<PAGE>
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 Rule 14a-11(c) or Rule 14a-12
XYLAN CORPORATION
(Name of Registrant as Specified in Its Charter)
-----------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
XYLAN CORPORATION
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 29, 1997
TO THE SHAREHOLDERS OF XYLAN CORPORATION:
Notice Is Hereby Given that the Annual Meeting of Shareholders of Xylan
Corporation (the "Company") will be held on Thursday, May 29, 1997, at 10:00
a.m., local time, at Hyatt Westlake Plaza Hotel, 880 S. Westlake Blvd, Westlake
Village, CA 91361, for the following purposes:
1. To elect three (3) class I directors and three (3) class II directors to
serve until their successors are elected and qualified;
2. To approve an amendment to the 1996 Stock Plan to increase the number of
shares of Common Stock reserved for issuance thereunder by 2,000,000
shares;
3. To ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997; and
4. To transact such other business as may properly come before the meeting or
any postponement or adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on March 31, 1997 are
entitled to notice of and to vote at the meeting and any adjournment(s) thereof.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if such shareholder returned a proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
Tae Hea Nahm
Secretary
Calabasas, California
April 18, 1997
IMPORTANT
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WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED EXPENSE
OF RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND SO DESIRE,
YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY.
<PAGE>
XYLAN CORPORATION
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PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 29, 1997
----------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Xylan Corporation (the "Company"), a California corporation, for use at the
Annual Meeting of Shareholders to be held on Thursday, May 29, 1997, at 10:00
a.m., local time, or at any postponement or adjournment(s) thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held at the Hyatt Westlake Plaza
Hotel, 880 S. Westlake Blvd, Westlake Village, CA 91361. The telephone number
at that location is (805) 497-9991.
The Company's principal executive offices are located at 26679 West Agoura
Road, Calabasas, California 91302. The Company's telephone number at that
location is (818) 880-3500.
SOLICITATION
These proxy solicitation materials were mailed on or about April 18, 1997
to all shareholders entitled to vote at the meeting. The costs of soliciting
these proxies will be borne by the Company. These costs will include the
expenses of preparing and mailing proxy materials for the Annual Meeting and
reimbursement paid to brokerage firms and others for their expenses incurred in
forwarding solicitation material regarding the Annual Meeting to beneficial
owners of the Company's Common Stock. The Company may conduct further
solicitation personally, telephonically or by facsimile through its officers,
directors and regular employees, none of whom will receive additional
compensation for assisting with the solicitation.
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 Company (Attention:
Dale J. Bartos, Inspector of Elections) a written notice of revocation or a duly
executed proxy bearing a later date or by attending the meeting of shareholders
and voting in person.
VOTING
Holders of Common Stock are entitled to one vote per share on all matters.
Votes cast in person or by proxy at the Annual Meeting will be tabulated by
the Inspector of Elections with the assistance of the Company's transfer agent.
The Inspector of Elections will also determine whether or not a quorum is
present. The affirmative vote of a majority of shares represented and voting at
a duly held meeting at which a quorum is present is required under California
law for approval of proposals presented to shareholders. In general, California
law also provides that a quorum consists of a majority of the shares entitled to
vote, represented either in person or by proxy. The Inspector of Elections will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum but as not voting for purposes of
determining the approval of any matter submitted to the shareholders for a vote.
Any proxy which is returned using the form of proxy enclosed and which is not
marked as to a particular item will be voted for the election of directors, for
approval of an amendment to the Company's 1996 Stock Plan to increase the number
of shares of Common Stock
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reserved for issuance thereunder by 2,000,000 shares and for ratification of the
appointment of the designated independent auditors, and as the proxy holders
deem advisable on other matters that may come before the meeting, as the case
may be, with respect to the item not marked. If a broker indicates on the
enclosed proxy or its substitute that it does not have discretionary authority
as to certain shares to vote on a particular matter ("broker non-votes"), those
shares will be considered present for purposes of determining a quorum, but will
not be considered as voting with respect to that matter. While there is no
definitive specific statutory or case law authority in California concerning the
proper treatment of abstentions and broker non-votes, the Company believes that
the tabulation procedures to be followed by the Inspector of Elections are
consistent with the general statutory requirements in California concerning
voting of shares and determination of a quorum.
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing and
mailing proxy solicitation materials for the Annual Meeting and reimbursements
paid to brokerage firms and others for their expenses incurred in forwarding
solicitation materials regarding the Annual Meeting to beneficial owners of the
Company's Common Stock. The Company may conduct further solicitation
personally, telephonically or by facsimile through its officers, directors and
employees, none of whom will receive additional compensation for assisting with
the solicitation.
RECORD DATE AND SHARE OWNERSHIP
Only shareholders of record at the close of business on March 31, 1997, are
entitled to notice of and to vote at the meeting. As of the record date,
42,277,102 shares of the Company's Common Stock, par value $0.001 per share,
were issued and outstanding.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company that are intended to be presented
by such shareholders at the Company's 1998 Annual Meeting of Shareholders must
be received by Dale J. Bartos of the Company no later than January 12, 1998, in
order that they may be considered for inclusion in the proxy statement and form
of proxy relating to that meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
The Company's bylaws currently provide for not less than four or more than
seven directors and currently authorize six directors. The Company's Articles
of Incorporation provide for the classification of the Board of Directors into
two classes serving staggered terms. After election of the initial Class I and
Class II directors at this Annual Meeting, Class I directors then will be
elected and qualified in odd-numbers years (e.g., 1999) and Class II directors
then will be elected and qualified in even-numbered years (e.g., 1998). Each
Class I and Class II director is elected for a two year term, however, the
initial Class II directors elected and qualified at this Annual Meeting will
serve only through the Annual Meeting in 1988, the next even-numbered year.
The Board of Directors has nominated three persons named below to serve as
Class I directors until the next odd-numbered year Annual Meeting during which
their successors will be elected and qualified, and three persons named below to
serve as Class II directors until the next even-numbered year Annual Meeting
during which their successors will be elected and qualified. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for the
Company's six nominees named below. All the nominees except Mr. Cecil are
presently directors of the Company. 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. In the event that
additional persons are nominated for election as directors, the proxy holders
intend to vote all proxies received by them in such a manner as will assure the
election of as many
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of the nominees listed below as possible, and, in such event, the specific
nominees to be voted for will be determined by the proxy holders. Assuming a
quorum is present, the six nominees for director receiving the greatest number
of votes cast at the Annual Meeting will be elected.
The names of the nominees for Class I director and certain other
information about them as of March 31, 1997 are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
<S> <C> <C> <C>
Steve Y. Kim 47 President, Chief Executive Officer and Chairman 1993
Robert S. Cecil 61 Director 1997
John L. Walecka 36 Director 1994
</TABLE>
Except as set forth below, each of the nominees has been engaged in the
principal occupation set forth next to his name above during the past five
years. There is no family relationship between any director or executive
officer of the Company.
Mr. Kim, a co-founder of the Company, has served as the Company's President
and Chief Executive Officer and Chairman of the Board of Directors since the
Company's inception in July 1993. Prior to co-founding the Company, Mr. Kim
founded and served as President and Chief Executive Officer of Fibermux
Corporation ("Fibermux"), a networking company, from November 1984 to June 1993.
Prior to founding Fibermux, Mr. Kim held management and design positions with a
number of companies, including Phalo Optical Systems Division, Litton Data
Systems, and Burroughs Corporation.
Mr. Cecil joined Plantronics, Inc. in March 1992 as President, Chief
Executive Officer and Director, and in September 1993 he was elected
Plantronics, Inc.'s Chairman of the Board of Directors. From 1984 to December
1991, Mr. Cecil held a number of positions with LIN Broadcasting Corporation, a
subsidiary of McCaw Cellular Communications Inc. that provides cellular services
in North America, including President of its Cellular Group. From 1977 to 1984,
he held various positions with Motorola, Inc., including Vice President and
Corporate Director of Marketing. Prior to that he held various senior sales and
marketing management positions with IBM Corporation. Mr. Cecil also serves on
the Board of Directors of both TAB Products Co. and a privately held company.
