pursuant to the Automatic Option
Grant Program:
(1) for each of the initial members of the Primary Committee, the
period commencing with the IPO Effective Date and ending with the date of his or
her appointment to the Primary Committee, or
(2) for any successor or substitute member, the twelve (12)-month
period immediately preceding the date of his or her appointment to the Primary
Committee or (if shorter) the period commencing with the Effective Date and
ending with the date of his or her appointment to the Primary Committee.
5
<PAGE>
B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to the officers of the Corporation who are not
Board members and all other key employees eligible to participate in the Plan
may, at the Board's discretion, be vested in the Primary Committee or in a
secondary committee of two (2) or more Board members appointed by the Board, or
the Board may retain the power to administer the Plan with respect to all
individuals who are not Board members. Should a secondary committee be
appointed, the membership may include Board members who are employees of the
Corporation eligible to receive option grants or stock issuances under this Plan
or under any other stock option, stock appreciation, stock bonus or other stock
plan of the Corporation (or any parent or subsidiary corporation).
C. Members of the Primary Committee or any secondary committee shall
serve for such term as the Board may determine and shall be subject to removal
by the Board at any time.
D. The term "Plan Administrator" as used from time to time in this
plan document shall mean the particular entity, whether the Primary Committee or
any secondary committee, which is authorized to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to one or more classes of
eligible individuals, to the extent such entity is carrying out its
administrative functions under the Plan with respect to those individuals.
E. The Plan Administrator shall have full power and authority
(subject to the express provisions of the Plan) to establish rules and
regulations for the proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding option
grants or stock issuances thereunder as it may deem necessary or advisable.
Decisions of the Plan Administrator shall be final and binding on all parties
who have an interest in the Discretionary Option Grant or Stock Issuance
Programs or any outstanding option or share issuance thereunder.
F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the express terms and conditions of Article
Three, and the Plan Administrator shall exercise no discretionary functions with
respect to option grants made pursuant to that program.
V. ELIGIBILITY FOR OPTION GRANTS AND STOCK ISSUANCES
A. The persons eligible to participate in the Discretionary Option
Grant Program under Article Two or the Stock Issuance Program under Article Four
shall be limited to the following:
(i) officers and other key employees of the Corporation (or its
parent or subsidiary corporations) who render services which contribute to
the management, growth and financial success of the Corporation (or its
parent or subsidiary corporations);
6
<PAGE>
and
(ii) those consultants or other independent contractors who
provide valuable services to the Corporation (or its parent or subsidiary
corporations).
B. The non-employee members of the Board, other than members of the
Primary Committee, shall be eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs. No member of the Primary Committee shall be
eligible to participate in the Discretionary Option Grant or Stock Issuance
Program or in any other stock option, stock purchase, stock bonus or other stock
plan of the Corporation (or its parent or subsidiary corporations). Non-employee
members of the Board, including members of the Primary Committee, shall be
eligible to receive automatic option grants pursuant to the provisions of
Article Three.
C. The Plan Administrator shall have full authority, within the
scope of its administrative functions under the Plan, to determine, (I) with
respect to the option grants made under the Discretionary Option Grant Program,
which eligible individuals are to receive option grants, the number of shares to
be covered by each such grant, the status of the granted option as either an
incentive stock option ("Incentive Option") which satisfies the requirements of
Section 422 of the Code or a non-statutory option not intended to meet such
requirements, the time or times at which each granted option is to become
exercisable and the maximum term for which the option may remain outstanding and
(II), with respect to stock issuances under the Stock Issuance Program, the
number of shares to be issued to each Participant, the vesting schedule (if any)
to be applicable to the issued shares, and the consideration to be paid by the
individual for such shares.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the
Plan and shall be drawn from either the Corporation's authorized but unissued
shares of Common Stock or from reacquired shares of Common Stock, including
shares repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock which may be issued over the term of the Plan shall not
exceed 2,474,852 (1) shares, subject to adjustment from time to time in
accordance with the provisions of this Section VI. In no event may any one
individual participating in the Plan acquire shares of Common Stock under the
Plan in excess of 500,000 shares of Common Stock in the aggregate over the term
of the Plan. For purposes of this limitation, any option grants or stock awards
made prior to January 1, 1996 will not be taken into account.
Should one or more outstanding options under this Plan (including
outstanding options under the Predecessor Plans incorporated into this Plan)
expire or terminate
- --------------------
(1) Reflects the additional 400,000-share increase authorized by the Board on
February 14, 1997, and is subject to approval by the Corporation's stockholders
at the 1997 Annual Stockholders Meeting.
7
<PAGE>
for any reason prior to exercise in full (including any option cancelled in
accordance with the cancellation-regrant provisions of Section IV of Article Two
of the Plan), then the shares subject to the portion of each option not so
exercised shall be available for subsequent option grants under the Plan. Shares
subject to any option or portion thereof surrendered or cancelled in accordance
with Section V of Article Two and all share issuances under the Plan (including
unvested share issuances under the Predecessor Plans which have been
incorporated into this Plan), whether or not the shares are subsequently
repurchased by the Corporation pursuant to its repurchase rights under the Plan,
shall reduce on a share-for-share basis the number of shares of Common Stock
available for subsequent option grants under the Plan. In addition, should the
option price of an outstanding option under the Plan (including any option
incorporated from the Predecessor Plans) be paid with shares of Common Stock or
should shares of Common Stock otherwise issuable under the Plan be withheld by
the Corporation in satisfaction of the withholding taxes incurred in connection
with the exercise of an outstanding option under the Plan or the vesting of a
direct share issuance made under the Plan, then the number of shares of Common
Stock available for issuance under the Plan shall be reduced by the gross number
of shares for which the option is exercised or which vest under the share
issuance, and not by the net number of shares of Common Stock actually issued to
the holder of such option or share issuance.
