<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Section 240.14a-11(c) or Section
240.14a-12
QUICKTURN DESIGN SYSTEMS, INC.
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
QUICKTURN DESIGN SYSTEMS, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 11, 1997
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Quickturn
Design Systems, Inc., a Delaware corporation (the "Company"), will be held on
Friday, April 11, 1997 at 8:00 a.m., local time, at the Company's headquarters
located at 440 Clyde Avenue, Mountain View, California 94043, for the following
purposes:
1. To elect directors to serve for the ensuing year and until their
successors are duly elected and qualified.
2. To approve an amendment to the Company's Certificate of Incorporation
increasing the number of authorized shares of Common Stock from
20,000,000 shares to 40,000,000 shares.
3. To ratify the adoption of the Company's 1997 Stock Option Plan and the
reservation of 1,000,000 shares of Common Stock for issuance thereunder.
4. To approve an amendment to the Company's 1993 Employee Qualified Stock
Purchase Plan to increase the number of shares of Common Stock reserved
for issuance thereunder by 750,000 shares.
5. To ratify the appointment of Coopers & Lybrand L.L.P. as independent
auditors for the Company for the fiscal year ending December 31, 1997.
6. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only holders of record of the Company's Common Stock at the close of
business on February 21, 1997, the record date, are entitled to notice of and to
vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to sign and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the Annual Meeting may vote in person even if he or she has returned a proxy.
THE BOARD OF DIRECTORS
Mountain View, California
March 7, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE
<PAGE>
QUICKTURN DESIGN SYSTEMS, INC.
------------------
PROXY STATEMENT
FOR
1997 ANNUAL MEETING OF STOCKHOLDERS
---------------------
PROCEDURAL MATTERS
GENERAL
The enclosed Proxy is solicited on behalf of Quickturn Design Systems, Inc.
(the "Company") for use at the Annual Meeting of Stockholders to be held on
Friday, April 11, 1997 at 8:00 a.m., local time, and at any adjournment thereof,
for the purposes set forth herein and in the accompanying Notice of Annual
Meeting of Stockholders. The Annual Meeting will be held at the Company's
headquarters located at 440 Clyde Avenue, Mountain View, California 94043. The
Company's telephone number at that location is (415) 967-3300.
These proxy solicitation materials were mailed on or about March 7, 1997,
together with the Company's 1996 Annual Report to Stockholders, to all
stockholders entitled to vote at the meeting.
RECORD DATE
Holders of record of the Company's Common Stock at the close of business on
February 21, 1997 (the "Record Date") are entitled to notice of and to vote at
the Annual Meeting. As of the Record Date, 16,568,213 shares of the Company's
Common Stock were issued and outstanding. For information regarding security
ownership by management and by the beneficial owners of more than 5% of the
Company's Common Stock, see "Beneficial Security Ownership of Management and
Certain Beneficial Owners." The closing sales price of the Company's Common
Stock on the Nasdaq National Market on the Record Date was $18.00 per share.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each stockholder is entitled to one vote for each share of Common Stock on
all matters presented at the Annual Meeting. Stockholders do not have the right
to cumulate their votes in the election of directors.
The cost of soliciting proxies will be borne by the Company. The Company has
retained the services of Corporate Investor Communications, Inc. to assist in
obtaining proxies from brokers and nominees of stockholders for the Annual
Meeting. The estimated cost of such services is $5,000, plus out-of-pocket
expenses. In addition, the Company may reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in
forwarding solicitation materials to such beneficial owners. Proxies may also be
solicited by certain of the Company's directors, officers and regular employees,
without additional compensation, personally or by telephone, telegram, letter or
facsimile.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting is
a majority of the shares of Common Stock outstanding on the Record Date. The
Company intends to include abstentions and broker non-votes as present or
represented for purposes of establishing a quorum for the transaction of
business, but to exclude abstentions and broker non-votes from the calculation
of shares entitled to vote with respect to any proposal for which authorization
to vote was withheld.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's 1998 Annual Meeting of Stockholders must
be received by the Company no later than November 7, 1997 in order to be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
A board of six directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the Company's six nominees named below, all of whom are presently directors
of the Company. Frank J. Caufield is not standing for re-election and will
resign from the Board of Directors on the date of the Annual Meeting. In the
event that any nominee of the Company 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. It is not expected that any nominee will be unable or will decline to
serve as a director. The term of office of each person elected as a director
will continue until the next Annual Meeting of Stockholders or until a successor
has been elected and qualified.
<TABLE>
<CAPTION>
NAME AGE(1) PRINCIPAL OCCUPATION
- ------------------------------------ ----------- --------------------------------------------------------------------
<S> <C> <C>
Glen M. Antle....................... 58 Chairman of the Board of the Company
Keith R. Lobo....................... 45 President and Chief Executive Officer of the Company
Richard C. Alberding................ 66 Executive Vice President, Hewlett-Packard Company, Retired
Michael R. D'Amour.................. 43 President of D'Amour and Associates
Yen-Son (Paul) Huang................ 51 Entrepreneur
Dr. David K. Lam.................... 54 Technology and Business Advisor
</TABLE>
- ------------------------
(1) As of February 21, 1997.
Glen M. Antle joined the Company in June 1993 as Chairman of the Board. From
July 1990 to June 1993, he served as Chairman of PiE Design Systems, Inc.
("PiE"), and from September 1992 to June 1993, he served as Chief Executive
Officer of PiE. He served as Chairman, from August 1982 to May 1988, as
co-Chairman, from May 1988 to June 1989, and Chief Executive Officer, from
August 1982 to September 1988, of Cadence Design Systems, Inc., a company that
develops CAD software products ("Cadence"). Mr. Antle is currently a director of
Trident Microsystems, Inc.
Keith R. Lobo joined the Company in November 1992 as President, Chief
Executive Officer and Director. From March 1992 to October 1992, Mr. Lobo served
as a consultant in the venture capital field and was a private investor. From
March 1988 to February 1992, he served as Executive Vice President and Chief
Operating Officer of Chips & Technologies Inc., a semiconductor supplier of
microcomputer components to the personal computer industry.
Richard C. Alberding has served as a director of the Company since May 1995.
Mr. Alberding has served as a management consultant since June 1991. From 1958
to 1991, he served in a variety of positions for Hewlett-Packard Company, most
recently as Executive Vice President. Mr. Alberding also serves as a director of
Walker Interactive Systems, Inc., Paging Network Inc., Sybase, Inc., Kennametal
Inc., Digital Microwave Corp., Digital Link Corp. and Storm Technology, Inc.
Michael R. D'Amour co-founded the Company and has served as Director since
the Company's inception. Since December 1995, Mr. D'Amour has served as
President of D'Amour and Associates, a research and development company. From
January 1995 to April 1995, he served as the Company's Executive Vice President.
He previously served as the Company's Executive Vice President, International
Sales from June 1990 to December 1994, as the Company's Executive Vice
President, Research and Development from September 1987 to June 1990, as the
Company's President and Chief Executive Officer from September 1987 to July
1988, and as the Company's Chairman of the Board from the Company's inception to
June 1993.
2
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Yen-Son (Paul) Huang served as Executive Vice President between January 1996
and December 1996 and as Director of the Company since June 1993. From June 1993
to January 1996, he served as the Company's Executive Vice President, Product
Development. From January 1990 to June 1993, he served as President of PiE, a
company he co-founded. Mr. Huang is currently a director of EPIC Design
Technology, Inc.
Dr. David K. Lam has served as a director of the Company since September
1996. Dr. Lam is a technology and business advisor in the semiconductor
equipment industry. Between April 1989 and October 1996, Dr. Lam served as
President and Chief Executive Officer of ExpertEdge, Inc., a provider of
integrated, multimedia client-server software. From 1987 to 1989, he was Vice
President at Wyse Technology, Inc., and he founded Lam Research in 1980.
REQUIRED VOTE
The six nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted for them shall be elected
as directors. Votes withheld from any director are counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but they have no legal effect under Delaware law.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED HEREIN.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company has three standing committees: an
Audit Committee, a Compensation Committee and a Nominating Committee.
The Audit Committee, which currently consists of Messrs. Caufield and
Alberding, is responsible for (i) recommending engagement of the Company's
independent auditors, (ii) approving the services performed by such auditors,
(iii) consulting with such auditors and reviewing with them the results of their
examination, (iv) reviewing and approving any material accounting policy changes
affecting the Company's operating results, (v) reviewing the Company's control
procedures and personnel, and (vi) reviewing and evaluating the Company's
accounting principles and its system of internal accounting controls. The Audit
Committee held one meeting during fiscal 1996.
The Compensation Committee, which currently consists of Messrs. Caufield,
Alberding and Antle, is responsible for (i) reviewing and approving the
compensation and benefits for the Company's officers and other employees, (ii)
administering the Company's stock purchase and stock option plans, and (iii)
making recommendations to the Board of Directors regarding such matters. The
Compensation Committee held eight meetings during fiscal 1996.
The Nominating Committee, which currently consists of Messrs. Caufield, Lobo
and Antle, is responsible for making recommendations to the Board of Directors
regarding nominations for membership on the Board of Directors. The Nominating
Committee will consider nominees recommended by stockholders, provided such
recommendations are submitted in writing to the Secretary of the Company. The
Nominating Committee held two meetings during fiscal 1996.