Mr. Walecka has served as a member of the Company's Board of Directors
since February 1994. Mr. Walecka has been a General Partner of certain venture
capital funds associated with Brentwood Associates since January 1990. From May
1984 to January 1990, Mr. Walecka was an associate with Brentwood Associates.
Mr. Walecka also serves as a director of Documentum, Inc. and several privately
held companies.
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The names of the nominees for Class II director and certain other
information about them as of March 31, 1997 are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
<S> <C> <C> <C>
Yuri Pikover 35 Vice President of Worldwide Sales and Director 1993
Robert C. Hawk 56 Director 1995
Trude C. Taylor 74 Director 1993
</TABLE>
Except as set forth below, each of the nominees has been engaged in the
principal occupation set forth next to his name above during the past five
years. There is no family relationship between any director or executive
officer of the Company.
Mr. Pikover, a co-founder of the Company, has served in various sales and
management positions and as a member of the Board of Directors since the
Company's inception in July 1993, and currently serves as Vice President of
Worldwide Sales. From August 1988 to June 1993, Mr. Pikover served as Regional
Sales Manger at Fibermux. Mr. Pikover served in various sales, marketing and
technical positions at MICOM Systems from September 1982 to August 1988.
Mr. Hawk has served as a member of the Company's Board of Directors since
July 1995. Mr. Hawk retired in April 1997 as President and Chief Executive
Officer of U.S. West Multimedia Group, a position he held since May 1996. Mr.
Hawk served as President of the Carrier Division of U.S. West from September
1990 to May 1996, and has been employed in the telecommunications field for over
25 years. Prior to joining U.S. West, Mr. Hawk was employed at Mountain Bell.
Mr. Hawk also serves as a director of Premisys Communications and Pairgain
Technologies.
Mr. Taylor has served as a member of the Company's Board of Directors since
August 1993. Mr. Taylor has been a principal with TC Associates, a consulting
firm, since May 1986. Mr. Taylor serves as a director of Plantronics, Inc.,
Densepac Microsystems, Inc. and several privately held companies.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors held a total of five meetings during the fiscal year
ended December 31, 1996. Directors Robert Hawk and Trude Taylor attended fewer
than 75% of the aggregate number of meetings of the Board of Directors that they
were eligible to attend. However, directors Robert Hawk and Trude Taylor
participated in more than 75% of the aggregate number of meetings and actions by
unanimous written consent of the Board of Directors. The Board of Directors has
an Audit Committee and a Compensation Committee. It does not have a nominating
committee or a committee performing the functions of a nominating committee.
The Audit Committee of the Board of Directors as of March 31, 1997,
consists of directors Kevin Hall, Trude C. Taylor and John L. Walecka and held
four meetings during 1996. The Audit Committee recommends engagement of the
Company's independent auditors, and is primarily responsible for approving the
services performed by the Company's independent auditors and for reviewing and
evaluating the Company's accounting principles and its system of internal
accounting controls.
The Compensation Committee of the Board of Directors as of March 31, 1997,
consists of directors Kevin Hall, Trude C. Taylor and John L. Walecka and held
four meetings during 1996. The Compensation Committee establishes the
compensation for the Company's executive officers, including the Company's
President and Chief Executive Officer.
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COMPENSATION OF DIRECTORS
Directors currently receive no cash fees for services provided in that
capacity but are reimbursed for out-of-pocket expenses incurred in connection
with attendance at meetings of the Board of Directors and committees thereof.
Between December 1993 and December 1996, nonemployee directors received options
to purchase a total of 220,000 shares of the Company's Common Stock at specified
exercise prices. In January 1996, the shareholders of the Company approved the
Company's 1996 Directors' Stock Option Plan (the "Directors Plan") pursuant to
which each nonemployee director elected after the effective date of the Plan
will be granted a nonstatutory stock option to purchase 15,000 shares of Common
Stock (the "First Option") on the date on which the optionee first becomes a
nonemployee director of the Company. Thereafter, on the date of each annual
meeting of the shareholders at which each nonemployee director is re-elected to
the Company's Board of Directors, each nonemployee director (including directors
who were not eligible for a First Option) will be granted an additional option
to purchase 5,000 shares of Common Stock (a "Subsequent Option") if, on such
date, he or she shall have served on the Company's Board of Directors for at
least six months prior to the date of such annual meeting.
REQUIRED VOTE
The three Class I director nominees and the three Class II director
nominees receiving the highest number of affirmative votes of shares of the
Company's Common Stock present at the Annual Meeting in person or by proxy and
entitled to vote shall be elected as directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE
NOMINEES LISTED ABOVE
PROPOSAL NO. 2
AMENDMENT TO THE 1996 STOCK PLAN
At the Annual Meeting, the Company's shareholders are being asked to
approve an amendment to the 1996 Stock Plan that would increase the shares of
Common Stock reserved for issuance thereunder by 2,000,000 shares, to an
aggregate of 5,000,000 shares that have been reserved from time to time under
the 1996 Stock Plan. This summary, however, does not purport to be a complete
description of the 1996 Stock Plan. Any shareholder of the Company who wishes
to obtain a copy of the actual document may do so upon written request to Dale
J. Bartos at the Company's principal executive offices at 26679 West Agoura
Road, Calabasas, California 91302.
GENERAL
The Company's 1996 Stock Plan was adopted by the Board of Directors in
January 1996 and was approved by the Company's shareholders in February 1996.
Currently, an aggregate of 3,000,000 shares of the Company's Common Stock are
reserved for issuance under the 1996 Stock Plan. The 1996 Stock Plan provides
for (i) the granting to employees (including officers and employee directors) of
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), (ii) the granting to employees
and consultants of nonstatutory stock options and (iii) the granting of stock
purchase rights.
The 1996 Stock Plan is not a qualified deferred compensation plan under
Section 401(a) of the Code, and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
As of March 31, 1997 options for 2,379,481 shares were outstanding under
the 1996 Stock Plan and 620,519 shares remained available for future grants.
Shares not purchased under an option prior to its expiration will be available
for future option grants under the 1996 Stock Plan. As of March 31, 1997, the
aggregate fair market value of all shares of Common Stock subject to outstanding
options under the 1996 Stock Plan was $45,805,009, based upon the closing price
of the Common Stock on the Nasdaq National Market on such date. As of March 31,
1997, options to purchase an aggregate of up to 120,000 shares of Common Stock
were granted to the Company's current executive officers (seven persons as of
March 31, 1997) pursuant to the 1996 Stock Plan, and
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options to purchase an aggregate of up to 2,259,481 shares of Common Stock were
granted to the Company's other employees and consultants as a group pursuant to
the 1996 Stock Plan, including all current officers who are not executive
officers (461 persons as of March 31, 1997). No stock options have been granted
under the 1996 Stock Plan to the executive officers named in the Summary
Compensation Table of this proxy statement (the "Named Executive Officers"). The
actual benefits, if any, to the holders of stock options issued under the 1996
Stock Plan are not determinable prior to exercise as the value, if any, of such
stock options to their holders is represented by the difference between the
market price of a share of the Company's Common Stock on the date of exercise
and the exercise price of a holder's stock option, as set forth below. See also
"Aggregate Option Exercises in Fiscal Year 1996 and Fiscal Year-End Option
Values."
PURPOSE
The purposes of the 1996 Stock Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentives to employees and consultants of the Company, and to
promote the success of the Company's business.