C. Should any change be made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
for which automatic option grants are to be subsequently made per eligible
non-employee Board member under the Automatic Option Grant Program, (iii) the
number and/or class of securities and price per share in effect under each
outstanding option and (iv) the number and/or class of securities and price per
share in effect under each outstanding option incorporated into this Plan from
the Predecessor Plans. Such adjustments to the outstanding options are to be
effected in a manner which shall preclude the enlargement or dilution of rights
and benefits under such options. The adjustments determined by the Primary
Committee shall be final, binding and conclusive.
8
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant Program
shall be authorized by action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Options or non-statutory
options. Individuals who are not Employees of the Corporation or its parent or
subsidiary corporations may only be granted non-statutory options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; PROVIDED, however, that each such instrument shall comply
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. OPTION PRICE.
(1) The option price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The option price per share of the Common Stock subject to an
Incentive Option shall in no event be less than one hundred percent (100%) of
the Fair Market Value of such Common Stock on the grant date.
(ii) The option price per share of the Common Stock subject to a
non-statutory stock option shall in no event be less than eighty-five percent
(85%) of the Fair Market Value of such Common Stock on the grant date.
(2) The option price shall become immediately due upon exercise of
the option and, subject to the provisions of Section I of Article Five and the
instrument evidencing the grant, shall be payable in one of the following
alternative forms specified below:
- full payment in cash or check drawn to the Corporation's
order;
- full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the Exercise
Date (as such term is defined below);
- full payment in a combination of shares of Common Stock held
for the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market Value on the
Exercise Date and cash or check drawn to the Corporation's order; or
9
<PAGE>
- full payment through a broker-dealer sale and remittance
procedure pursuant to which the Optionee shall provide irrevocable written
instructions to (I) a Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to cover the
aggregate option price payable for the purchased shares plus all applicable
Federal and state income and employment taxes required to be withheld by the
Corporation in connection with such purchase and (II) to the Corporation to
deliver the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale transaction.
For purposes of this subparagraph (2), the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure is used in
connection with the exercise of the option, payment of the option price for the
purchased shares must accompany such notice.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under this
Discretionary Option Grant Program shall be exercisable at such time or times
and during such period as is determined by the Plan Administrator and set forth
in the instrument evidencing the grant. No such option, however, shall have a
maximum term in excess of ten (10) years from the grant date. During the
lifetime of the Optionee, the option, together with any stock appreciation
rights pertaining to such option, shall be exercisable only by the Optionee and
shall not be assignable or transferable by the Optionee except for a transfer of
the option effected by will or by the laws of descent and distribution following
the Optionee's death.
C. TERMINATION OF SERVICE.
(1) The following provisions shall govern the exercise period
applicable to any outstanding options held by the Optionee at the time of
cessation of Service or death.
- Should an Optionee cease Service for any reason
(including death or Permanent Disability) while holding one or more outstanding
options under this Article Two, then none of those options shall (except to the
extent otherwise provided pursuant to subparagraph C(3) below) remain
exercisable for more than a thirty-six (36)-month period (or such shorter period
determined by the Plan Administrator and set forth in the instrument evidencing
the grant) measured from the date of such cessation of Service.
- Any option held by the Optionee under this Article Two
and exercisable in whole or in part on the date of his or her death may be
subsequently exercised by the personal representative of the Optionee's estate
or by the person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution.
Such exercise, however, must occur prior to the EARLIER of (i) the first
anniversary of the date of the Optionee's death or (ii) the specified expiration
date of the option term. Upon the occurrence of the earlier event, the option
shall terminate.
10
<PAGE>
- Under no circumstances shall any such option be
exercisable after the specified expiration date of the option term.
- During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of shares
(if any) in which the Optionee is vested at the time of his or her cessation of
Service. Upon the expiration of the limited post-Service exercise period or (if
earlier) upon the specified expiration date of the option term, each such option
shall terminate and cease to be outstanding with respect to any vested shares
for which the option has not otherwise been exercised. However, each outstanding
option shall immediately terminate and cease to be outstanding, at the time of
the Optionee's cessation of Service, with respect to any shares for which the
option is not otherwise at that time exercisable or in which the Optionee is not
otherwise vested.
- Should (i) the Optionee's Service be terminated for
misconduct (including, but not limited to, any act of dishonesty, willful
misconduct, fraud or embezzlement) or (ii) the Optionee make any unauthorized
use or disclosure of confidential information or trade secrets of the
Corporation or its parent or subsidiary corporations, then in any such event all
outstanding options held by the Optionee under this Article Two shall terminate
immediately and cease to be outstanding.