The Board of Directors held a total of nine meetings (including regularly
scheduled and special meetings) during fiscal 1996. No incumbent director during
the last fiscal year attended fewer than 75% of the aggregate of (i) the total
number of meetings of the Board of Directors and (ii) the total number of
meetings held by all committees on which he served, except Mr. Huang.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive additional
compensation for their services as directors of the Company. However,
nonemployee members of the Board of Directors receive
3
<PAGE>
an annual cash retainer of $12,000 and an annual committee membership stipend of
$1,500 for each committee of the Board of Directors on which such director
serves.
In addition, nonemployee directors participate in the Company's 1994 Outside
Director Stock Option Plan (the "Director Plan"). The Director Plan was adopted
by the Board of Directors in January 1994 and approved by the stockholders in
May 1994. The Director Plan provides for an automatic grant of a nonstatutory
stock option to purchase 20,000 shares of Common Stock to a nonemployee director
on the date of the first meeting on which such individual participates as a
director (an "Initial Option"). An Initial Option has a term of ten years and
vests monthly over four years. Beginning four years after the grant of an
Initial Option to a director, such director is granted an automatic annual
option to purchase 3,500 shares of Common Stock (a "Subsequent Option"), which
option has a term of ten years and vests monthly over one year. The exercise
price of each option granted equals 100% of the fair market value of the Common
Stock, based on the closing sales price of the Common Stock as reported on the
Nasdaq National Market on the date of grant. Options granted under the Director
Plan must be exercised within three months following the end of the optionee's
tenure as a director of the Company or within twelve months after the
termination of a director's tenure due to death or disability. The Director Plan
is designed to work automatically, without administration; however, to the
extent administration is necessary, the Director Plan has been structured so
that options granted to nonemployee directors who administer the Company's other
employee benefit plans qualify as transactions exempt from Section 16(b) of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), pursuant
to Rule 16b-3 promulgated thereunder. Dr. Lam received an Initial Option in
1996.
4
<PAGE>
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION
The Company's Certificate of Incorporation, as currently in effect (the
"Certificate"), provides that the Company is authorized to issue two classes of
stock consisting of 20,000,000 shares of Common Stock, $0.001 par value per
share, and 2,000,000 shares of Preferred Stock, $0.001 par value per share. In
February 1997, the Board of Directors authorized an amendment to the Certificate
to increase the authorized number of shares of Common Stock to 40,000,000
shares. The stockholders are being asked to approve at the Annual Meeting such
amendment to the Certificate. Under the proposed amendment, the first paragraph
of the Article numbered "FOURTH" of the Certificate would be amended to read as
follows:
This corporation is authorized to issue two classes of shares to be
designated respectively Preferred Stock ("Preferred") and Common Stock
("Common"). The total number of shares of Preferred this corporation
shall have authority to issue shall be 2,000,000, $.001 par value, and
the total number of shares of Common which this corporation shall have
the authority to issue shall be 40,000,000, $.001 par value.
PURPOSE AND EFFECT OF THE AMENDMENT
The principal purpose of the proposed amendment to the Certificate is to
authorize additional shares of Common Stock which will be available in the event
the Board of Directors determines that it is necessary or appropriate to permit
future stock dividends or stock splits, to raise additional capital through the
sale of securities, to acquire another company or its business or assets or to
establish a strategic relationship with a corporate partner. Approval of the
amendment will eliminate the delays and expense that otherwise would be incurred
if stockholder approval were required to increase the authorized number of
shares of the Company's Common Stock for possible future transactions involving
the issuance of additional shares. If the amendment is approved by the
stockholders, the Board of Directors does not intend to solicit further
stockholder approval prior to the issuance of any additional shares of Common
Stock, except as may be required by applicable law. While there is no
transaction pending that would require approval of the increase, failure to
approve the increase would leave the Company with a smaller pool of authorized
but unissued Common Stock than the Board considers appropriate or desirable.
Furthermore, as of February 21, 1997, 16,568,213 shares of the Company's Common
Stock were issued and outstanding, and 3,232,022 shares of the Company's Common
Stock were subject to outstanding options under the Company's employee benefit
plans. Unless the amendment is approved, the Company will be unable to increase
the shares reserved under the Company's benefit plans (as proposed in Proposal
No. 3 and Proposal No. 4 in this Proxy Statement).
The additional Common Stock to be authorized by adoption of the amendment
would have rights identical to the currently outstanding Common Stock of the
Company, and the increase in authorized Common Stock will not have any immediate
effect on the rights of existing stockholders. However, the Board will have the
authority to issue authorized Common Stock without requiring future stockholder
approval of such issuances, except as may be required by applicable law. To the
extent that the additional authorized shares are issued in the future, they will
decrease the existing stockholders' percentage equity ownership and, depending
on the price at which they are issued, could be dilutive to the existing
stockholders. The holders of Common Stock have no preemptive rights.
If the amendment is adopted, it will become effective upon filing of a
Certificate of Amendment of the Company's Certificate of Incorporation with the
Secretary of State of the State of Delaware.
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<PAGE>
POTENTIAL ANTI-TAKEOVER EFFECT
The increase in the authorized number of shares of Common Stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of the Company without further action by the
stockholders. Shares of authorized and unissued Common Stock could (within the
limits imposed by applicable law) be issued in one or more transactions which
would make a change in control of the Company more difficult, and therefore less
likely. Any such issuance of additional stock could have the effect of diluting
the earnings per share and book value per share of outstanding shares of Common
Stock, and such additional shares could be used to dilute the stock ownership or
voting rights of a person seeking to obtain control of the Company.
REQUIRED VOTE
The approval of the amendment to the Certificate requires the affirmative
vote of a majority of the outstanding shares of Common Stock of the Company as
of the Record Date. An abstention or non-vote is not an affirmative vote and,
therefore, will have the same effect as a vote against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
AMENDMENT TO THE CERTIFICATE.
6
<PAGE>
PROPOSAL NO. 3
ADOPTION OF 1997 STOCK OPTION PLAN
In February 1997, the Board of Directors adopted and approved the 1997 Stock
Option Plan (the "1997 Plan") and reserved 1,000,000 shares for issuance
thereunder, subject to stockholder approval. As of February 21, 1997, no options
have been granted pursuant to the 1997 Plan. The 1997 Plan will replace the
Company's 1988 Stock Option Plan (the "1988 Plan") with respect to future option
grants. As of February 21, 1997, an aggregate of 358,665 shares were available
for issuance under the 1988 Plan. The Company anticipates continuing to grant
options under the 1988 Plan until all such available shares are issued.
The Company believes that grants of stock options motivate high levels of
performance and provide an effective means of recognizing employee contributions
to the success of the Company. At present, all newly hired full-time employees
are granted options. The Company believes that this policy is of great value in
recruiting and retaining highly qualified technical and other key personnel who
are in great demand. The Board of Directors believes that the ability to grant
options will be important to the future success of the Company by allowing it to
remain competitive in attracting and retaining such key personnel.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the Common Stock
present or represented at the Annual Meeting is required to ratify the adoption
of the 1997 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE ADOPTION OF THE 1997 PLAN.
SUMMARY OF THE 1997 STOCK PLAN
GENERAL. A total of 1,000,000 shares of Common Stock is reserved for
issuance under the 1997 Plan. The purpose of the 1997 Plan is to attract and
retain the best available personnel for positions of substantial responsibility
with the Company, to provide additional incentive to the employees, directors
and consultants of the Company and to promote the success of the Company's
business. Options granted under the 1997 Plan may be either "incentive stock
options," as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or nonstatutory stock options.
ADMINISTRATION. The 1997 Plan may generally be administered by the Board or
a Committee appointed by the Board. The administrators of the 1997 Plan are
referred to herein as the "Administrator."
ELIGIBILITY; LIMITATIONS. Nonstatutory stock options may be granted under
the 1997 Plan to employees, directors and consultants of the Company and any
parent or subsidiary of the Company. Incentive stock options may be granted only
to employees. The Administrator, in its discretion, selects the employees,
directors and consultants to whom options may be granted, the time or times at
which such awards may be exercised, and the number of shares subject to each
such award.
Section 162(m) of the Code limits the deductibility of compensation paid to
certain executive officers of the Company. To maximize the Company's deduction
attributable to options granted to such persons, the 1997 Plan provides that an
employee may be granted, in any fiscal year of the Company, options to purchase
no more than 200,000 shares of Common Stock; provided, however, that in
connection with an employee's initial employment, he or she may be granted
options to purchase up to an additional 100,000 shares of Common Stock.
7
<PAGE>
TERMS AND CONDITIONS OF OPTIONS. Each option is evidenced by a stock option
agreement between the Company and the optionee, and is subject to the following
additional terms and conditions:
(a) EXERCISE PRICE. The Administrator determines the exercise price of
options at the time the options are granted. However, the exercise price of an
incentive stock option may not be less than 100% of the fair market value of the
Common Stock on the date such option is granted; provided, however, that the
exercise price of an incentive stock option granted to an optionee who owns
stock possessing more than 10% of the voting power of all classes of stock of
the Company (a "10% Stockholder") may not be less than 110% of the fair market
value of the Common Stock on the date such option is granted. The fair market
value of the Common Stock is generally determined with reference to the closing
sale price for the Common Stock on the last market trading day prior to the date
the option is granted.