ADMINISTRATION
The 1996 Stock Plan may be administered by the Board of Directors or by a
committee of the Board of Directors (the "Administrator"). The 1996 Stock Plan
is currently being co-administered by both the Compensation Committee and the
Stock Option Committee. The Stock Option Committee, comprised of Mr. Kim, has
separate but concurrent jurisdiction with the Compensation Committee to make
option grants under the 1996 Stock Plan to new employees who are not officers of
the Company. Members of the Compensation and Stock Option Committees receive no
additional compensation for their services in connection with the administration
of the 1996 Stock Plan. All questions of interpretation of the 1996 Stock Plan
are determined by the Administrator and its decisions are final and binding upon
all participants.
ELIGIBILITY
The 1996 Stock Plan provides that incentive stock options as defined under
Section 422 of the Code may be granted to employees (including officers and
directors who are also employees) of the Company or any of its subsidiaries. In
addition, the 1996 Stock Plan provides that nonstatutory options may be granted
to employees and consultants of the Company or any of its subsidiaries. The
Administrator selects the optionees and determines the number of shares to be
subject to each option. In making such determination, certain factors are taken
into account, including the duties and responsibilities of the optionee, the
value of the optionee's services, the optionee's present and potential
contribution to the success of the Company, and other relevant factors.
The 1996 Stock Plan provides that the maximum number of shares of Common
Stock which may be granted under options to any one employee during any fiscal
year shall be 300,000, subject to adjustment as provided in the 1996 Stock Plan.
There is also a limit on the aggregate market value of shares subject to all
incentive stock options that may be granted to an optionee during any calendar
year.
TERMS
Each option is evidenced by a stock option agreement between the Company
and the optionee. Each option and each stock purchase right is subject to the
following additional terms and conditions, as applicable:
(a) Exercise of Option. The optionee must earn the right to exercise
the option by continuing to work for the Company. The Administrator determines
when options may be exercised. An option is exercised by giving written notice
of exercise to the Company specifying the number of full shares of Common Stock
to be purchased and by tendering payment of the purchase price. The purchase
price of the shares purchased upon exercise of an option shall be paid in
consideration of such form as is determined by the Administrator and specified
in the option agreement, and such form of consideration may vary for each
option.
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(b) Exercise Price. The exercise price under the 1996 Stock Plan is
determined by the Administrator and must be at least equal to the fair market
value of the shares on the date of grant, in the case of incentive stock
options, and 85% of the fair market value of the shares on the date of grant, in
the case of nonstatutory stock options, as determined by the Administrator,
based upon the closing price on the Nasdaq National Market on the date of grant.
Incentive stock options granted to shareholders owning more than 10% of the
total combined voting power of all classes of the Company's or any of its
subsidiaries' outstanding stock are subject to the additional restriction that
the exercise price on such options must be at least 110% of the fair market
value on the date of the grant. Nonstatutory stock options granted to a
"covered employee" under Section 162(m) of the Code are subject to the
additional restriction that the exercise price on such options must be at least
100% of the fair market value on the date of grant.
(c) Termination of Employment. If the optionee's employment or
consulting relationship terminates for any reason other than disability or
death, options under the 1996 Stock Plan may be exercised not later than thirty
days (or such other period of time not exceeding three months in the case of an
incentive stock option or six months in the case of a nonstatutory stock option
as is determined by the Administrator at the time of grant) after such
termination and may be exercised only to the extent the option was exercisable
on the date of termination. In no event may an option be exercised by any
person after the expiration of its term.
(d) Disability. If an optionee is unable to continue his or her
employment or consulting relationship with the Company as a result of his total
and permanent disability, options may be exercised within six months (or such
other period of time not exceeding twelve months as is determined by the
Administrator at the time of grant) of termination and may be exercised only to
the extent the option was exercisable on the date of termination, but in no
event may the option be exercised after the expiration of its term.
(e) Death. If an optionee should die while employed or retained by
the Company or during the thirty day period (or such other period of time not
exceeding three months as determined by the Administrator at the time of grant)
following termination of the optionee's employment or consulting relationship,
options may be exercised within six months after the date of death to the extent
the options would have been exercisable (i) had the optionee continued living
and remained an employee or consultant for three (3) additional months (or such
other period of time as is determined by the Administrator after the date of
death, in the case of an optionee who dies while employed or retained by the
Company), or (ii) on the date of termination of employment or consulting
relationship, in the case of an optionee who dies within thirty days after
termination of employment or consulting relationship, but in no event may an
option be exercised after the expiration of its term.
(f) Option Termination Date. The 1996 Stock Plan provides that
options granted under the 1996 Stock Plan have the term provided in the option
agreement. In general, these agreements currently provide for a term of ten
years. Incentive stock options granted to an optionee who, immediately before
the grant of such option, owned more than ten percent of the total combined
voting power of all classes of stock of the Company or any of its subsidiaries,
may not in any case have a term of more than five years. No option may be
exercised by any person after its expiration.
(g) Repurchase Option. Unless the Administrator determines otherwise,
any restricted stock purchase agreements granted under the 1996 Stock Plan shall
grant the Company a repurchase option exercisable upon the termination of the
purchaser's employment with the Company. The purchase price shall be the higher
of the original purchase price or the fair market value on the date of
repurchase.
(h) Option Not Transferable. An option is nontransferable by the
optionee other than by will or the laws of descent and distribution, and is
exercisable only by the optionee during his or her lifetime or, in the event of
the optionee's death, by a person who acquires the right to exercise the option
by bequest or inheritance or by reason of the death.
(i) Corporate Transactions. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Board of Directors may either accomplish a
substitution or assumption of options and stock purchase rights or give thirty
days' notice of the
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optionee's or stock purchase right holder's right to exercise his or her
outstanding options as to some or all of the optioned or restricted stock at any
time within fifteen days of such notice.
(j) Other Provisions. The option or stock purchase right agreement
may contain such other terms, provisions and conditions not inconsistent with
the 1996 Stock Plan as may be determined by the Administrator.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change is made in the Company's capitalization, such as a
stock split or dividend, that results in an increase or decrease in the number
of outstanding shares of Common Stock without receipt of consideration by the
Company, appropriate adjustment shall be made in the exercise price of each
outstanding option or stock purchase right, the number of shares subject to each
option or stock purchase right, the annual limitation on grants to employees, as
well as the number of shares available for issuance under the 1996 Stock Plan.
In the event of the proposed dissolution or liquidation of the Company, each
option will terminate unless otherwise provided by the Administrator.
AMENDMENT AND TERMINATION
The Board of Directors may amend the 1996 Stock Plan at any time or from
time to time or may terminate it without approval of the shareholders; provided,
however, that shareholder approval is required for any amendment to the 1996
Stock Plan that (i) increases the number of shares that may be issued under the
1996 Stock Plan, (ii) modifies the standards of eligibility, (iii) modifies the
limitation on grants to employees described in the 1996 Stock Plan, (iv) results
in other changes which would require shareholder approval to qualify options
granted under the 1996 Stock Plan as performance-based compensation under
Section 162(m) of the Code, or (v) requires shareholder approval in order to
preserve qualification of the 1996 Stock Plan under Rule 16b-3 of the Exchange
Act. However, no action by the Board of Directors or shareholders may alter or
impair any option previously granted under the 1996 Stock Plan. The 1996 Stock
Plan shall terminate in January 2006, provided that any options then outstanding
under the 1996 Stock Plan shall remain outstanding until they expire by their
terms.
UNITED STATES FEDERAL INCOME TAX INFORMATION
The following is a brief summary of the United States federal income tax
consequences of transactions under the 1996 Stock Plan based on federal
securities and income tax laws in effect as of the date of this Proxy Statement
(which laws could change at any time hereafter). This summary is not intended
to be exhaustive and does not discuss the tax consequences of a participant's
death or provisions of the income tax laws of any municipality, state or other
country in which an optionee may reside. This summary does not purport to be
complete. The Company advises all optionees and stock purchase right holders to
consult their own tax advisors concerning tax implications of option grants and
exercises and stock purchases, and the disposition of shares acquired upon such
exercise or purchase, under the 1996 Stock Plan.