(2) The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to permit one or more options held by the Optionee
under this Article Two to be exercised, during the limited post-Service exercise
period applicable under subparagraph (1) above, not only with respect to the
number of vested shares of Common Stock for which each such option is
exercisable at the time of the Optionee's cessation of Service but also with
respect to one or more subsequent installments of vested shares for which the
option would otherwise have become exercisable had such cessation of Service not
occurred.
(3) The Plan Administrator shall also have full power and
authority to extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service (or death or Permanent
Disability) from the limited period in effect under subparagraph (1) above to
such greater period of time as the Plan Administrator shall deem appropriate. In
no event, however, shall such option be exercisable after the specified
expiration date of the option term.
D. STOCKHOLDER RIGHTS. An Optionee shall have no stockholder rights
with respect to any shares covered by the option until such individual shall
have exercised the option and paid the option price for the purchased shares.
E. REPURCHASE RIGHTS.
11
<PAGE>
The shares of Common Stock acquired upon the exercise of any Article Two
option grant may be subject to repurchase by the Corporation in accordance with
the following provisions:
(a) The Plan Administrator shall have the discretion to authorize
the issuance of unvested shares of Common Stock under this Article Two.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase any or all of those unvested
shares at the option price paid per share. The terms and conditions upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the
purchased shares) shall be established by the Plan Administrator and set
forth in the instrument evidencing such repurchase right.
(b) All of the Corporation's outstanding repurchase rights under
this Article Two shall automatically terminate, and all shares subject to
such terminated rights shall immediately vest in full, upon the occurrence
of a Corporate Transaction.
(c) The Plan Administrator shall have the discretionary
authority, exercisable either before or after the Optionee's cessation of
Service, to cancel the Corporation's outstanding repurchase rights with
respect to one or more shares purchased or purchasable by the Optionee
under this Discretionary Option Grant Program and thereby accelerate the
vesting of such shares in whole or in part at any time.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees of the Corporation. Options which are
specifically designated as non-statutory options when issued under the Plan
shall NOT be subject to such terms and conditions.
A. DOLLAR LIMITATION. The aggregate Fair Market Value (determined as
of the respective date or dates of grant) of the Common Stock for which one or
more options granted to any Employee under this Plan (or any other option plan
of the Corporation or its parent or subsidiary corporations) may for the first
time become exercisable as incentive stock options under the Federal tax laws
during any one calendar year shall not exceed the sum of One Hundred Thousand
Dollars ($100,000). To the extent the Employee holds two (2) or more such
options which become exercisable for the first time in the same calendar year,
the foregoing limitation on the exercisability of such options as incentive
stock options under the Federal tax laws shall be applied on the basis of the
order in which such options are granted. Should the number of shares of Common
Stock for which any Incentive Option first becomes exercisable in any calendar
year exceed the applicable One Hundred Thousand Dollar ($100,000) limitation,
then that option may nevertheless be exercised in that calendar year for the
excess number of shares as a non-statutory option under the Federal tax laws.
12
<PAGE>
B. 10% STOCKHOLDER. If any individual to whom an Incentive Option is
granted is the owner of stock (as determined under Section 424(d) of the Code)
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Corporation or any one of its parent or subsidiary
corporations, then the option price per share shall not be less than one hundred
and ten percent (110%) of the Fair Market Value per share of Common Stock on the
grant date, and the option term shall not exceed five (5) years measured from
the grant date.
Except as modified by the preceding provisions of this Section II, the
provisions of Articles One, Two and Five of the Plan shall apply to all
Incentive Options granted hereunder.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction or Change in Control,
each option which is at the time outstanding under this Article Two shall
automatically accelerate so that each such option shall, immediately prior to
the specified effective date for the Corporate Transaction or Change in Control,
respectively, become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be exercised
for all or any portion of such shares.
B. Upon the consummation of the Corporate Transaction, all
outstanding options under this Article Two shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company. Any options accelerated in connection with the Change in Control
shall remain fully exercisable until the expiration or sooner termination of the
option term.
C. Each outstanding option under this Article Two which is assumed
in connection with the Corporate Transaction or is otherwise to continue in
effect shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of securities which
would have been issued to the option holder, in consummation of such Corporate
Transaction, had such person exercised the option immediately prior to such
Corporate Transaction. Appropriate adjustments shall also be made to the option
price payable per share, PROVIDED the aggregate option price payable for such
securities shall remain the same. In addition, the class and number of
securities available for issuance under the Plan following the consummation of
the Corporate Transaction shall be appropriately adjusted.
D. The grant of options under this Article Two shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
E. The exercisability as incentive stock options under the Federal
tax laws of any options accelerated under this Section III in connection with a
Corporate Transaction or Change in Control shall remain subject to the dollar
limitation of Section II of this Article Two.
13
<PAGE>
To the extent such dollar limitation is exceeded, the accelerated option shall
be exercisable as a non-statutory option under the Federal tax laws.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under this Article Two (including
outstanding options under the Predecessor Plans incorporated into this Plan) and
to grant in substitution new options under the Plan covering the same or
different numbers of shares of Common Stock but with an option price per share
not less than (i) eighty-five percent (85%) of the Fair Market Value of the
Common Stock on the new grant date or (ii) one hundred percent (100%) of such
Fair Market Value in the case of an Incentive Option or (iii) one hundred and
ten percent (110%) of such Fair Market Value in the case of an Incentive Option
granted to a 10% Stockholder.