(b) EXERCISE OF OPTION; FORM OF CONSIDERATION. The Administrator determines
when options become exercisable, and may in its discretion, accelerate the
vesting of any outstanding option. Generally, options granted under the 1997
Plan will vest over a four-year period at the rate of one-fourth at the end of
one year from the date of grant and 1/48th at the end of each month thereafter.
The means of payment for shares issued upon exercise of an option is specified
in each option agreement. The 1997 Plan permits payment to be made by cash,
check, promissory note, other shares of Common Stock (with some restrictions),
cashless exercise, a reduction in the amount of any Company liability to the
optionee, any other form of consideration permitted by applicable law or any
combination thereof.
(c) TERM OF OPTION. The term of an incentive stock option may be no more
than ten years from the date of grant; provided, however, that in the case of an
incentive stock option granted to a 10% Stockholder, the term of the option may
be no more than five years from the date of grant. No option may be exercised
after the expiration of its term.
(d) TERMINATION OF SERVICE. If an optionee ceases to be an employee,
director or consultant for any reason (other than death or disability), the
optionee may exercise his or her option within such period of time as is
specified in such optionee's option agreement, and only to the extent that the
optionee was entitled to exercise the option at the date of such cessation (but
in no event later than the expiration of the term of such option). If no such
period is specified in the option agreement, the option shall remain exercisable
for three months following the optionee's termination of service.
(e) DEATH OR DISABILITY. If an optionee ceases to be an employee, director
or consultant as a result of death or disability, then all options held by such
optionee under the 1997 Plan expire on the earlier of (i) 12 months from the
date of such cessation or (ii) the expiration date of such option. The optionee
(or the optionee's estate or the person who acquires the right to exercise the
option by bequest or inheritance) may exercise all or part of the option at any
time before such expiration to the extent that the option was exercisable at the
time of such cessation.
(f) NONTRANSFERABILITY OF OPTIONS. Options granted under the 1997 Plan are
not transferable other than by will or the laws of descent and distribution and
may be exercised during the optionee's lifetime only by the optionee.
(g) OTHER PROVISIONS. The stock option agreement may contain such other
terms, provisions and conditions not inconsistent with the 1997 Plan as may be
determined by the Administrator.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event that the Common
Stock of the Company changes by reason of any stock split, reverse stock split,
stock dividend, combination, reclassification or other similar change in the
capital structure of the Company effected without the receipt of consideration,
appropriate adjustments shall be made in the number of shares of Common Stock
subject to the 1997 Plan, the number of shares of Common Stock subject to any
option outstanding under the 1997 Plan and the exercise price of any such
outstanding award.
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In the event of a proposed liquidation or dissolution, any unexercised
options will terminate. The Administrator may, at its discretion, provide that
each optionee shall have the right to exercise all of the optionee's options,
including those not otherwise exercisable.
In connection with any merger, consolidation, acquisition of assets or like
occurrence involving the Company, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation. If the successor
corporation refuses to assume the options or to substitute substantially
equivalent awards, the optionee shall have the right to exercise the option as
to all the optioned stock, including shares not otherwise exercisable. In such
event, the Administrator shall notify the optionee that the option is fully
exercisable for 15 days from the date of such notice and that the option
terminates upon expiration of such period.
AMENDMENT AND TERMINATION OF THE 1997 PLAN. The Board may amend, alter,
suspend or terminate the 1997 Plan, or any part thereof, at any time and for any
reason. However, the Company shall obtain stockholder approval for any amendment
to the 1997 Plan to the extent necessary to comply with U.S. state corporate
laws, U.S. federal and state securities laws, the Code, any stock exchange or
quotation system on which the Common Stock is listed or quoted and the
applicable laws of any foreign country or jurisdiction where options are, or
will be, granted under the 1997 Plan. No such action by the Board or
stockholders may alter or impair any option previously granted under the 1997
Plan without the written consent of the optionee. Unless terminated earlier, the
1997 Plan shall terminate ten years from the date of its approval by the
stockholders or the Board, whichever is earlier.
FEDERAL INCOME TAX CONSEQUENCES FOR THE 1997 PLAN
INCENTIVE STOCK OPTIONS. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain or
loss is treated as long-term capital gain or loss. If these holding periods are
not satisfied, the optionee recognizes ordinary income at the time of
disposition equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as ordinary
income is treated as long-term or short-term capital gain or loss, depending on
the holding period. A different rule for measuring ordinary income upon such a
premature disposition may apply if the optionee is also an officer, director, or
10% stockholder of the Company. The Company is entitled to a deduction in the
same amount as the ordinary income recognized by the optionee.
NONSTATUTORY STOCK OPTIONS. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. The Company is
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Upon a disposition of such shares by the optionee, any difference
between the sale price and the optionee's exercise price, to the extent not
recognized as taxable income as provided above, is treated as long-term or
short-term capital gain or loss, depending on the holding period.
The foregoing is only a summary of the effect of federal income taxation
upon optionees and the Company with respect to the grant and exercise of options
under the 1997 Plan. It does not purport to be complete, and does not discuss
the tax consequences of an employee's or consultant's death or the provisions of
the income tax laws of any municipality, state or foreign country in which the
employee or consultant may reside.
9
<PAGE>
PROPOSAL NO. 4
APPROVAL OF AMENDMENT TO THE COMPANY'S
1993 EMPLOYEE QUALIFIED STOCK PURCHASE PLAN
GENERAL
The 1993 Employee Qualified Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in March 1993 and approved by the stockholders
in November 1993. In April 1995, the Stockholders approved an amendment to the
Purchase Plan which increased the number of shares reserved thereunder by an
additional 250,000 shares of Common Stock, for an aggregate of 450,000 shares
reserved for issuance thereunder, and modified the pricing mechanics of an
automatic reenrollment. The Purchase Plan, which is intended to qualify under
Section 423 of the Code, permits eligible employees to purchase Common Stock
through payroll deductions at a price equal to 85% of the fair market value of
the Common Stock at the beginning or at the end of each offering period,
whichever is lower. Employees are eligible to participate in the Purchase Plan
if they have been regularly employed by the Company for at least thirty days
prior to an offering date. As of February 21, 1997, a total of 443,965 shares of
Common Stock had been purchased under the Purchase Plan, and 294 employees were
participating under the Purchase Plan.
PROPOSAL
In February 1997, the Board of Directors approved an amendment to the
Purchase Plan to increase the number of shares reserved thereunder by an
additional 750,000 shares of Common Stock, for an aggregate of 1,200,000 shares
reserved for issuance thereunder.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the Common Stock
present or represented at the Annual Meeting is required to approve and ratify
the amendment to the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
AMENDMENT TO THE PURCHASE PLAN.
SUMMARY OF PURCHASE PLAN
ADMINISTRATION. The Purchase Plan is administered by the Board of Directors
or a committee appointed by the Board (the "Administrator"). Every finding,
decision and determination by the Administrator shall, to the full extent
permitted by law, be final and binding upon all parties.
ELIGIBILITY. Employees are eligible to participate if they have been
employed by the Company at least thirty days prior to an offering date; however,
they must be regularly employed by the Company for at least twenty hours per
week and more than three months per calendar year. Participation in the Purchase
Plan ends automatically on termination of employment with the Company. Eligible
employees may become a participant by completing a subscription agreement
authorizing payroll deductions and filing it with the Company's payroll office
at least ten business days prior to the applicable enrollment date.
OFFERING PERIODS. The Purchase Plan is implemented by consecutive and
overlapping offering periods of approximately 24 months, with purchases
automatically being made every six months.
PURCHASE PRICE. The purchase price per share of the shares offered under
the Purchase Plan in a given offering period shall be the lower of 85% of the
fair market value of the Common Stock on the enrollment date or 85% of the fair
market value of the Common Stock on the exercise date. The fair market value of
the Common Stock on a given date shall be the closing sale price of the Common
Stock for
10
<PAGE>
such date as reported by the Nasdaq National Market, except that the fair market
value on the enrollment date shall be the closing price on the previous trading
day.
PAYROLL DEDUCTIONS. The purchase price for the shares is accumulated by
payroll deductions during the offering period. The deductions may not exceed 10%
of a participant's eligible compensation, which is defined in the plan to
include all regular earnings, all bonuses paid pursuant to the Company's formal
Bonus Plan and commissions (but excluding incentive payments and other
compensation) for a given offering period; provided, however, that such
deductions shall be no less than $25 on any given payday. A participant may
discontinue his or her participation in the Purchase Plan at any time during the
offering period. Payroll deductions shall commence on the first payday following
the enrollment date, and shall end on the exercise date of the offering period
unless sooner terminated as provided in the Purchase Plan.
GRANT AND EXERCISE OF OPTION. The maximum number of shares placed under
option to a participant in an offering is that number determined by dividing the
amount of the participant's total payroll deductions to be accumulated prior to
an exercise date by the lower of 85% of the fair market value of the Common
Stock at the beginning of the offering period or on the exercise date. Unless a
participant withdraws from the Purchase Plan, such participant's option for the
purchase of shares will be exercised automatically on each exercise date for the
maximum number of whole shares at the applicable price.