Options granted under the 1996 Stock Plan may be either "incentive stock
options," as defined in Section 422 of the Code or nonstatutory options. If an
option granted under the 1996 Stock Plan is an incentive stock option, the
optionee will recognize no income upon grant of the incentive stock option and
incur no tax liability due to its exercise, except to the extent such exercise
causes the optionee to incur alternative minimum tax (see below). The Company
will not be allowed a deduction for federal income tax purposes as result of the
exercise of an incentive stock option regardless of the applicability of the
alternative minimum tax. Upon the sale or exchange of the shares more than two
years after grant of the option and more than one year after receipt of the
shares by the optionee, any gain will be treated as long-term capital gain. If
both of these holding periods are not satisfied (a "disqualifying disposition"),
the optionee will recognize ordinary income equal to the difference between the
exercise price and the lower of the fair market value of the stock at the date
of the option exercise or the sale price of the stock. The Company will be
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Any gain recognized on such a disqualifying disposition of the
shares in excess of the amount treated as ordinary income will be characterized
as long-term capital gain if the sale occurs more than one
-8-
<PAGE>
year after exercise of the option or as short-term capital gain if the sale is
made earlier. The tax rate on long-term capital gains under current federal
income tax laws is capped at 28% (although proposals have made to reduce the
effective federal capital gain tax rate), whereas the maximum rate on other
income is 39.6%. Capital losses are allowed in full against capital gains plus
$3,000 of other income.
All options which do not qualify as incentive stock options are referred to
as nonstatutory stock options. An optionee will not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. However,
upon its exercise, the optionee will recognize ordinary income for tax purposes
measured by the excess of the then fair market value of the shares over the
exercise price. In certain circumstances, where the shares are subject to a
substantial risk of forfeiture when acquired or where the optionee is an
officer, director or 10% stockholder of the Company, the date of taxation may be
deferred unless the optionee files an election with the Internal Revenue Service
under Section 83(b) of the Code. The income recognized by an optionee who is
also an employee of the Company will be subject to income and employment tax
withholding by the Company by payment in cash or out of the current earnings
paid to the optionee. Upon sale of such shares by the optionee, any difference
between the sales price and the exercise price, to the extent not recognized as
ordinary income as provided above, will be treated as capital gain or loss, and
will qualify for long-term capital gain or loss treatment if the shares have
been held for more than one year.
Stock purchases will generally be taxed in the same manner as nonstatutory
stock options as described above.
ALTERNATIVE MINIMUM TAX
The exercise of an incentive stock option may subject the optionee to the
alternative minimum tax under Section 55 of the Code. The alternative minimum
tax is calculated by applying a tax rate of 26% to alternative minimum taxable
income of joint filers up to $175,000 ($87,500 for married taxpayers filing
separately) and 28% to alternative minimum taxable income above that amount.
Alternative minimum taxable income is equal to (i) taxable income adjusted for
certain items, plus (ii) items of tax preference less (iii) an exemption amount
of $45,000 for joint returns, $33,750 for unmarried individual returns and
$22,500 in the case of married taxpayers filing separately (which exemption
amounts are phased out for upper income taxpayers). Alternative minimum tax
will be due if the tax determined under the foregoing formula exceeds the
regular tax of the taxpayer for the year.
In computing alternative minimum taxable income, shares purchased upon
exercise of an incentive stock option are treated as if they had been acquired
by the optionee pursuant to exercise of a nonstatutory stock option. As a
result, the optionee recognizes alternative minimum taxable income equal to the
excess of the fair market value of the Common Stock on the date of exercise over
the option exercise price. Because the alternative minimum tax calculation may
be complex, optionees should consult their own tax advisors prior to exercising
incentive stock options.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present at the Annual Meeting in person or by proxy and
entitled to vote is required to approve the amendment of 1996 Stock Plan and the
reservation of an additional 2,000,000 shares of Common Stock for issuance
thereunder.
RECOMMENDATION OF THE BOARD:
THE BOARD RECOMMENDS A VOTE "FOR" THE AMENDMENT OF THE 1996 STOCK PLAN AND THE
RESERVATION OF AN ADDITIONAL 2,000,000 SHARES FOR ISSUANCE THEREUNDER. THE
EFFECT OF AN ABSTENTION IS THE SAME AS THAT OF A VOTE AGAINST THE APPROVAL OF
THE AMENDMENT OF THE 1996 STOCK PLAN
-9-
<PAGE>
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of KPMG Peat Marwick LLP,
independent auditors, to audit the consolidated financial statements of the
Company for the fiscal year ending December 31, 1997, and recommends that the
shareholders vote for ratification of this appointment. In the event the
shareholders do not ratify such appointment, the Board of Directors will
reconsider its selection. KPMG Peat Marwick LLP has audited the Company's
consolidated financial statements for the period from July 9, 1993 (date of
incorporation) to December 31, 1993 and for the fiscal years ending December 31,
1994, 1995 and 1996. Representatives of KPMG Peat Marwick LLP are expected to
be present at the meeting with the opportunity to make a statement if they
desire to do so, and are expected to be available to respond to appropriate
questions.
REQUIRED VOTE
The ratification of the appointment of KPMG Peat Marwick LLP as the
Company's independent auditors requires the affirmative vote of the holders of a
majority of the shares of the Company's Common Stock present at the Annual
Meeting in person or by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF KPMG PEAT
MARWICK LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1997
-10-
<PAGE>
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of March 31, 1997 as to (i) each person who is known by the
Company to beneficially own more than five percent of the Company's Common
Stock, (ii) each of the Company's directors, (iii) each of the executive
officers named in the Summary Compensation Table of this proxy statement (the
"Named Executive Officers") and (iv) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
5% SHAREHOLDERS, DIRECTORS, OWNED(1)
NAMED EXECUTIVE OFFICERS, -----------------------------
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP NUMBER PERCENT OF TOTAL
- ----------------------------------------------------------------- ---------- ----------------
<S> <C> <C>
Steve Y. Kim(2).................................................. 6,417,333 15.18%
26679 W. Agoura Road
Calabasas, CA 91302
Brentwood Associates VI, L.P..................................... 3,899,754 9.22
3000 Sand Hill Road, Building 1, Suite 260
Menlo Park, CA 94025
Amerindo Investment Advisors, Inc(3)............................. 3,378,263 7.99
One Embarcadero Center, Suite 2300
San Francisco, CA 94111
Alcatel Data Networks S.A(3)..................................... 2,814,244 6.66
12 rue de la Baume
Paris, France 75008
American Century Companies(3).................................... 2,773,900 6.56
Twentieth Century Tower
4500 Main Street
Kansas City, MO 64111
Yuri Pikover(4).................................................. 2,755,000 6.52
26679 W. Agoura Road
Calabasas, CA 91302
Norwest Equity Partners, IV(5) .................................. 2,611,645 6.18
3000 Sand Hill Road
Building 3, Suite 245
Menlo Park, CA 94025
Janus Capital Corp(3)............................................ 2,501,825 5.92
100 Fillmore St., Suite 300
Denver, CO 80206
Kevin G. Hall(6)................................................. 2,630,645 6.22
Robert C. Hawk................................................... 80,200 *
Trude C. Taylor(7)............................................... 644,431 1.52
John L. Walecka(8)............................................... 3,918,754 9.27
John Bailey (9).................................................. 165,667 *
Douglas Hill(10)................................................. 136,000 *
Kevin Walsh (11)................................................. 5,000 *
C. Stephen Cordial(12)........................................... 23,334 *
All directors and executive officers as a group
(11 persons)(2)(4)(5)(6)(7)(8)(9)(10)(11)(13).................. 16,770,030 39.67
</TABLE>
- ---------------
(*) Less than 1%.
-11-
<PAGE>
(1) The persons named in this table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and except as indicated
in the other footnotes to this table. Beneficial ownership is determined in
accordance with the rules of the Commission. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by that
person that are currently exercisable or exercisable within 60 days after
March 31, 1997 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Includes 1,000,000 shares of Common Stock held by the Kim Irrevocable
Children's Trust dated September 15, 1995, 5,335,000 shares held by the Kim
Family Trust dated June 11, 1991, and 82,333 shares of Common Stock
issuable upon exercise of options exercisable within 60 days of March 31,
1997.