V. STOCK APPRECIATION RIGHTS
A. Provided and only if the Primary Committee determines in its
discretion to implement the stock appreciation right provisions of this Section
V, one or more Optionees may be granted the right, exercisable upon such terms
and conditions as the Primary Committee may establish, to surrender all or part
of an unexercised option under this Article Two in exchange for a distribution
from the Corporation in an amount equal to the excess of (i) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (ii) the aggregate option price payable for such vested
shares.
B. No surrender of an option shall be effective hereunder unless it
is approved by the Primary Committee. If the surrender is so approved, then the
distribution to which the Optionee shall accordingly become entitled under this
Section V may be made in shares of Common Stock valued at Fair Market Value on
the option surrender date, in cash, or partly in shares and partly in cash, as
the Primary Committee shall in its sole discretion deem appropriate.
C. If the surrender of an option is rejected by the Primary
Committee, then the Optionee shall retain whatever rights the Optionee had under
the surrendered option (or surrendered portion thereof) on the option surrender
date and may exercise such rights at any time prior to the LATER of (i) five (5)
business days after the receipt of the rejection notice or (ii) the last day on
which the option is otherwise exercisable in accordance with the terms of the
instrument evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the date of the option grant.
D. One or more officers of the Corporation subject to the
short-swing profit restrictions of the Federal securities laws may, in the
Primary Committee's sole discretion, be granted limited stock appreciation
rights in tandem with their outstanding options under the Plan.
14
<PAGE>
Upon the occurrence of a Hostile Take-Over effected at any time when the
corporation's outstanding Common Stock is registered under Section 12(g) of the
1934 Act, the officer shall have a thirty (30)-day period in which he or she may
surrender any outstanding options with such a limited stock appreciation right
in effect for at least six (6) months to the Corporation, to the extent such
option is at the time exercisable for fully-vested shares of Common Stock. The
officer shall in return be entitled to a cash distribution from the Corporation
in an amount equal to the excess of (i) the Take-Over Price of the vested shares
of Common Stock at the time subject to each surrendered option (or surrendered
portion of such option) over (ii) the aggregate option price payable for such
shares. The cash distribution payable upon such option surrender shall be made
within five (5) days following the consummation of the Hostile Take-Over.
Neither the approval of the Primary Committee nor the consent of the Board shall
be required in connection with such option surrender and cash distribution. Any
unsurrendered portion of the option shall continue to remain outstanding and
become exercisable in accordance with the terms of the instrument evidencing
such grant.
E. The shares of Common Stock subject to any option surrendered for
an appreciation distribution pursuant to this Section V shall NOT be available
for subsequent option grant under the Plan.
15
<PAGE>
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
The individuals eligible to receive automatic option grants pursuant
to the provisions of this Article Three shall be limited to the individuals who
are first elected or appointed as non-employee Board members on or after
November 5, 1993, whether through appointment by the Board or election by the
Corporation's stockholders, and each individual who serves as a non-employee
Board member thereafter. In no event, however, shall a non-employee Board member
be eligible to participate in the Automatic Option Grant Program if such
individual has at any time been in the prior employ of the Corporation (or any
parent or subsidiary corporation). Each non-employee Board member eligible to
participate in the Automatic Option Grant Program pursuant to the foregoing
criteria shall be designated an Eligible Director for purposes of the Plan.
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. GRANT DATES. Option grants will be made under this Article Three
on the dates specified below:
(i) Each Eligible Director who first becomes a non-employee
Board member at any time after November 5, 1993, whether through election
at an Annual Stockholders Meeting or through appointment by the Board,
shall automatically be granted, at the time of such initial election or
appointment, a non-statutory stock option to purchase 10,000 shares of
Common Stock upon the terms and conditions of this Article Three.
(ii) Each Eligible Director who is serving as a nonemployee
Board member on November 5, 1993 shall automatically be granted, on such
date, a non-statutory stock option to purchase 10,000 shares of Common
Stock upon the terms and conditions of this Article Three.
(iii) On the date of each Annual Stockholders Meeting,
beginning with the 1995 Annual Stockholders Meeting, each Eligible Director
who is at the time serving as a non-employee member of the Board shall
automatically be granted at that meeting, whether or not such individual is
standing for re-election as a Board Member at that particular meeting, a
non-statutory stock option under the Plan to purchase 2,500 shares of
Common Stock, provided such individual has served as a non-employee Board
member for at least six (6) months prior to the date of such meeting.
The 10,000-share limitation on the initial automatic option grants and
the 2,500-share limitation on the subsequent automatic option grants to be made
to each Eligible
16
<PAGE>
Director shall be subject to periodic adjustment pursuant to the applicable
provisions of paragraph VI.C of Article One.
B. OPTION PRICE. The option price per share of Common Stock subject
to each automatic option grant made under this Article Three shall be equal to
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the automatic grant date.
C. PAYMENT.
The option price shall be payable in one of the alternative forms
specified below:
(i) full payment in cash or check drawn to the
Corporation's order;
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market Value on the
Exercise Date (as such term is defined below);
(iii) full payment in a combination of shares of Common Stock
held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at Fair
Market Value on the Exercise Date and cash or check drawn to the
Corporation's order; or
(iv) full payment through a broker-dealer sale and
remittance procedure pursuant to which the Optionee shall provide
irrevocable written instructions to (I) a Corporation-designated brokerage
firm to effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate option price payable for the
purchased shares plus all applicable Federal and state income and
employment taxes required to be withheld by the Corporation in connection
with such purchase and (II) to the Corporation to deliver the certificates
for the purchased shares directly to such brokerage firm in order to
complete the sale transaction.