Notwithstanding the foregoing, no employee will be permitted to subscribe
for shares under the Purchase Plan if, immediately after the grant of the
option, the employee would own 5% or more of the voting power or value of all
classes of stock of the Company or of any of its subsidiaries (including stock
which may be purchased under the Purchase Plan or pursuant to any other
options), nor shall any employee be granted an option which would permit the
employee to buy under all employee stock purchase plans of the Company more than
$25,000 worth of stock (determined at the fair market value of the shares at the
time the option is granted) in any calendar year.
WITHDRAWAL; TERMINATION OF EMPLOYMENT. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the Company.
A participant may withdraw all, but not less than all, of the payroll deductions
credited to such participant's account and not yet used by giving written notice
to the Company.
TRANSFERABILITY. No rights or accumulated payroll deductions of a
participant under the Purchase Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or pursuant to the Purchase Plan) and any such attempt may be
treated by the Company as an election to withdraw from the Purchase Plan.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER, ASSET SALE
OR CHANGE OF CONTROL. The shares reserved under the Purchase Plan as well as
the price per share of Common Stock covered by each option under the Purchase
Plan which has not yet been exercised, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company. In the event of the proposed dissolution or liquidation of the
Company, the offering period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board. In
the event of a proposed sale of all or substantially all the assets of the
Company or a merger of the Company with or into another corporation, the
Purchase Plan provides that each option under the plan be assumed or an
equivalent option be substituted by the successor or purchaser corporation,
unless the Board determines to shorten the offering period.
AMENDMENT AND TERMINATION. The Board of Directors of the Company may at any
time and for any reason terminate or amend the Purchase Plan. Except as provided
in the Purchase Plan, no such
11
<PAGE>
termination can affect options previously granted, provided that an offering
period may be terminated by the Board of Directors on any exercise date if the
Board determines that the termination of the Purchase Plan is in the best
interests of the Company and its stockholders. Except as provided in the
Purchase Plan, no amendment may make any change in any option theretofore
granted which adversely affects the rights of any participant. Unless terminated
sooner, the Purchase Plan will terminate 20 years from its effective date.
FEDERAL INCOME TAX CONSEQUENCES FOR THE PURCHASE PLAN
No income will be taxable to a participant until the shares purchased under
the Purchase Plan are sold or otherwise disposed of. Upon sale or other
disposition of the shares, the participant will generally be subject to tax in
an amount that depends upon the holding period. If the shares are sold or
otherwise disposed of more than two years from the Enrollment Date and one year
from the applicable Exercise Date, the participant will recognize ordinary
income measured as the lesser of (a) the excess of the fair market value of the
shares at the time of such sale or disposition over the purchase price, or (b)
an amount equal to 15% of the fair market value of the shares as of the
Enrollment Date. Any additional gain will be treated as long-term capital gain.
If the shares are sold or otherwise disposed of before the expiration of these
holding periods, the participant will recognize ordinary income generally
measured as the excess of the fair market value of the shares on the date the
shares are purchased over the purchase price. Any additional gain or loss on
such sale or disposition will be long-term or short-term capital gain or loss,
depending on the holding period. The Company generally is not entitled to a
deduction for amounts taxed as ordinary income or capital gain to a participant
except to the extent of ordinary income recognized by participants upon a sale
or disposition of shares prior to the expiration of the holding periods
described above.
The foregoing summary of the effect of federal income taxation upon the
participant and the Company with respect to the shares purchased under the
Purchase Plan does not purport to be complete, and does not discuss the tax
consequences of a participant's death or the income tax laws of any
municipality, state or foreign country in which the participant may reside.
PARTICIPATION IN THE PURCHASE PLAN
Eligible employees participate in the Purchase Plan voluntarily and each
such employee determines his or her level of payroll deductions. Accordingly,
future purchases under the Purchase Plan are not determinable. The following
table sets forth certain information regarding shares purchased under the
Purchase Plan during the Company's last fiscal year by (i) each of the officers
named in the Summary Compensation Table, (ii) all executive officers as a group,
and (iii) all other employees (excluding executive officers) as a group:
<TABLE>
<CAPTION>
NUMBER OF
DOLLAR SHARES
NAME OF INDIVIDUAL OR IDENTITY OF GROUP AND POSITION VALUE (1) PURCHASED
- ---------------------------------------------------------------------- ---------- ---------
<S> <C> <C>
Keith R. Lobo
President and Chief Executive Officer............................... -- --
Jeffrey K. Jordan
Vice President, North American Sales................................ $ 42,635 3,693
Alexander M. Levi
Vice President, Asia-Pacific Sales.................................. $ 25,597 2,285
Raymond K. Ostby
Vice President, Finance and Administration,
Chief Financial Officer and Secretary............................... -- --
Dugald H. Stewart
Vice President, Manufacturing....................................... $ 3,917 335
All executive officers as a group (13 persons)........................ $ 365,888 31,234
All other employees (excluding executive officers) as a group......... $1,986,216 166,883
</TABLE>
- ------------------------------
(1) Represents the market value of the shares on the date of purchase. The
purchase price paid by each participant in the Purchase Plan is at least 15%
below the market value.
12
<PAGE>
PROPOSAL NO. 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Coopers & Lybrand L.L.P., certified
public accountants, to audit the financial statements of the Company for the
fiscal year ending December 31, 1997. Coopers & Lybrand L.L.P. has audited the
Company's financial statements since the Company's inception. A representative
of Coopers & Lybrand L.L.P. is expected to be present at the meeting, will have
the opportunity to make a statement, and is expected to be available to respond
to appropriate questions.
REQUIRED VOTE
The Board of Directors has conditioned its appointment of the Company's
independent auditors upon the receipt of the affirmative vote of a majority of
the shares represented, in person or by proxy, and voting at the Annual Meeting,
which shares voting affirmatively also constitute at least a majority of the
required quorum. In the event that the stockholders do not approve the selection
of Coopers & Lybrand L.L.P., the appointment of the independent auditors will be
reconsidered by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS INDEPENDENT
AUDITORS FOR THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.
13
<PAGE>
BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of Common Stock of
the Company as of February 21, 1997 for the following: (i) each person or entity
who is known by the Company to own beneficially more than 5% of the outstanding
shares of the Company's Common Stock; (ii) each of the Company's current
directors; (iii) each of the officers named in the Summary Compensation Table;
and (iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED
- ---------------------------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
Kopp Investment Advisors, Inc.(2)....................................................... 1,426,300 8.6%
6600 France Avenue South
Edina, MN 55435
Glen M. Antle(3)........................................................................ 315,365 1.9%
Keith R. Lobo(4)........................................................................ 430,833 2.5%
Yen-Son (Paul) Huang(5)................................................................. 343,925 2.1%
Michael R. D'Amour(6)................................................................... 88,658 *
Frank J. Caufield(7).................................................................... 48,750 *
Richard C. Alberding(7)................................................................. 10,000 *
Dr. David K. Lam(7)..................................................................... 2,917 *
Jeffrey K. Jordan(7).................................................................... 11,542 *
Alexander M. Levi(7).................................................................... 813 *
Dugald H. Stewart(7).................................................................... 15,896 *
Raymond K. Ostby(8)..................................................................... 77,891 *
All directors and executive officers as a group
(18 persons)(9)....................................................................... 1,669,992 9.5%
</TABLE>
- ------------------------
* Less than 1%.
(1) The number and percentage of shares beneficially owned is determined under
rules of the Securities and Exchange Commission ("SEC"), and the information
is not necessarily indicative of beneficial ownership for any other purpose.
Under such rules, beneficial ownership includes any shares as to which the
individual has sole or shared voting power or investment power and also any
shares which the individual has the right to acquire within sixty days of
February 21, 1997 through the exercise of any stock option or other right.
Unless otherwise indicated in the footnotes, each person has sole voting and
investment power (or shares such powers with his or her spouse) with respect
to the shares shown as beneficially owned.
(2) This information was obtained from filings made with the SEC pursuant to
Sections 13(d) or 13(g) of the Securities Exchange Act of 1934, as amended.
(3) Includes 193,270 shares held by The Antle Family Trust, as to which Mr.
Antle shares voting and dispositive power, and 108,095 shares of Common
Stock subject to options exercisable within sixty days of February 21, 1997.
(4) Includes options to purchase 425,833 shares of Common Stock exercisable
within sixty days from February 21, 1997.
(5) Includes options to purchase 20,625 shares of Common Stock exercisable
within sixty days from February 21, 1997.
(6) Includes 80,221 shares held by The D'Amour Family Trust, as to which Mr.
D'Amour shares voting and dispositive power, and 1,537 shares of Common
Stock subject to options exercisable within sixty days of February 21, 1997.
(7) All such shares are subject to options exercisable within sixty days from
February 21, 1997.
14
<PAGE>
(8) Includes options to purchase 69,791 shares of Common Stock exercisable
within sixty days from February 21, 1997.
(9) Includes options to purchase 928,839 shares of Common Stock exercisable
within sixty days from February 21, 1997.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the
Securities and Exchange Commission (the "SEC") and the National Association of
Securities Dealers, Inc. Such officers, directors and ten-percent stockholders
are also required by SEC rules to furnish the Company with copies of all such
forms that they file.