(3) Based upon a review of 13G filings made with the Securities and Exchange
Commission during 1997. Such filings set forth beneficial ownership as of
December 31, 1996.
(4) Includes 300,000 shares of Common Stock held by the Pikover Irrevocable
Children's Trust dated September 15, 1995, 90,000 shares of Common Stock
held by the Pikover 1995 Irrevocable Trust dated September 15, 1995, and
2,365,000 shares held by the Pikover Trust dated May 18, 1996.
(5) Represents 1,887,971 shares of Common Stock held by Norwest Equity
Partners, IV and 723,674 shares of Common Stock held by Norwest Equity
Partners, V. Kevin G. Hall, a director of the Company, is a general partner
of both Itasca Partners, the general partner of Norwest Equity Partners,
IV, and Itasca Partners, V, L.L.P., the general partner of Norwest Equity
Partners, V. Mr. Hall disclaims beneficial ownership of the shares held by
such entities except to the extent of his proportionate partnership
interest therein.
(6) Represents 1,887,971 shares of Common Stock held by Norwest Equity
Partners, IV and 723,674 shares of Common Stock held by Norwest Equity
Partners, V, which Mr. Hall may be deemed to beneficially own by virtue of
his status as a general partner of entities that are the general partners
of each of the above listed entities. Mr. Hall disclaims beneficial
ownership of the shares held by such entities except to the extent of his
proportionate partnership interest therein. See footnote (5) above.
Includes 19,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 31, 1997.
(7) Includes 71,667 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 31, 1997.
(8) Represents 3,899,754 shares held by Brentwood Associates VI, L.P., which
Mr. Walecka, a director of the Company, may be deemed to beneficially own
by virtue of his status as a general partner of Brentwood VI Ventures,
L.P., the general partner of Brentwood Associates VI, L.P. Mr. Walecka
disclaims beneficial ownership of the shares held by such entity except to
the extent of his proportionate partnership interest therein. Includes
19,000 shares of Common Stock issuable upon exercise of options exercisable
within 60 days of March 31, 1997.
(9) Includes 160,667 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1997. Mr. Bailey serves as the Vice President
of Product Development of the Company.
(10) Includes 116,000 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1997. Mr. Hill serves as the Vice President of
Corporate Communications of the Company.
(11) Includes 5,000 shares issuable upon exercise of options exercisable within
60 days of March 31, 1997. Mr. Walsh serves as the Vice President of
Marketing of the Company.
(12) Includes 23,334 shares issuable upon exercise of options exercisable within
60 days of March 31, 1997. Mr. Cordial, formerly Vice President of Finance
and Chief Financial Officer of the Company, is currently an employee of the
Company providing advisory services regarding investments, strategic
acquisitions and other projects.
(13) Includes 490,667 shares issuable upon exercise of options exercisable
within 60 days of March 31, 1997.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following report and
the Performance Graph in this proxy shall not be incorporated by reference into
any such filings.
-12-
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
GENERAL
The Company's executive compensation policies are determined by the
Compensation Committee of the Board of Directors. The Compensation Committee
(the "Committee") is composed of three nonemployee directors.
The objective of the Company's executive compensation program is to align
executive compensation with the Company's business objectives and performance,
and to enable the Company to attract, retain and reward executives who
contribute to the long-term business success of the Company. The Company's
executive compensation program is based on the same four basic principles that
guide compensation decisions for all employees of the Company:
. The Company compensates for demonstrated and sustained performance.
. The Company compensates competitively.
. The Company strives for equity and fairness in the administration of
compensation.
. The Company believes that each employee should understand how his or her
compensation is determined.
The Company believes in compensating its executives for demonstrated and
sustained levels of performance in their individual jobs. The achievement of
higher levels of performance and contribution are rewarded by higher levels of
compensation. In order to ensure that it compensates its executives
competitively, the Company regularly compares its compensation practices to
those of other companies of comparable size within similar industries. Through
the use of independent compensation surveys and analysis, employee compensation
training, and periodic pay reviews, the Company strives to ensure that
compensation is administered equitably and fairly and that a balance is
maintained between how executives are paid relative to other employees and
relative to executives with similar responsibilities in comparable companies.
The Committee meets at least twice annually: once late in the year to
establish the compensation program for the next fiscal year and once, mid-year,
to evaluate how effectively the program is meeting its objectives.
Additionally, the Committee may hold special meetings to approve the
compensation program of a newly hired executive or an executive whose scope of
responsibility has significantly changed. Each year, the Committee meets with
the Chief Executive Officer ("CEO") regarding proposals for executive
compensation for the next operating year. Compensation plans are based on
compensation surveys and assessments as to the demonstrated and sustained
performance of the individual executives. The Committee then independently
reviews the performance of the CEO and the Company, and develops the annual
compensation plan for the CEO based on competitive compensation data and the
Committee's evaluation of the CEO's demonstrated and sustained performance and
its expectation as to his future contributions in leading the Company. The
Committee presents for adoption its findings on the compensation of each
individual executive at a subsequent meeting of the full Board of Directors.
COMPENSATION OF EXECUTIVE OFFICERS
During fiscal 1996, the Company's executive compensation program was
comprised of the following key components:
Base Salary. The Company sets the base salaries of its executives at
levels similar to those of comparably-sized companies engaged in comparable
industries.
Equity-Based Incentives. Stock options are an important component of the
total compensation of executives, and are designed to align the interests of
each executive with those of the shareholders. Each year the Committee
considers the grant to executives of stock option awards under the Company's
1996 Stock Plan. The Committee believes that stock options provide added
incentive for the executives to influence the strategic direction
-13-
<PAGE>
of the Company, and to create and increase value for customers, shareholders and
employees. The option grants generally utilize four and five year vesting
periods to encourage executives to continue contributing to the Company. The
number of stock option shares that are granted to individual executives is, in
part, based on independent survey data reflecting competitive stock option
practices.
Bonus Awards for Fiscal 1996. In conjunction with the establishment of a
fiscal 1996 bonus pool, the Committee established certain performance
objectives, including corporate profit and departmental goals, which, when met,
would result in bonus payments to employees, including executive officers, in
varying amounts based upon the degree of achievement of the established
objectives and compensation level. In October 1996, the Committee approved
bonuses for executive officers and employees in recognition of their efforts in
contributing to the Company's fiscal 1996 performance. Bonuses earned by the
Company's executive officers in fiscal 1996 ranged from zero percent to
nine percent of their respective base salary amounts.
Compensation of the President and Chief Executive Officer. The fiscal 1996
compensation of Steve Kim, the Company's President and Chief Executive Officer
consisted of a base salary that was established by the Committee at a level
somewhat comparable to the base salaries of comparably sized companies engaged
in similar industries, as well as commissions earned on sales.
Deductibility of Executive Compensation. The Committee has considered the
impact of Section 162(m) of the Internal Revenue Code adopted under the Omnibus
Budget Reconciliation Act of 1993, which section disallows a deduction for any
publicly held corporation for individual compensation exceeding $1 million in
any taxable year for the CEO and four other most highly compensated executive
officers, unless such compensation meets the requirements for the "performance-
based" exception to the general rule. Since the cash compensation paid by the
Company to each of its executive officers is expected to be well below $1
million, the Committee believes that this section will not affect the tax
deductions available to the Company. It will be the Committee's policy to
qualify, to the extent reasonable, the executive officers' compensation for
deductibility under applicable tax law.
COMPENSATION COMMITTEE
Kevin G. Hall
Trude C. Taylor
John L. Walecka
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Board of Directors
are Messrs. Hall, Taylor and Walecka. No member of the Compensation Committee
was at any time during the fiscal year ended December 31, 1996, or at any other
time, an officer or employee of the Company. No executive officer of the
Company serves as a member of the Board of Directors or Compensation Committee
of any entity which has one or more executive officers serving as a member of
the Company's Board of Directors or Compensation Committee.