For purposes of this subparagraph C, the Exercise Date shall be
the date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure
specified above is used for the exercise of the option, payment of the
option price for the purchased shares must accompany the exercise notice.
D. OPTION TERM. Each automatic grant under this Article Three shall
have a maximum term of ten (10) years measured from the automatic grant date.
17
<PAGE>
E. EXERCISABILITY. Each 10,000-share initial automatic grant shall
become exercisable in a series of four (4) equal and successive annual
installments over the Optionee's period of service on the Board, with the first
such installment to become exercisable one year after the automatic grant date.
Each 2,500-share subsequent automatic grant shall become exercisable in full on
the fourth (4th) anniversary of the automatic grant date, provided the Optionee
remains in service on the Board. The exercisability of each automatic grant
outstanding under this Article Three shall be accelerated as provided in Section
II.G and Section III of this Article Three.
F. NON-TRANSFERABILITY. During the lifetime of the Optionee, each
automatic option grant, together with the limited stock appreciation right
pertaining to such option, shall be exercisable only by the Optionee and shall
not be assignable or transferable by the Optionee other than a transfer of the
option effected by will or by the laws of descent and distribution following
Optionee's death.
G. EFFECT OF TERMINATION OF BOARD MEMBERSHIP.
1. Should the Optionee cease to serve as a Board member for any
reason (other than death) while holding an automatic option grant under this
Article Three, then such individual shall have a three (3)-month period
following the date of such cessation of Board membership in which to exercise
such option for any or all of the shares of Common Stock for which the option is
exercisable at the time of such cessation of Board service. Such option shall
immediately terminate and cease to be outstanding, at the time of such cessation
of Board service, with respect to any shares for which the option is not
otherwise at that time exercisable.
2. Should the Optionee die within three (3) months after
cessation of Board'service, then any automatic option grant held by the Optionee
at the time of death may subsequently be exercised, for any or all of the shares
of Common Stock for which such option is exercisable at the time of the
Optionee's cessation of Board service (less any option shares subsequently
purchased by the Optionee prior to death), by the personal representative of the
Optionee's estate or by the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent and
distribution. Any such exercise must occur within twelve (12) months after the
date of the Optionee's death.
3. Should the Optionee die while serving as a Board member,
then any automatic option grant held by such Optionee under this Article Three
shall accelerate in full, and the representative of the Optionee's estate or the
person or persons to whom the option is transferred upon the Optionee's death
shall have a twelve (12)-month period following the date of the Optionee's
cessation of Board membership in which to exercise such option for any or all of
the shares of Common Stock subject to that option at the time of such death,
provided the option has been outstanding for at least one (1) year at the time
of death.
4. In no event shall any automatic grant under this Article
Three remain exercisable after the expiration date of the ten (10)-year option
term. Upon the expiration
18
<PAGE>
of the applicable post-service exercise period under subparagraph 1, 2 or 3
above or (if earlier) upon the expiration of the ten (10)-year option term, the
automatic grant shall terminate and cease to be outstanding for any unexercised
shares for which the option was otherwise exercisable at the time of the
Optionee's cessation of Board service.
H. STOCKHOLDER RIGHTS. The holder of an automatic option grant under
this Article Three shall have none of the rights of a stockholder with respect
to any shares subject to such option until such individual shall have exercised
the option and paid the option price for the purchased shares.
I. REMAINING TERMS. The remaining terms and conditions of each
automatic option grant shall be as set forth in the form Director Automatic
Grant Agreement attached as Exhibit A.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction and in connection with
any Change in Control of the Corporation, each automatic option grant at the
time outstanding under this Article Three shall automatically accelerate so that
each such option shall, immediately prior to the specified effective date for
the Corporate Transaction or Change in Control, as applicable, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of such
shares. Upon the consummation of the Corporate Transaction, all automatic option
grants under this Article Three shall terminate and cease to be outstanding. Any
options accelerated in connection with the Change in Control shall remain fully
exercisable until the expiration or sooner termination of the option term.
B. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender each option held by him or
her under this Article Three to the Corporation, to the extent such option has
been outstanding for a period of at least six (6) months to the Corporation. The
Optionee shall in return be entitled to a cash distribution from the Corporation
in an amount equal to the excess of (i) the Take-Over Price of the shares of
Common Stock at the time subject to the surrendered option (whether or not the
option is otherwise at the time exercisable for such shares) over (ii) the
aggregate option price payable for such shares. Such cash distribution shall be
paid within five (5) days following the consummation of the Hostile Take-Over.
Neither the approval of the Committee nor the consent of the Board shall be
required in connection with such option surrender and cash distribution.
C. The shares of Common Stock subject to each option surrendered in
connection with the Hostile Take-Over shall NOT be available for subsequent
option grant under this Plan.
19
<PAGE>
D. The automatic option grants outstanding under this Article Three
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
The provisions of this Automatic Option Grant Program, together with
the automatic option grants outstanding under this Article Three, may not be
amended at intervals more frequently than once every six (6) months, other than
to the extent necessary to comply with applicable Federal income tax laws and
regulations.