Based solely on its review of the copies of such forms received by the
Company, or written representations from certain reporting persons that no Forms
5 were required for such persons, the Company believes that during fiscal 1996
all Section 16(a) filing requirements applicable to its officers, directors and
ten-percent stockholders were complied with, except that Dr. Lam filed a Form 3
late following his appointment as a Director of the Company.
15
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was formed in October 1993 and is
currently composed of Messrs. Caufield, Alberding and Antle. No interlocking
relationship exists between any member of the Company's Board of Directors or
Compensation Committee and any member of the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past. No member of the Compensation Committee is or was formerly
an officer or an employee of the Company or its subsidiaries.
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning total
compensation received by the person serving as Chief Executive Officer and each
of the four most highly compensated executive officers during the last fiscal
year (the "Named Officers"), for services rendered to the Company in all
capacities during the last three fiscal years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------------- ALL OTHER
------------------------- SECURITIES UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (2)
- -------------------------------------------------- ----- ----------- --------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Keith R. Lobo .................................... 1996 $ 250,000 $ 200,000 100,000 $ 6,768
PRESIDENT AND CHIEF EXECUTIVE OFFICER 1995 $ 227,369 $ 150,000 20,000 $ 3,978
1994 $ 196,153 $ 25,000 0 $ 766
Jeffrey K. Jordan ................................ 1996 $ 382,499(3) $ 30,000 25,000 $ 34,000(4)
VICE PRESIDENT, NORTH AMERICAN SALES 1995 $ 544,567 $ 30,000 10,000 $ 10,800
1994 $ 204,034 $ 46,000 10,000 $ 10,800
Alexander M. Levi ................................ 1996 $ 308,660(5) $ 24,000 0 $ 9,000
VICE PRESIDENT, ASIA-PACIFIC SALES 1995 $ 298,527 $ 15,000 5,000 $ 10,800
1994 $ 245,774 $ 0 0 $ 10,800
Dugald H. Stewart ................................ 1996 $ 184,333 $ 102,000 40,000 $ 8,873
VICE PRESIDENT, MANUFACTURING 1995 $ 151,667 $ 56,000 10,000 $ 6,000
1994 $ 131,376 $ 14,000 12,000 $ 6,000
Raymond K. Ostby ................................. 1996 $ 190,000 $ 70,000 40,000 $ 6,768
VICE PRESIDENT, FINANCE AND ADMINISTRATION, 1995 $ 156,667 $ 66,000 0 $ 5,863
CHIEF FINANCIAL OFFICER AND SECRETARY 1994 $ 134,512 $ 24,000 95,000(6) $ 8,350
</TABLE>
- ------------------------
(1) Includes bonuses earned or accrued with respect to services rendered in the
fiscal year indicated, whether or not such bonus was actually paid during
such fiscal year.
(2) Includes health care premiums and 401(k) contributions.
(3) Includes $293,747 from commissions.
(4) Includes a relocation allowance of $25,000.
(5) Includes $228,660 from commissions.
(6) Includes options to purchase 85,000 shares of Common Stock granted in August
and December 1993 that were repriced in July 1994.
16
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows, as to the Named Officers, information concerning
stock options granted during the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO TERM(4)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ------------------------
NAME GRANTED(1) FISCAL YEAR(2) PRICE DATE(3) 5% 10%
- ------------------------------------- ----------- --------------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Keith R. Lobo........................ 100,000 8.40% $ 12.125 10/11/06 $ 762,535 $ 1,932,413
Jeffrey K. Jordan.................... 25,000 2.10% $ 13.500 09/13/06 $ 212,252 $ 537,888
Alexander M. Levi.................... 0 -- -- -- -- --
Dugald H. Stewart.................... 10,000 0.84% $ 11.500 01/16/06 $ 72,323 $ 183,280
30,000 2.52% $ 12.125 10/11/06 $ 228,760 $ 579,724
Raymond K. Ostby..................... 10,000 0.84% $ 11.500 04/12/06 $ 72,323 $ 183,280
30,000 2.52% $ 12.125 10/11/06 $ 228,760 $ 579,724
</TABLE>
- ------------------------
(1) All options in this table are incentive stock options or non-qualified stock
options and were granted under the 1988 Plan or the 1996 Supplemental Stock
Plan (the "1996 Plan") and have exercise prices equal to the fair market
value on the date of grant. All such options have ten-year terms and vest
over a four-year period at the rate of one-fourth at the end of one year
from the date of grant and 1/48th at the end of each month thereafter.
(2) The Company granted options to purchase 1,190,400 shares of Common Stock to
employees in fiscal 1996.
(3) Options may terminate before their expiration upon the termination of
optionee's status as an employee or consultant, the optionee's death or an
acquisition of the Company.
(4) Potential realizable value assumes that the stock price increases from the
date of grant until the end of the option term (10 years) at the annual rate
specified (5% and 10%). Annual compounding results in total appreciation of
63% (at 5% per year) and 159% (at 10% per year). If the price of the
Company's Common Stock were to increase at such rates from the price at 1996
fiscal year end ($19.75 per share) over the next 10 years, the resulting
stock price at 5% and 10% appreciation would be $32.19 and $51.15,
respectively. The assumed annual rates of appreciation are specified in SEC
rules and do not represent the Company's estimate or projection of future
stock price growth. The Company does not necessarily agree that this method
can properly determine the value of an option.
17
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth, as to the Named Officers, certain
information concerning stock options exercised during fiscal 1996 and the number
of shares subject to both exercisable and unexercisable stock options as of
December 31, 1996. Also reported are values for "in-the-money" options that
represent the positive spread between the respective exercise prices of
outstanding stock options and the fair market value of the Company's Common
Stock on the last trading day of fiscal 1996, which was $19.75 per share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ---------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Keith R. Lobo................ 15,000 $ 193,125 424,583 110,417 $ 7,388,433 $ 895,317
5,000 $ 63,750
15,000 $ 190,005
Jeffrey K. Jordan............ 0 $ 0 10,041 34,959 $ 126,315 $ 263,685
Alexander M. Levi............ 1,500 $ 20,700 396 2,604 $ 5,049 $ 33,201
1,500 $ 21,188
2,000 $ 15,500
Dugald H. Stewart............ 271 $ 2,832 11,729 50,271 $ 151,474 $ 439,526
547 $ 5,607
234 $ 3,978
1,250 $ 12,813
1,875 $ 31,875
Raymond K. Ostby............. 0 $ 0 60,792 74,208 $ 828,291 $ 777,334
</TABLE>
- ------------------------
(1) Market value of underlying securities based on the closing price of
Company's Common Stock on the last trading day of fiscal 1996 on the Nasdaq
National Market of $19.75 minus the exercise price.
18
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee (the "Committee") is responsible for establishing
policies and programs which determine the compensation of the Company's
executive officers, as well as supervising and making recommendations to the
Board on compensation matters generally. The Committee also has exclusive
authority to grant stock options to executive officers of the Company under the
1988 Stock Option Plan (the "1988 Plan") the 1996 Supplemental Stock Plan (the
"1996 Plan") and the 1997 Stock Option Plan (the "1997 Plan").
COMPENSATION PHILOSOPHY AND POLICIES
The Committee's compensation philosophy is to provide cash and equity
incentives to the Company's officers and other employees through programs
designed to attract and retain personnel of the highest caliber in order to
maintain the Company's competitive position in its market. The Company seeks to
motivate its key employees by rewarding superior performance and by joining the
interests of employees to that of the stockholders through equity incentives.
The Committee seeks to foster teamwork and to motivate high performance
through a bonus program which depends upon achievement of corporate performance
objectives and, increasingly, individual performance objectives.
The Committee's policy is to establish a total compensation program at the
beginning of each year which is designed to enhance the Company's ability to
meet its financial, technical and other strategic goals for the year, while
creating an environment which will attract, retain and motivate highly skilled
officers and key employees to promote the success of the Company's business.
ELEMENTS OF COMPENSATION
Compensation for officers and key employees includes both cash and equity
elements.
Cash compensation consists of base salary, which is determined on the basis
of the level of responsibility, expertise and experience of the employee, while
taking into account competitive conditions in the industry. In addition, cash
performance awards are paid to officers and other key employees up to an
established percentage of base salary, subject to meeting all or a portion of
targeted objectives. Performance awards are based on achievement of corporate
financial goals and discretionary individual performance reviews. Compensation
of sales personnel includes two additional components, sales commissions and
sales bonuses tied to quarterly and annual targets.
Ownership of the Company's Common Stock is a key element of executive
compensation. Officers and other employees of the Company are eligible to
participate in the 1988 Plan, the 1996 Plan, the 1997 Plan and the 1993 Employee
Qualified Stock Purchase Plan (the "Purchase Plan"). The 1988 Plan, the 1996
Plan and the 1997 Plan permit the Board of Directors or any committee delegated
by the Board to grant stock options to employees on such terms as the Board or
its committee may determine. The Committee has sole authority to grant stock
options to executive officers of the Company and is currently administering
stock option grants to all employees. In determining the size of a stock option
grant to a new officer or other key employee, the Committee takes into account
equity participation by comparable employees within the Company, external
competitive circumstances and other relevant factors. Additional options may be
granted to current employees to reward exceptional performance or to provide
additional unvested equity incentives. These options typically vest over a
four-year period and thus require the employee's continuing efforts on behalf of
the Company. The Purchase Plan permits employees to acquire Common Stock of the
Company through payroll deductions and promotes broad-based equity participation
throughout the Company. The Compensation Committee believes that it is in the
stockholders' interests to link employees' compensation as closely as possible
to equity appreciation and thus to share with the employees the benefits of
their efforts on behalf of the Company's success.