COMPENSATION OF EXECUTIVE OFFICERS
The table on the next page shows the compensation received by (a) the
individual who served as the Company's Chief Executive Officer during the fiscal
year ended December 31, 1996; (b) the five other most highly compensated
individuals who served as an executive officer of the Company during the fiscal
year ended December 31, 1996; and (c) the compensation received by each such
individual for the preceding fiscal year.
-14-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------------------- AWARDS
OTHER ANNUAL ------------
SALARY($) BONUS($) COMPENSATION STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR (1) (2) ($) OPTIONS COMPENSATION
- ----------------------------- ---- --------- -------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Steve Y. Kim 1996 160,416 -- 134,123(3) -- 49,902(4)
Chief Executive Officer, 1995 112,500 19,714 169,533(5) 260,000 --
President and Chairman of
the Board
Yuri Pikover 1996 132,083 9,750 -- -- 7,200(6)
Vice President of Worldwide 1995 83,923 8,542 48,524(5) -- --
Sales
John Bailey 1996 132,083 11,378 -- -- --
Vice President of Product 1995 119,963 14,217 -- 100,000 --
Development
Douglas Hill 1996 128,125 10,841 -- -- --
Vice President of Corporate 1995 109,791 13,464 -- 40,000 --
Communications
Kevin Walsh 1996 127,750 8,657 __ -- --
Vice President of Marketing 1995 67,452 5,600 __ 100,000 27,500(7)
C. Stephen Cordial 1996 130,000 3,250 -- -- --
Vice President of Finance 1995 32,455 8,542 -- 200,000 100,000(8)
and Chief Financial
Officer(9)
</TABLE>
- --------
(1) Includes amounts deferred under the Company's 401(k) plan.
(2) Includes bonuses earned in the indicated year and paid in the subsequent
year. Excludes bonuses paid in the indicated year but earned in the
preceding year.
(3) Represents amounts paid in commissions for fiscal year 1996.
(4) Includes $18,509 as reimbursement for tax and estate planning expenses and
$15,242 as reimbursement for country club expenses.
(5) Represents amounts paid in commissions for fiscal year 1995.
(6) Represents a reimbursement for tax and estate planning expenses.
(7) Represents a reimbursement for relocation expenses.
(8) Includes $60,000 paid as reimbursement for relocation expenses and $40,000
paid as reimbursement for taxes incurred.
(9) Mr. Cordial joined the Company in September 1995, and resigned as Vice
President of Finance and Chief Financial Officer in July 1996. Mr. Cordial
remains an employee of the Company.
-15-
<PAGE>
STOCK OPTION GRANTS IN FISCAL YEAR 1996
There were no stock option grants in fiscal year 1996 to the individuals
named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information for the executive officers named
in the Summary Compensation Table with respect to exercises in fiscal year 1996
of options to purchase Common Stock of the Company.
<TABLE>
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
SHARES AT 12/31/96 12/31/96
ACQUIRED ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE)(1) UNEXERCISABLE)(2)
- --------------------- ----------- ---------- ------------------- --------------------
<S> <C> <C> <C> <C>
Steve Y. Kim ___ ___ 60,667/199,333 $1,653,175/$5,431,824
Yuri Pikover ___ ___ ___ ___
John Bailey 25,000 $1,504,750(3) 132,333/182,667 $3,707,840/$5,076,409
Douglas Hill 30,000 $2,030,700(4) 96,000/114,000 $2,697,466/$3,184,833
Kevin Walsh 8,000 $ 350,375(5) 18,667/73,333 $ 511,593/$2,015,407
C. Stephen Cordial 43,333 $2,289,570(6) 6,667/150,000 $ 185,842/$4,181,250
</TABLE>
- --------
(1) No stock appreciation rights (SARs) were outstanding during fiscal year
1996.
(2) Based on the closing price of the Company's Common Stock as reported on the
Nasdaq National Market on December 31, 1996 of $28.25 per share minus the
exercise price of the options.
(3) Value realized is calculated based on the closing price of the Company's
Common Stock as reported on the Nasdaq National Market on the date of
exercise ($60.25 on May 29, 1996) minus the exercise price of the option
($0.06) and does not necessarily indicate that the optionee sold such stock.
(4) Value realized is calculated based on the closing price of the Company's
Common Stock as reported on the Nasdaq National Market on the date of
exercise ($67.75 on April 25, 1996) minus the exercise price of the option
($0.06) and does not necessarily indicate that the optionee sold such stock.
(5) Value realized is calculated based on the closing price of the Company's
Common Stock as reported on the Nasdaq National Market on the dates of
exercise ($60.25 on May 29, 1996 and $41.875 on July 29, 1996) minus the
exercise price of the option ($0.3750) and does not necessarily indicate
that the optionee sold such stock.
(6) Value realized is calculated based on the closing price of the Company's
Common Stock as reported on the Nasdaq National Market on the dates of
exercise ($54.25 on September 30, 1996 and $40.75 on November 11, 1996)
minus the exercise price of the option ($0.3750) and does not necessarily
indicate that the optionee sold such stock.
-16-
<PAGE>
PERFORMANCE GRAPH
The following graph summarizes cumulative total shareholder return data
(assuming reinvestment of dividends) for the period since the Company's stock
was first registered under Section 12 of the Securities Exchange Act of 1934
(March 11, 1996). The graph assumes that $100 was invested (i) on March 12,
1996 in the Common Stock of Xylan Corporation at a price per share of $26.00,
the date on which and the price at which such stock was first offered to the
public, (ii) on February 29, 1996 in the Standard & Poor's 500 Index and (iii)
on February 29, 1996 in Standard and Poor's Technology Sector Index. The stock
price performance on the following graph is not necessarily indicative of
future stock price performance.
COMPARISON OF 10 MONTH CUMULATIVE TOTAL RETURN
AMONG XYLAN CORPORATION, STANDARD & POOR'S 500 INDEX
AND STANDARD AND POOR'S TECHNOLOGY SECTOR INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period XYLAN (XYLN) S&P (1500) S&P TECH.
(Fiscal Year Covered) CORPORATION 500 INDEX SECTOR (TES)
- ------------------- ----------- --------- -----------
<S> <C> <C> <C>
Measurement Pt-03/12/1996 $100 $100 $100
03/1996 $200 $101 $ 97
04/1996 $246 $102 $105
05/1996 $244 $105 $108
06/1996 $179 $105 $105
07/1996 $144 $101 $100
08/1996 $163 $103 $104
09/1996 $209 $109 $115
10/1996 $154 $112 $116
11/1996 $142 $120 $134
12/1996 $109 $118 $130
</TABLE>
* $100 INVESTED ON 03/12/96 IN STOCK OR ON 02/29/96 IN INDEX. INCLUDING
REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
<TABLE>
<CAPTION>
2/29/96(1) 12/31/96
---------- --------
<S> <C> <C>
Xylan Corporation....................... 100 109
Standard & Poor's 500 Index............. 100 118
Standard and Poor's Technology Sector
Index.................................. 100 130
</TABLE>
- --------
(1) March 12, 1996 for Xylan Corporation.
-17-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1997, the Company advanced Dale J. Bartos, the Company's Vice
President of Finance and Chief Financial Officer, a total of $350,000 to assist
Mr. Bartos in financing the purchase of a home in California. Mr. Bartos
previously resided in Arizona, and upon the sale of Mr. Bartos' home in Arizona,
the loan will be repaid to the Company.
Except as described above, to date, the Company has made no loans to
officers, directors, principal shareholders or other affiliates other than as
described above or other than advances of reimbursable expenses. The Company
believes that all of the transactions set forth above were made on terms no less
favorable to the Company than could have been otherwise obtained from
unaffiliated third parties. All future transactions, including loans (if any),
between the Company and its officers, directors and principal shareholders and
their affiliates will be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested outside directors of
the Board of Directors, and will be on terms no less favorable to the Company
than could have been obtained from unaffiliated third parties.