20
<PAGE>
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares may be issued under the Stock Issuance Program through direct
and immediate purchases without any intervening stock option grants. The issued
shares shall be evidenced by a Stock Issuance Agreement ("Issuance Agreement")
that complies with the terms and conditions of this Article Four.
A. CONSIDERATION.
1. Shares of Common Stock drawn from the Corporation's
authorized but unissued shares of Common Stock ("Newly Issued Shares") shall be
issued under the Stock Issuance Program for one or more of the following items
of consideration which the Plan Administrator may deem appropriate in each
individual instance:
(i) cash or check drawn to the Corporation's order;
(ii) a promissory note payable to the Corporation's order in
one or more installments, which may be subject to cancellation in
whole or in part upon terms and conditions established by the
Plan Administrator; or
(iii) past services rendered to the Corporation or any
parent or subsidiary corporation.
2. Newly Issued Shares may, in the absolute discretion of the
Plan Administrator, be issued for consideration with a value less than one
hundred percent (100%) of the Fair Market Value of such shares at the time of
issuance, but in no event less than eighty-five percent (85%) of such Fair
Market Value.
3. Shares of Common Stock reacquired by the Corporation and
held as treasury shares ("Treasury Shares") may be issued under the Stock
Issuance Program for such consideration (including one or more of the items of
consideration specified in subparagraph 1 above) as the Plan Administrator may
deem appropriate, whether such consideration is in an amount less than, equal
to, or greater than the Fair Market Value of the Treasury Shares at the time of
issuance. Treasury Shares may, in lieu of any cash consideration, be issued
subject to such vesting requirements tied to the Participant's period of future
Service or the Corporation's attainment of specified performance objectives as
the Plan Administrator may establish at the time of issuance.
B. VESTING PROVISIONS.
21
<PAGE>
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the absolute discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service. The elements of the vesting schedule
applicable to any unvested shares of Common Stock issued under the Stock
Issuance Program, namely:
(i) the Service period to be completed by the Participant or the
performance objectives to be achieved by the Corporation,
(ii) the number of installments in which the shares are to vest,
(iii) the interval or intervals (if any) which are to lapse
between installments, and
(iv) the effect which death, Permanent Disability or other event
designated by the Plan Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued.
2. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to him or her under the Plan,
whether or not his or her interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to receive any regular
cash dividends paid on such shares. Any new, additional or different shares of
stock or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to
his or her unvested shares by reason of any stock dividend, stock split,
reclassification of Common Stock or other similar change in the Corporation's
capital structure or by reason of any Corporate Transaction shall be issued,
subject to (i) the same vesting requirements applicable to his or her unvested
shares and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock under the Plan, then those
shares shall be immediately surrendered to the Corporation for cancellation, and
the Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money promissory note), the Corporation shall repay to
the Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares. The surrendered shares
may, at the Plan Administrator's discretion, be retained by the Corporation as
Treasury Shares or may be retired to authorized but unissued share status.
22
<PAGE>
4. The Plan Administrator may in its discretion elect to waive
the surrender and cancellation of one or more unvested shares of Common Stock
(or other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
Upon the occurrence of any Corporate Transaction or Change in Control,
all unvested shares of Common Stock at the time outstanding under the Stock
Issuance Program shall immediately vest in full.
III. TRANSFER RESTRICTIONS/SHARE ESCROW
A. Unvested shares may, in the Plan Administrator's discretion, be
held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing such unvested shares. To the extent an
escrow arrangement is utilized, the unvested shares and any securities or other
assets issued with respect to such shares (other than regular cash dividends)
shall be delivered in escrow to the Corporation to be held until the
Participant's interest in such shares (or other securities or assets) vests.
Alternatively, if the unvested shares are issued directly to the Participant,
the restrictive legend on the certificates for such shares shall read
substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE
ACCORDINGLY SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS AND (II)
CANCELLATION OR REPURCHASE IN THE EVENT THE REGISTERED HOLDER (OR HIS/HER
PREDECESSOR IN INTEREST) CEASES TO REMAIN IN THE CORPORATION's SERVICE.
SUCH TRANSFER RESTRICTIONS AND THE TERMS AND CONDITIONS OF SUCH
CANCELLATION OR REPURCHASE ARE SET FORTH IN A STOCK ISSUANCE AGREEMENT
BETWEEN THE CORPORATION AND THE REGISTERED HOLDER (OR HIS/HER PREDECESSOR
IN INTEREST) DATED ____________, 199____, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION."
B. The Participant shall have no right to transfer any unvested
shares of Common Stock issued to him or her under the Stock Issuance Program.
For purposes of this restriction, the term "transfer" shall include (without
limitation) any sale, pledge, assignment, encumbrance, gift, or other
disposition of such shares, whether voluntary or involuntary. Upon any such
attempted transfer, the unvested shares shall immediately be cancelled, and
neither the Participant nor the proposed transferee shall have any rights with
respect to those shares.
23
<PAGE>
However, the Participant shall have the right to make a gift of unvested shares
acquired under the Stock Issuance Program to his or her spouse or issue,
including adopted children, or to a trust established for such spouse or issue,
provided the donee of such shares delivers to the Corporation a written
agreement to be bound by all the provisions of the Stock Issuance Program and
the Issuance Agreement applicable to the gifted shares.