19
<PAGE>
The Company also maintains a 401(k) Plan to provide retirement benefits
through tax deferred salary deductions for all its employees. The Company may
also make discretionary contributions towards the 401(k) Plan. The Company made
contributions to the 401(k) Plan for fiscal 1996.
1996 EXECUTIVE COMPENSATION
Executive compensation for fiscal 1996 included base salary and cash
performance awards, plus, in the case of sales executives, sales commissions and
sales bonuses. Executive officers, like other employees, were eligible for
option grants under the 1988 Plan. Performance awards for the 1996 fiscal year
were based upon achievement by the Company of corporate revenue and profit goals
which had been established at the beginning of the year (as to which no payments
were made in fiscal 1996) and individual performance goals. Performance awards
were paid after 1996 fiscal year end.
CHIEF EXECUTIVE OFFICER COMPENSATION FOR 1996
Keith R. Lobo joined the Company in November 1992. His annual base
compensation is set by the Compensation Committee in January of each year, after
review of salaries paid to chief executives of comparable companies and in light
of Mr. Lobo's performance during the prior year. Like all officers, he is
eligible to receive options under the 1988 Plan, 1996 Plan and 1997 Plan and to
participate in the Purchase Plan. Mr. Lobo received a performance award for
fiscal 1996 in the amount of $200,000, which constituted 100% of his target
bonus. Mr. Lobo's current base compensation is $250,000 per annum and he holds
options to purchase 535,000 shares of Common Stock.
SUMMARY
The Compensation Committee sets policy and administers the Company's cash
and equity incentive programs for the purpose of attracting and retaining highly
skilled executives who will promote the Company's business goals and
incentivizing them to achieve goals that will build long-term stockholder value.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Frank J. Caufield
Richard C. Alberding
Glen M. Antle
20
<PAGE>
COMPANY STOCK PRICE PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return with those of the S&P 500 Index and the S&P High Tech Composite Index.
The graph assumes that $100 was invested (i) on December 15, 1993 (the effective
date of the Company's initial public offering) in the Company's Common Stock and
(ii) on November 30, 1993 in the S&P 500 Index and the S&P Tech Sector (formerly
known as the S&P High Tech Composite), including reinvestment of dividends. Note
that historic stock price performance is not necessarily indicative of future
stock price performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
12/15/93 12/93 12/94 12/95 12/96
<S> <C> <C> <C> <C> <C> <C>
Quickturn Design Systems,
Inc. QKTN 100 104 115 83 171
S&P 500 I500 100 101 103 141 173
S&P Tech Sector ITES 100 103 120 172 244
</TABLE>
21
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Company may recommend.
It is important that your shares be represented at the meeting, regardless
of the number of shares that you hold. You are, therefore, urged to execute and
return, at your earliest convenience, the accompanying proxy card in the
envelope which has been enclosed.
THE BOARD OF DIRECTORS
Mountain View, California
March 7, 1997
22
<PAGE>
APPENDIX A
QUICKTURN DESIGN SYSTEMS, INC.
ANNUAL MEETING OF SHAREHOLDERS, APRIL 11, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF QUICKTURN DESIGN SYSTEMS, INC.
PROXY - The undersigned stockholder of QUICKTURN DESIGN SYSTEMS, INC., a
Delaware corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement, each dated March 7, 1997, and
hereby appoints Keith R. Lobo and Raymond K. Ostby, or either of them, as
proxies, each with the power to appoint a substitute, and hereby authorizes them
to represent and to vote, as designated on the reverse side, all shares of
Common Stock of Quickturn Design Systems, Inc. held on record by the undersigned
on February 21, 1997 at the Annual Meeting of Stockholders to be held on
April 11, 1997, or any postponement or adjournment thereof.
Please mark votes as in this example /x/
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED STOCKHOLDER(S), OR IF NO DIRECTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED FOR ITEMS 1, 2, 3, 4, 5, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
1. Election of all nominees listed below to the Board of Directors to serve
until the next Annual Meeting and until their successors have been duly
elected and qualified, except as noted (write the names, if any of nominees
for whom you withhold authority to vote).
Nominees: Glen M. Antle, Keith R. Lobo, Richard C. Alberding, Michael R.
D'Amour, Yen-Son (Paul) Huang, Dr. David K. Lam.
FOR WITHHELD
/ / / /
/ /
--------------------------------------
FOR ALL NOMINEES EXCEPT AS NOTED ABOVE
Mark here for address change and note below: / /
2. To approve an amendment to the Company's Certificate of Incorporation
increasing the number of authorized shares of Common Stock from 20,000,000
shares to 40,000,000 shares.
FOR AGAINST ABSTAIN
/ / / / / /
3. To ratify the adoption of the Company's 1997 Stock Option Plan and the
reservation of 1,000,000 shares of Common Stock for issuance thereunder.
FOR AGAINST ABSTAIN
/ / / / / /
4. To approve an amendment to the Company's 1993 Employee Qualified Stock
Purchase Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 750,000 shares.
FOR AGAINST ABSTAIN
/ / / / / /
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5. To ratify the appointment of Coopers & Lybrand L.L.P. as independent
auditors for the Company for the fiscal year ending December 31, 1997
FOR AGAINST ABSTAIN
/ / / / / /
6. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Please sign your name exactly as it appears hereon. If acting as attorney,
executor, trustee, or in other representative capacity, sign name and title.
Signature: Date:
---------------------------------------- -------------------
Signature: Date:
---------------------------------------- -------------------
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<PAGE>
APPENDIX B
QUICKTURN DESIGN SYSTEMS, INC.
1997 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws
of any foreign country or jurisdiction where Options are, or will be, granted
under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means Quickturn Design Systems, Inc., a Delaware
corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
(i) "DIRECTOR" means a member of the Board.
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<PAGE>
(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any
leave of absence approved by the Company or (ii) transfers between locations
of the Company or between the Company, its Parent, any Subsidiary, or any
successor. For purposes of Incentive Stock Options, no such leave may exceed
ninety days, unless reemployment upon expiration of such leave is guaranteed
by statute or contract. If reemployment upon expiration of a leave of
absence approved by the Company is not so guaranteed, on the 181st day of
such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as
a Nonstatutory Stock Option. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment"
by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, the
Fair Market Value of a Share of Common Stock shall be the closing sales price
for such stock (or the closing bid, if no sales were reported) as quoted on
such exchange or system for the last market trading day prior to the time of
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value
of a Share of Common Stock shall be the mean between the high bid and low
asked prices for the Common Stock on the last market trading day prior to the
day of determination, as reported in THE WALL STREET JOURNAL or such other
source as the Administrator deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "NOTICE OF GRANT" means a written or electronic notice
evidencing certain terms and conditions of an individual Option grant. The
Notice of Grant is part of the Option Agreement.
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<PAGE>
(q) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(t) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "OPTIONED STOCK" means the Common Stock subject to an Option or
Stock Purchase Right.
(v) "OPTIONEE" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "PLAN" means this 1997 Stock Option Plan.
(y) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(z) "SECTION 16(B)" means Section 16(b) of the Exchange Act.
(aa) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(bb) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(cc) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 1,000,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program,
the unpurchased Shares which were subject thereto shall become available for
future grant or sale under the Plan (unless the Plan has terminated);
PROVIDED, however, that Shares that have actually been issued under the Plan
shall not be returned to the Plan and shall not become available for future
distribution under the Plan.
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<PAGE>
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) SECTION 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) RULE 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options may be
granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option of the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(vii) to institute an Option Exchange Program;
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<PAGE>
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option (subject to Section 14(c) of
the Plan), including the discretionary authority to extend the post-termination
exercisability period of Options longer than is otherwise provided for in the
Plan;
(xi) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option that number of Shares having a Fair Market Value equal to the
amount required to be withheld. The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined. All elections by an Optionee to have Shares withheld for
this purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. ELIGIBILITY. Nonstatutory Stock Options may be granted to Service
Providers. Incentive Stock Options may be granted only to Employees.
6. LIMITATIONS.
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
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<PAGE>
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 200,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 100,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 12.