In January 1997, Brentwood VI Management Partners, L.P., whose general
partners are also general partners of Brentwood VI Ventures, L.P., the general
partner of Brentwood Associates VI, L.P., provided a car to Steve Y. Kim valued
at $139,827. Brentwood Associates VI, L.P., is a significant shareholder of the
Company, and John Walecka, a general partner of Brentwood VI Ventures, L.P., the
general partner of Brentwood Associates VI, L.P., is a director of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities
to file with the Securities and Exchange Commission (the "SEC") initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and holders of more than
ten percent of the Company's Common Stock are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely upon review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1996 all
Section 16(a) filing requirements applicable to the Company's officers,
directors and holders of more than ten percent of the Company's Common Stock
were complied with.
ADDITIONAL INFORMATION REGARDING 1993 STOCK INCENTIVE PLAN AND
1996 EMPLOYEE STOCK PURCHASE PLAN
Attached to this Proxy Statement as Appendix 1 is certain information
concerning the Company's 1993 Stock Incentive Plan and 1996 Employee Stock
Purchase Plan, and certain information concerning the federal tax consequences
of participating in such plans. Such information is being furnished in order to
perfect the shareholder approval of such plans.
18
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters to be submitted to the
meeting. If any other matters properly come before the meeting, then the
persons named in the enclosed form of proxy will vote the shares they represent
in such manner as the Board may recommend.
It is important that the proxies be returned promptly and that your shares
be represented. Shareholders are urged to mark, date, execute and promptly
return the accompanying proxy card in the enclosed envelope.
BY ORDER OF THE BOARD OF DIRECTORS
Tae Hea Nahm
Secretary
Dated: April 18, 1997
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APPENDIX 1
DESCRIPTION OF THE 1993 STOCK INCENTIVE PLAN
GENERAL
The following summary does not purport to be a complete description of the
1993 Stock Incentive Plan. Any shareholder of the Company who wishes to obtain
a copy of the actual document may do so upon written request to Dale J. Bartos
at the Company's principal executive offices at 26679 West Agoura Road,
Calabasas, California 91302.
The 1993 Stock Incentive Plan was adopted by the Board of Directors and
approved by the Company's shareholders in October 1993. A total of 8,000,000
shares of Common Stock has been authorized for issuance under the 1993 Stock
Incentive Plan. As of March 31, 1997, 1,666,967 shares had been issued upon
exercise of stock options or stock purchase rights granted under the 1993 Stock
Incentive Plan and options for 5,886,506 shares were outstanding under the 1993
Stock Incentive Plan. As of March 31, 1997, the fair market value of shares
subject to outstanding options was $113,315,241, based upon the closing price of
the Common Stock as reported on the Nasdaq National Market on such date.
The Company's 1993 Stock Incentive Plan provides for the grant of stock
options and purchase rights to employees, consultants and directors of the
Company. The aggregate number of shares reserved for issuance under the 1993
Stock Incentive Plan includes options and purchase rights previously granted and
exercised under the 1993 Stock Incentive Plan.
Options granted under the 1993 Stock Incentive Plan may be either
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or nonstatutory stock options at
the discretion of the Board of Directors and as reflected in the terms of the
written option agreement. The 1993 Stock Incentive Plan is not a qualified
deferred compensation plan under Section 401(a) of the Code, and is not subject
to the provisions of ERISA.
PURPOSE
The purposes of the 1993 Stock Incentive Plan are to attract and retain the
best available personnel for positions of substantial responsibility, to provide
additional incentive to employees and consultants of the Company and to promote
the success of the Company's business.
ADMINISTRATION
The 1993 Stock Incentive Plan may be administered by the Board of Directors
or by a committee of not less than two Directors (the "Administrator"). The
Administrator may determine the terms of the options granted, including the
exercise price, the number of shares subject to each option and the
exercisability of the option. The Administrator also has the full power to
select the individuals to whom options will be granted and to make any
combination of grants to any participants. The Administrator's interpretation
and construction of any provision of the 1993 Stock Incentive Plan are final and
binding upon all participants.
ELIGIBILITY
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The 1993 Stock Incentive Plan provides that incentive stock options may be
granted only to employees (including officers and employee directors) of the
Company or any subsidiary or parent of the Company, while nonstatutory stock
options and stock purchase rights may be granted not only to employees
(including officers and directors), but also consultants and nonemployee
directors of the Company or any subsidiary or parent of the Company.
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The 1993 Stock Incentive Plan does not set either a maximum or minimum
number of shares of Common Stock which may be granted under options to any
person. However, no employee may be granted incentive stock options that first
become exercisable in any calendar year for Common Stock having a total fair
market value, determined at time of grant, in excess of $100,000. To the extent
options have been issued to a person that exceed the $100,000 limit, such excess
options are treated as nonstatutory stock options.
TERMS OF OPTIONS
Each option is evidenced by a stock option agreement between the Company
and the optionee. Each option is subject to the following additional terms and
conditions:
(a) Exercise of Option. The Administrator determines when options may
be exercised. An option is exercised by giving written notice of exercise to
the Company specifying the number of full shares of Common Stock to be purchased
and by tendering of payment of the purchase price. The purchase price of the
shares purchased upon exercise of an option shall be paid in consideration of
such form as is determined by the Administrator, and such form of consideration
may vary for each option. Each optionee should refer to his or her individual
option agreement for information as to the exercisability and form of
consideration applicable to his or her option.
(b) Exercise Price. The option exercise price may not be less than
100% of the fair market value of the Common Stock on the date of grant of an
incentive stock option and the option exercise price of a nonstatutory stock
option may not be less than 85% of the fair market value of the Common Stock on
the date of grant; provided, however, that with respect to an option granted to
a person who at the time of the grant owns stock representing more than 10% of
the total combined voting power of all classes of stock of the Company or any
parent or subsidiary, the option exercise price for each share covered by such
option may not be less than 110% of the fair market value of a share of Common
Stock on the date of grant of such option.
The Administrator of the 1993 Stock Incentive Plan determines the fair
market value of the Common Stock. As long as the Common Stock of the Company is
trading on the Nasdaq National Market ("Nasdaq") (as of the date of this proxy
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statement, the Common Stock was traded on Nasdaq), the fair market value of a
share of Common Stock of the Company shall be the closing sales for such stock
as quoted on such system on the date of determination.
(c) Consideration. The consideration to be paid for shares issued on
exercise of options granted under the 1993 Stock Incentive Plan, including the
method of payment, is determined by the Administrator (in the case of incentive
stock options, such determination shall be made at the time of grant) and may
consist entirely of cash; check; promissory note; shares of Common Stock which
have been beneficially owned by the optionee for at least six months, with a
fair market value on the exercise date equal to the aggregate exercise price of
the shares purchased; or by the assignment of the proceeds of a sale of some or
all of the shares being acquired upon the exercise of the option. The
Administrator may also authorize payments by any combination of the above
methods.
Notwithstanding the foregoing, an option may not be exercised by
tender to the Company of shares of the Company's stock to the extent such tender
of stock would constitute a violation of the provisions of any law, regulation
and/or agreement restricting the redemption of the Company's stock.
Furthermore, no promissory note shall be permitted if an exercise using a
promissory note would be a violation of any law. Any permitted promissory note
shall be due and payable not more than ten (10) years after an option is
exercised and interest shall be payable at least annually and be at least equal
to the minimum interest rate necessary to avoid imputed interest pursuant to all
applicable sections of the Code. The Board shall have the authority to permit
or require the optionee to secure any promissory note used to exercise an option
with the shares of Common Stock acquired on exercise of an option and/or with
other collateral acceptable to the Company.