24
<PAGE>
ARTICLE FIVE
MISCELLANEOUS
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any
Optionee or Participant (including an Optionee or Participant who is an officer
or director of the Corporation, but not an Optionee who is a member of the
Primary Committee) in the exercise of one or more options granted to such
Optionee under the Discretionary Option Grant Program or the purchase of one or
more shares issued to such Participant under the Stock Issuance Program,
including the satisfaction of any Federal and state income and employment tax
obligations arising therefrom, by (i) authorizing the extension of a loan from
the Corporation to such Optionee or Participant or (ii) permitting the Optionee
or Participant to pay the option price or purchase price for the purchased
Common Stock in installments over a period of years. The terms of any loan or
installment method of payment (including the interest rate and terms of
repayment) shall be upon such terms as the Plan Administrator specifies in the
applicable option or issuance agreement or otherwise deems appropriate under the
circumstances. Loans or installment payments may be authorized with or without
security or collateral. However, the maximum credit available to the Optionee or
Participant may not exceed the option or purchase price of the acquired shares
(less the par value of such shares) plus any Federal and state income and
employment tax liability incurred by the Optionee or Participant in connection
with the acquisition of such shares.
B. The Plan Administrator may, in its absolute discretion, determine
that one or more loans extended under this financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator may deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to amend
or modify the Plan (or any component thereof) in any or all respects whatsoever.
However, no such amendment or modification shall adversely affect rights and
obligations with respect to options at the time outstanding under the Plan, nor
adversely affect the rights of any Participant with respect to Common Stock
issued under the Stock Issuance Program prior to such action, unless the
Optionee or Participant consents to such amendment, and (ii) any amendment made
to the Automatic Option Grant Program (or any options outstanding thereunder)
shall be in compliance with the limitation of Section IV of Article Three. In
addition, the Board may not, without the approval of the Corporation's
stockholders, amend the Plan to (i) materially increase the maximum number of
shares issuable under the Plan, except for permissible adjustments under Section
VI.C of Article One, (ii) materially modify the eligibility requirements for
Plan participation or (iii) materially increase the benefits accruing to Plan
participants.
B. (i) Options to purchase shares of Common Stock may be granted
under the Plan and (ii) shares of Common Stock may be issued under the Stock
Issuance
25
<PAGE>
Program, which are in both instances in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued are held in escrow until stockholder approval is obtained for a
sufficient increase in the number of shares available for issuance under the
Plan. If such stockholder approval is not obtained within twelve (12) months
after the date the first such excess option grants or excess share issuances are
made, then (I) any unexercised excess options shall terminate and cease to be
exercisable and (II) the Corporation shall promptly refund the purchase price
paid for any excess shares actually issued under the Plan and held in escrow,
together with interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of stock options for such shares or the vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income tax and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion and in accordance
with the provisions of this Section III of Article Five and such supplemental
rules as the Plan Administrator may from time to time adopt (including the
applicable safe-harbor provisions of Rule 16b-3 of the Securities and Exchange
Commission), provide any or all holders of non-statutory options granted under
the Discretionary Option Grant Program or unvested shares under the Plan with
the right to use shares of Common Stock in satisfaction of all or part of the
Federal, state and local income and employment tax liabilities incurred by such
holders in connection with the exercise of their options or the vesting of their
shares (the "Taxes"). Such right may be provided to any such holder in either or
both of the following formats:
1. STOCK WITHHOLDING: The holder of the non-statutory option or
unvested shares may be provided with the election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such non-statutory option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the
applicable Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
2. STOCK DELIVERY: The Plan Administrator may, in its
discretion, provide the holder of the non-statutory option or the unvested
shares with the election to deliver to the Corporation, at the time the
non-statutory option is exercised or the shares vest, one or more shares of
Common Stock previously acquired by such individual (other than in connection
with the option exercise or share vesting triggering the Taxes) with an
aggregate Fair Market Value equal to the percentage of the Taxes incurred in
connection with such option exercise or share vesting (not to exceed one hundred
percent (100%)) designated by the holder.
IV. EFFECTIVE DATE AND TERM OF PLAN
26
<PAGE>
A. The Plan was adopted by the Board on August 11, 1993 as the
successor to the Predecessor Plans and was approved by Cornerstone Technology,
Inc., the sole stockholder of the Corporation, on September 1, 1993. The Plan
became effective on September 8, 1993, the date on which the shares of the
Corporation's common stock were first registered under Section 12(g) of the 1934
Act.
B. Each stock option grant outstanding under the Predecessor Plans
immediately prior to the Effective Date shall be incorporated into this Plan and
treated as an outstanding option under this Plan, but each such option shall
continue to be governed solely by the terms and conditions of the instrument
evidencing such grant, and nothing in this Plan shall be deemed to affect or
otherwise modify the rights or obligations of the holders of such options with
respect to their acquisition of shares of Common Stock thereunder. Each unvested
share of Common Stock outstanding under the Predecessor Plans on the Effective
Date shall continue to be governed solely by the terms and conditions of the
instrument evidencing such share issuance, and nothing in this Plan shall be
deemed to affect or otherwise modify the rights or obligations of the holder of
such unvested shares.