(iv) If an Option is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 12), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. TERM OF PLAN. Subject to Section 18 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect
for a term of ten (10) years unless terminated earlier under Section 14 of the
Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
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(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share
on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value
per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions which must be satisfied
before the Option may be exercised.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the
time of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date
of surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and
at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. Unless the Administrator
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provides otherwise, vesting of Options granted hereunder shall be tolled
during any unpaid leave of absence. An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by
the Administrator and permitted by the Option Agreement and the Plan. Shares
issued upon exercise of an Option shall be issued in the name of the Optionee
or, if requested by the Optionee, in the name of the Optionee and his or her
spouse. Until the Shares are issued (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued)
such Shares promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the Shares are issued, except as provided in Section 12 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's
death or Disability, the Optionee may exercise his or her Option within such
period of time as is specified in the Option Agreement to the extent that the
Option is vested on the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his
or her Option within the time specified by the Administrator, the Option
shall terminate, and the Shares covered by such Option shall revert to the
Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise
his or her Option within such period of time as is specified in the Option
Agreement to the extent the Option is vested on the date of termination (but
in no event later than the expiration of the term of such Option as set forth
in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by
the unvested portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is
specified in the Option Agreement (but in no event later than the expiration
of the term of such Option as set forth in the Notice of Grant), by the
Optionee's
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<PAGE>
estate or by a person who acquires the right to exercise the Option by
bequest or inheritance, but only to the extent that the Option is vested on
the date of death. In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, at the time of death, the Optionee
is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall immediately revert to the Plan. The
Option may be exercised by the executor or administrator of the Optionee's
estate or, if none, by the person(s) entitled to exercise the Option under
the Optionee's will or the laws of descent or distribution. If the Option is
not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. NON-TRANSFERABILITY OF OPTIONS. Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws
of descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions
as the Administrator deems appropriate.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option and the number of shares of Common Stock which
have been authorized for issuance under the Plan but as to which no Options
have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify
each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option until ten (10) days
prior to such transaction as to all of the Optioned Stock covered thereby,
including Shares as to which the Option would not otherwise be exercisable.
In addition, the Administrator may provide that any Company repurchase option
applicable to any Shares purchased upon exercise of an Option shall lapse as
to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner
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contemplated. To the extent it has not been previously exercised, an Option
will terminate immediately prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the
assets of the Company, each outstanding Option shall be assumed or an
equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option, the
Optionee shall fully vest in and have the right to exercise the Option as to
all of the Optioned Stock, including Shares as to which it would not
otherwise be vested or exercisable. If an Option becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option
shall terminate upon the expiration of such period. For the purposes of this
paragraph, the Option shall be considered assumed if, following the merger or
sale of assets, the option or right confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option immediately prior to
the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger
or sale of assets is not solely common stock of the successor corporation or
its Parent, the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise
of the Option, for each Share of Optioned Stock subject to the Option, to be
solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common
Stock in the merger or sale of assets.
13. DATE OF GRANT. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination
granting such Option, or such other later date as is determined by the
Administrator. Notice of the determination shall be provided to each Optionee
within a reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to
comply with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
and the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to
Options granted under the Plan prior to the date of such termination.
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15. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with respect to
such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of
an Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell
or distribute such Shares if, in the opinion of counsel for the Company, such
a representation is required.
16. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
17. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
18. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan
is adopted. Such shareholder approval shall be obtained in the manner and to
the degree required under Applicable Laws.
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APPENDIX C
QUICKTURN DESIGN SYSTEMS, INC.
1993 EMPLOYEE QUALIFIED STOCK PURCHASE PLAN
(AS AMENDED THROUGH FEBRUARY 11, 1997)
The following constitute the provisions of the 1993 Employee Qualified
Stock Purchase Plan (herein called the "Plan") of Quickturn Design Systems, Inc.
(herein called the "Company").
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the Common Stock, $.001 par value per
share, of the Company.
(d) "COMPANY" shall mean Quickturn Design Systems, Inc., a Delaware
corporation, and any Designated Subsidiary of the Company.
(e) "COMPENSATION" shall mean all regular straight time earnings,
overtime, shift premiums, all bonuses paid pursuant to the formal Bonus Plan
sponsored by the Company, and commissions, but shall exclude incentive
compensation, incentive payments or other extraordinary compensation.
(f) "DESIGNATED SUBSIDIARIES" shall mean the Subsidiaries which have
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an employee of the
Company for purposes of tax withholding under the Code whose customary
employment with the Company or any Designated Subsidiary is at least twenty (20)
hours per week and more than five (5) months in any calendar year. For purposes
of the Plan, the employment relationship shall be treated as continuing intact
while the individual is on sick leave or other leave of absence approved by the
Company. Where the period of leave exceeds 90 days and the individual's right
to reemployment is not
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guaranteed either by statute or by contract, the employment relationship will
be deemed to have terminated on the 91st day of such leave.
(h) "EXERCISE DATE" shall mean the date one day prior to the date six
months, twelve months, eighteen months or twenty-four months after the Offering
Date of each Offering Period.
(i) "EXERCISE PERIOD" shall mean a period commencing on an Offering
Date or on the day after an Exercise Date and terminating one day prior to the
date six (6) months later.
(j) "OFFERING PERIOD" shall mean a period of approximately
twenty-four (24) months consisting of four approximately six-month Exercise
Periods during which options granted pursuant to the Plan may be exercised.
(k) "OFFERING DATE" shall mean the first day of each Offering Period
of the Plan.
(l) "PLAN" shall mean this 1993 Employee Qualified Stock Purchase
Plan.
(m) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(n) "TRADING DAY" shall mean a day on which national stock exchanges
and the National Association of Securities Dealers Automated Quotation (NASDAQ)
System are open for trading.
3. ELIGIBILITY.
(a) Any Employee as defined in paragraph 2 who shall be employed by
the Company at least 30 days prior to the Offering Date shall be eligible to
participate in the Plan, subject to limitations imposed by Section 423(b) of the
Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any subsidiary of the Company, or (ii) which permits his rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of fair market value of such stock (determined at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. OFFERING PERIODS.
(a) GENERAL RULE. The plan shall be implemented by consecutive and
overlapping Offering Periods of approximately twenty-four months, with a new
Offering Period beginning every six months.
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(b) THE FIRST OFFERING PERIOD. The first Offering Period shall begin
on the effective date of the Company's initial public offering of its Common
Stock that is registered with the Securities and Exchange Commission and end
approximately twenty-six months later, on February 17, 1996, if a Trading Day,
or the last Trading Day prior thereto. The first Exercise Date shall be the
last Trading Day on or before August 17, 1994. Subsequent Exercise Dates in the
First Offering Period shall be the last Trading Days on or before February 17,
1995, August 17, 1995, and February 17, 1996.
(c) SUBSEQUENT OFFERING PERIODS. The second Offering Period shall
begin on the first Trading Day on or after August 18, 1994. Subsequent Offering
Periods shall begin on the first Trading Day on or after February 18 and August
18 of each year and shall end on the last Trading Day on or before February 17
or August 17, twenty-four months later. The Plan shall continue until
terminated in accordance with paragraph 20 hereof. Subject to the requirements
of paragraph 20, the Board of Directors of the Company shall have the power to
change the commencement, termination and duration of Offering Periods with
respect to future offerings without stockholder approval if such change is
announced at least fifteen (15) days prior to the scheduled beginning of the
first Offering Period to be affected.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions on a form
provided by the Company and filing it with the Company's payroll office at least
ten (10) business days prior to the applicable Offering Date, unless a later
time for filing the subscription agreement is set by the Board for all eligible
Employees with respect to a given offering. For the first Offering Period under
the Plan , subscription agreements must be submitted by the close of business on
December 8, 1993.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Offering Date and shall end on the Exercise Date of the
offering to which such authorization is applicable, unless sooner terminated by
the participant as provided in paragraph 11.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his subscription agreement, he
shall elect to have payroll deductions made on each payday during the Offering
Period in an amount not exceeding ten percent (10%) of his or her Compensation.
The aggregate of such payroll deductions during any Offering Period shall not
exceed ten percent (10%) of his aggregate Compensation during said Offering
Period.
(b) All payroll deductions made by a participant shall be credited to
his or her account under the Plan and will be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in paragraph 11, or may increase or decrease the rate or amount
of his or her payroll deductions during the Offering Period (within the
limitations of Section 6(a)) by completing and filing with the Company a new
subscription agreement authorizing a decrease in the rate or amount of payroll
deductions; provided, however, that a participant may not decrease the rate or
amount of his or her payroll
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deductions more than once in any one month. The change in rate shall be
effective fifteen (15) days following the Company's receipt of the new
authorization or such shorter period as may be permitted by the Company.
Subject to the limitations of Section 6(a), a participant's subscription
agreement shall remain in effect for successive Offering Periods unless
revised as provided herein or terminated as provided in paragraph 11.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and paragraph 3(b) herein, a
participant's payroll deductions may be decreased to 0% at such time during
any Exercise Period which is scheduled to end during the current calendar
year that the aggregate of all payroll deductions accumulated with respect to
such Exercise Period and any other Exercise Period ending within the same
calendar year equal $21,250. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Exercise Period which is scheduled to end in the following calendar
year, unless terminated by the participant as provided in paragraph 11.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise
upon the exercise of the option or the dispositions, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any
time, the Company may, but will not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to
make available to the Company any tax deductions or benefits attributable to
sale or early disposition of Common Stock by the Employee.