C. On February 2, 1994, the Board adopted a restatement of the Plan
to (i) increase the number of shares issuable thereunder by 400,000 shares and
(ii) impose a limitation on the maximum number of shares for which any one
individual participating in the Plan may be granted stock options and separately
exercisable stock appreciation rights after December 31, 1993. The 1994
restatement was approved by the Corporation's stockholders at the 1994 Annual
Stockholders Meeting. On January 31, 1995, the Board approved an increase in the
number of shares issuable under the Plan by 350,000 shares. The 1995 restatement
was approved by the Corporation's stockholders at the 1995 Annual Stockholders
Meeting. On January 30, 1996, the Board approved (i) an increase in the number
of shares issuable under the Plan by 500,000 shares and (ii) a 500,000-share
limitation on the maximum number of shares that any Optionee or Participant may
receive in the aggregate over the term of the Plan, exclusive of option grants
or stock awards made prior to January 1, 1996. The 1996 restatement was
approved by the Corporation's stockholders at the 1996 Annual Stockholders
Meeting. On February 14, 1997, the Board approved an increase in the number of
shares issuable under the Plan by 400,000 shares. The 400,000-share increase
became effective when adopted by the Board, but no option granted on the basis
of such increase shall become exercisable in whole or in part, unless and until
the increase shall have been approved by the Corporation's stockholders at the
1997 Annual Stockholders Meeting.
D. The option/vesting acceleration provisions of Section III of
Article Two and Section III of Article Three and Section II of Article Four
relating to Corporate Transactions and Changes in Control may, in the Plan
Administrator's discretion, be extended to one or more stock options or unvested
share issuances which are outstanding under the Predecessor Plans on the
Effective Date but which do not otherwise provide for such acceleration.
E. The Plan shall terminate upon the EARLIER of (i) August 10, 2003
or (ii) the date on which all shares available for issuance under the Plan shall
have been issued or cancelled
27
<PAGE>
pursuant to the exercise, surrender or cash-out of the options granted under the
Plan or the issuance of shares (whether vested or unvested) under the Stock
Issuance Program. If the date of termination is determined under clause (i)
above, then all option grants and unvested share issuances outstanding on such
date shall thereafter continue to have force and effect in accordance with the
provisions of the instruments evidencing such grants or issuances.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants or share issuances under the Plan shall be used for
general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under
the Plan, the issuance of any shares under the Stock Issuance Program, and the
issuance of Common Stock upon the exercise or surrender of the option grants
made hereunder shall be subject to the Corporation s procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any securities exchange on which stock of the same class is then listed.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor
any action taken by the Plan Administrator hereunder, nor any provision of the
Plan shall be construed so as to grant any individual the right to remain in the
employ or Service of the Corporation (or any parent or subsidiary corporation)
for any period of specific duration, and the Corporation (or any parent or
subsidiary corporation retaining the services of such individual) may terminate
such individual's employment or Service at any time and for any reason, with or
without cause.
28
<PAGE>
VIII. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the Plan
may not be assigned, encumbered or otherwise transferred by any Optionee or
Participant.
B. The provisions of the Plan relating to the exercise of options
and the vesting of shares shall be governed by the laws of the State of
California, as such laws are applied to contracts entered into and performed in
such State.
C. The provisions of the Plan shall inure to the benefit of, and be
binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Participants and Optionees, the
legal representatives of their respective estates, their respective heirs or
legatees and their permitted assignees.
29
<PAGE>
CORNERSTONE IMAGING, INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS
JUNE 4, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints THOMAS T. VAN OVERBEEK and JOHN FINEGAN
and each or either of them as Proxies of the undersigned, with full power of
substitution, and hereby authorizes them to represent and to vote, as
designated below, all of the shares of Common Stock of CORNERSTONE IMAGING,
INC., held of record by the undersigned on April 15, 1997, at the Annual
Meeting of Stockholders of Cornerstone Imaging, Inc. to be held June 4, 1997,
or at any adjournment or postponement thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NOS. 1, 2 AND 3.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ON THE REVERSE
SIDE. THIS PROXY WILL BE VOTED FOR PROPOSAL NOS. 1, 2 AND 3 IF NO
SPECIFICATION IS MADE.
1. ELECTION OF DIRECTORS
/ / FOR all nominees / / WITHHOLD AUTHORITY / / EXCEPTIONS
listed below to vote for all nominees
INSTRUCTION: To withhold authority to vote for any individual nominee, mark
the "EXCEPTIONS" box and strike a line through the nominee s name in the
list below:
James Crawford III Stephen J. Sheafor
E. David Crockett Bruce Silver
Thomas T. van Overbeek Daniel D. Tompkins
2. To approve an amendment to the Company's 1993 Stock Option/Stock
Issuance Plan to increase the number of shares of Common Stock for
issuance thereunder by 400,000 shares to 2,474,852 shares.
/ / FOR / / AGAINST / / ABSTAIN
3. To ratify the selection of Coopers & Lybrand L.L.P. as independent
auditors of the Company.
/ / FOR / / AGAINST / / ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such
other matters as may properly come before the meeting.
Please sign exactly as your name(s) is (are) shown on the share
certificate to which the Proxy applies. When shares are held by joint
tenants, both should sign. When signing as an attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
DATED:________________________ , 1997
Signature _____________________________________________________________
_____________________________________________________________
(Additional signature if held jointly)
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