7. GRANT OF OPTION.
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Exercise Date during such Offering Period (at the per share
option price) up to a number of shares of the Company's Common Stock
determined by dividing such Employee's payroll deductions accumulated prior
to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the lower of (i) eighty-five percent (85%) of the fair
market value of a share of the Company's Common Stock on the Offering Date or
(ii) eighty-five percent (85%) of the fair market value of a share of the
Company's Common Stock on the Exercise Date; provided, however, that the
maximum number of Shares an Employee may purchase during each Offering Period
shall be determined at the Offering Date by dividing $50,000 by the fair
market value of a share of the Company's Common Stock on the Offering Date,
and provided further that such purchase shall be subject to the limitations
set forth in Section 3(b) and 13 hereof. Exercise of each option during the
Offering Period shall occur as provided in Section 8, unless the participant
has withdrawn pursuant to Section 11, and each option shall expire at
midnight on the last day of the applicable Exercise Period. Fair market
value of a share of the Company's Common Stock shall be determined as
provided in Section 7(b) herein.
(b) The option price per share of the shares offered in a given
Exercise Period shall be the lower of: (i) 85% of the fair market value of a
share of the Common Stock of the Company on the Offering Date; or (ii) 85% of
the fair market value of a share of the Common Stock of the Company on the
Exercise Date. The fair market value of the Company's Common Stock on a
given
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date shall be determined by the Board in its discretion. However, except as
provided below, where there is a public market for the Common Stock, the fair
market value per share shall be the closing price of the Common Stock for
such date, as reported by the NASDAQ National Market System, or, in the event
the Common Stock is listed on a stock exchange, the fair market value per
share shall be the closing price on such exchange on such date, as reported
in THE WALL STREET JOURNAL. For purposes of the Offering Date under the
first Offering Period under the Plan, the fair market value of the Common
Stock shall be the "price to public" as set forth in the final prospectus
filed with the Securities and Exchange Commission pursuant to Rule 424 under
the Securities Act of 1933, as amended. For purposes of each subsequent
Offering Date, the fair market value shall be the closing price of the Common
Stock on the prior Trading Day. In the event the Offering Date or the
Exercise Date occurs on a weekend or legal holiday, the fair market value
shall be based on the closing bid price on the next Trading Day.
8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan as
provided in paragraph 11, his or her option for the purchase of shares will
be exercised automatically on each Exercise Date of the Offering Period, and
the maximum number of full shares subject to option shall be purchased for
such participant at the applicable option price with the accumulated payroll
deductions in his or her account. No fractional shares will be purchased and
any amount remaining in the participant's account after an Exercise Date
shall be held in the account until the next Exercise Date of the Offering
Period, unless the Offering Period has been oversubscribed or has terminated
with such Exercise Date, in which case such amount shall be refunded to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
9. DELIVERY. As promptly as practicable after the Exercise Date of
each Exercise Period, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option. Any cash remaining to the
credit of a participant's account under the Plan after a purchase by him or
her of shares at the termination of each Exercise Period which is
insufficient to purchase a full share of Common Stock of the Company shall be
applied to the participant's account for the next Exercise Period.
10. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. In the event that
the fair market value of the Company's Common Stock is lower on an Exercise
Date than it was on the Offering Date for that Offering Period, all Employees
participating in the Plan on the Exercise Date shall be deemed to have
withdrawn from the Offering Period immediately after the exercise of their
option on such Exercise Date and to have enrolled as participants in a new
Offering Period which begins on or about the day following such Exercise
Date. A participant may elect to remain in the previous short Offering
Period by filing a written statement declaring such election with the Company
prior to the time of the automatic change to the new Offering Period.
11. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by giving written
notice to the Company pursuant to a form to be provided by the Company. All
of the participant's payroll deductions credited to his or her account will
be paid to such participant as promptly as practicable after receipt of
notice of withdrawal and such participant's remaining option
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or options for the Offering Period will be automatically terminated, and no
further payroll deductions for the purchase of shares will be made during the
Offering Period. If a participant withdraws from an Offering Period, payroll
deductions will not resume at the beginning of the succeeding Offering Period
unless the participant delivers to the Company a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee prior to an
Exercise Date for any reason, including retirement or death, or upon
termination of a participant's employment relationship (as described in
Section 2(g)), the payroll deductions credited to such participant's account
during the Exercise Period but not yet used to exercise the option will be
returned to such participant or, in the case of his or her death, to the
person or persons entitled thereto under paragraph 15, and such participant's
remaining option or options will be automatically terminated.
(c) In the event an Employee fails to remain an Employee during an
Offering Period in which the Employee is a participant, he or she will be
deemed to have elected to withdraw from the Plan and the payroll deductions
credited to his or her account will be returned to such participant and such
participant's remaining option or options terminated.
(d) A participant's withdrawal from an Offering Period will not
have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering Period from
which the participant withdraws.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 1,200,000
shares, subject to adjustment upon changes in capitalization of the Company
as provided in paragraph 19. If on a given Exercise Date the number of
shares with respect to which options are to be exercised exceeds the number
of shares then available under the Plan (after deduction of all shares for
which options have been exercised or are then outstanding), the Company shall
make a pro rata allocation of the shares remaining available for option grant
in as uniform a manner as shall be practicable and as it shall determine to
be equitable. In such event, the Company shall give written notice of such
reduction of the number of shares subject to the option to each Employee
affected thereby and shall similarly reduce the rate of payroll deductions,
if necessary.
(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant
and his spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Company or a committee appointed by the Board. The Board or
its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and
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determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties. Members of the
Board who are eligible Employees are permitted to participate in the Plan,
provided that:
(a) Members of the Board who are eligible to participate in the
Plan may not vote on any matter affecting the administration of the Plan or
the grant of any option pursuant to the Plan.
(b) If a Committee is established to administer the Plan, no member
of the Board who is eligible to participate in the Plan may be a member of
the Committee.
(c) RULE 16b-3 LIMITATIONS. Notwithstanding the provisions of
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or any successor provision ("Rule 16b-3") provides specific requirements for
the administrators of plans of this type, the Plan shall be only administered
by such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to the end
of the Offering Period but prior to delivery to him of such shares and cash.
In addition, a participant may file a written designation of a beneficiary
who is to receive any cash from the participant's account under the Plan in
the event of such participant's death prior to the Exercise Date of the
offering period.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the
estate of the participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion,
may deliver such shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company
may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in paragraph 15 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds from an Offering Period in accordance with paragraph 11.
17. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.
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18. REPORTS. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to
participating Employees annually, which statements will set forth the amounts
of payroll deductions, the per share purchase price, the number of shares
purchased and the remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of shares of Common
Stock covered by each option under the Plan which has not yet been exercised
and the number of shares of Common Stock which have been authorized for
issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves") as well as the price per share of Common Stock
covered by each option under the Plan which has not yet been exercised, shall
be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock,
or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. In the event
of a proposed sale of all or substantially all of the assets of the Company,
or the merger of the Company with or into another corporation, each option
under the Plan shall be assumed or an equivalent option shall be substituted
by such successor corporation or a parent or subsidiary of such successor
corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, to shorten the
Offering Period then in progress by setting a new Exercise Date (the "New
Exercise Date"). If the Board shortens the Offering Period then in progress
in lieu of assumption or substitution in the event of a merger or sale of
assets, the Board shall notify each participant in writing, at least thirty
(30) days prior to the New Exercise Date, that the Exercise Date for his
option has been changed to the New Exercise Date and that his option will be
exercised automatically on the New Exercise Date, unless prior to such date
he has withdrawn from the Offering Period as provided in paragraph 11. For
purposes of this paragraph, an option granted under the Plan shall be deemed
to be assumed if, following the sale of assets or merger the option confers
the right to purchase, for each share of option stock subject to the option
immediately prior to the sale of assets or merger the consideration (whether
stock, cash or other securities or property) received in the sale of assets
or merger by holders of Common Stock for each share of Common Stock held on
the effective date of the transaction (and if such holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares of Common Stock); provided, however, that
if such consideration received in the sale of assets or merger was not solely
common stock of the successor corporation or its parent (as defined in
Section 424(e) of the Code), the Board may, with the consent of the successor
corporation, provide for the consideration to be received upon exercise of
the option to be solely common stock of the successor corporation or its
parent equal in fair market value to the per share consideration received by
holders of Common Stock in the sale of assets or merger.
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The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the
price per share of Common Stock covered by each outstanding option, in the
event that the Company effects one or more reorganizations,
recapitalizations, rights offerings or other increases or reductions of
shares of its outstanding Common Stock, and in the event of the Company being
consolidated with or merged into any other corporation.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in paragraph 19,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in
paragraph 19, no amendment may make any change in any option theretofore
granted which adversely affects the rights of any participant. To the extent
necessary to comply with Rule 16b-3 under the Securities Exchange Act of
1934, as amended, or under Section 423 of the Code (or any successor rule or
provision or any other applicable law or regulation), the Company shall
obtain stockholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes in the amount withheld during an
Offering Period, establish the exchange ratio applicable to amounts withheld
in a currency other than U.S. dollars, permit payroll withholding in excess
of the amount designated by a participant in order to adjust for delays or
mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or
accounting and crediting procedures to ensure that amounts applied toward the
purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such
other limitations or procedures as the Board (or its committee) determines in
its sole discretion advisable which are consistent with the Plan.
21. NOTICES. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares
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if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall be come effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue for a term of twenty (20)
years unless sooner terminated under Section 20.
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