(d) Termination of Status As an Employee or Consultant. In the event
of termination of an optionee's employment or consulting relationship with the
Company for any reason other than death or total and
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permanent disability, an option may be exercised (to the extent it was
exercisable upon the date of termination) but such exercise must be made within
thirty (30) days of such termination and may not be made later than the date of
expiration of the term of the option as set out in the option agreement. To the
extent an optionee was not entitled to exercise an option at the date of such
termination, or if an optionee does not exercise such option (which he or she
was entitled to exercise) within the time specified herein, such option shall
terminate.
(e) Disability. If an optionee is unable to continue his or her
employment or consulting relationship with the Company as a result of his or her
total and permanent disability, an option may be exercised (to the extent it was
exercisable upon the date of termination), but such exercise must be within
twelve (12) months of such termination and may not be made later than the date
of expiration of the term of the option as set out in the option agreement. To
the extent an optionee was not entitled to exercise an option at the date of
such termination, or if an optionee does not exercise such option (which he or
she was entitled to exercise) within the time specified herein, such option
shall terminate.
(f) Death. If an optionee should die while employed, the optionee's
estate or a person who has acquired the right to exercise the option by bequest
or inheritance may exercise the option (to the extent it was exercisable upon
the date of termination), but such exercise must be within twelve (12) months of
such termination and may not be made later than the date of expiration of the
term of the option as set out in the option agreement. To the extent an
optionee was not entitled to exercise an option at the date of such termination,
or if an optionee does not exercise such option (which he or she was entitled to
exercise) within the time specified herein, such option shall terminate.
(g) Term of Options. The term of an option is determined by the
specific option agreement. Incentive stock options may not have a term of more
than 10 years. Furthermore, the maximum term for an option granted to an
optionee who immediately before the grant of such option owns more than 10% of
the total combined voting power of all classes of stock of the Company or any
parent or subsidiary is five years. No option may be exercised by any person
after its term expires.
(h) Option Not Transferable. No option is assignable or transferable
except by will or the laws of descent and distribution. An option is
exercisable during the optionee's lifetime only by the optionee and in the event
of the optionee's death, by a person who acquires the right to exercise the
option by bequest or inheritance or by reason of the death of the optionee.
(i) Liquidating Event. In the event of the proposed dissolution or
liquidation of the Company, or in the event of any corporate separation or
division, the Administrator may provide that the holder of any option shall have
the right to exercise such option for the balance of its term, solely for the
kind and amount of shares of stock and other securities, property, cash or any
combination thereof receivable upon such liquidating event; or the Administrator
may provide, in the alternative, that each option granted under the Plan shall
terminate as of a date to be fixed by the Board; provided, however, that not
less than 30 days written notice of the date so fixed shall be given to each
option holder and if such notice is given, each option holder shall have the
right, during the period of 30 days preceding such termination, to exercise the
option as to all or any part of the shares of stock covered thereby, on the
condition, however, that the liquidating event actually occurs.
(j) Corporate Transactions. In the event of certain changes in
control of the Company, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation, unless the
Administrator, in its sole discretion, determines that the optionee will have
the right to exercise the option as to some or all of the shares covered by the
option, including shares as to which the option would not otherwise be
exercisable, in which case each option will be exercisable for 15 days from the
date of notice of such determination.
(k) Other Provisions. The option agreement may contain other terms,
provisions and conditions as may be determined by the Administrator as long as
they are consistent with the 1993 Stock Incentive Plan.
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STOCK PURCHASE RIGHTS
The 1993 Stock Incentive Plan permits the granting of rights to purchase
Common Stock of the Company either alone or in addition to other awards made by
the Company. Upon the granting of a stock purchase right under the 1993 Stock
Incentive Plan, the offeree is advised in writing of the terms, conditions and
restrictions related to the offer, including the number of shares of Common
Stock that such person is entitled to purchase, the price to be paid and the
time in which such person must accept such offer. The purchase price for stock
purchased pursuant to such rights shall not be less than 85% of the fair market
value of such shares on the date of grant, provided, however, that the purchase
price for stock purchased by certain executive officers of the Company must
equal 100% of the fair market value on the date of grant. Stock purchase rights
granted to persons subject to Section 16 of the Exchange Act, will be subject to
any restrictions necessary to comply with Rule 16b-3.
Unless the Administrator of the 1993 Stock Incentive Plan determines
otherwise, the underlying stock purchase agreement for stock purchased pursuant
to a stock purchase right granted under the 1993 Stock Incentive Plan will grant
the Company a repurchase option for unvested shares exercisable upon the
voluntary or involuntary termination of the purchaser's employment with the
Company for any reason (including death or disability). The purchase price for
shares repurchased shall be the original purchase price paid by the purchaser.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in the
Company's capitalization that results in an increase or decrease in the number
of outstanding shares of Common Stock without receipt of consideration by the
Company, appropriate adjustment shall be made in the exercise price of each
outstanding option and the number of shares subject to each option, as well as
the number of shares available for issuance under the 1993 Stock Incentive Plan.
AMENDMENT AND TERMINATION
The Board may amend the 1993 Stock Incentive Plan at any time or from time
to time or may terminate it without approval of the shareholders, except that
shareholder approval is required for any amendment to the 1993 Stock Incentive
Plan that increases the number of shares which may be issued under the 1993
Stock Incentive Plan or modifies the standards of eligibility. However, no
action by the Board or shareholders may adversely affect any then outstanding
option or any unexercised portion thereof, without the consent of the optionee,
unless such amendment is required to enable an option designated as an incentive
stock option to qualify as an incentive stock option. Unless terminated sooner,
the 1993 Stock Incentive Plan shall terminate in August 2003. Any options
outstanding at that time under the 1993 Stock Incentive Plan shall remain
outstanding until they expire their own terms.
WITHHOLDING TAXES
As a condition to the exercise of an option, an optionee shall make such
arrangements as the Administrator may require for the satisfaction of any
federal, state, local or foreign withholding tax obligations that may arise in
connection with the exercise, receipt or vesting of such option. The Company
shall not be required to issue any shares under the 1993 Stock Incentive Plan
until such obligations are satisfied.
CONDITIONS UPON ISSUANCE OF SHARES
Shares shall not be issued pursuant to the exercise of an option unless the
exercise of such option and the issuance and delivery of such shares pursuant
thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
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PLAN BENEFITS
During the fiscal year ended December 31, 1996, (i) options to purchase
20,000 shares of Common Stock were granted pursuant to the 1993 Stock Incentive
Plan to all current executive officers (including directors who are executive
officers) as a group (7 persons), (ii) options to purchase no shares of Common
Stock were granted to all current directors who are not executive officers as a
group (4 persons), and (iii) options to purchase 2,242,000 shares of Common
Stock were granted to all employees, including current officers who are not
executive officers, as a group.
The following table sets forth information with respect to the stock
options granted and unexercised to the Named Executive Officers, all current
executive officers as a group and all employees and consultants (including all
current officers who are not executive officers) as a group under the 1993 Stock
Incentive Plan as of March 31, 1997. The actual benefits, if any, to the holders
of stock options issued under the 1993 Stock Incentive Plan are not determinable
prior to exercise as the value, if any, of such stock options to their holders
is represented by the difference between the market price of a share of the
Company's Common Stock on the date of exercise and the exercise price of a
holder's stock option, as set forth below.
<TABLE>
<CAPTION>
Weighted Average
Number of Exercise Price
Name Shares Per Share
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<S> <C> <C>
Steve Y. Kim............................. 260,000 $1.00
Yuri Pikover............................. -- --
John Bailey.............................. 315,000 $0.36
Douglas Hill............................. 240,000 $0.22
Kevin Walsh.............................. 92,000 $0.82
C. Stephen Cordial....................... 156,667 $0.38
All current executive officers as a
group (7 persons)....................... 987,000 $1.46
All current directors who are not
executive officers as a group (4
persons)................................ 220,000 $0.57
All employees (including all current
officers who are not executive
officers)............................... 5,125,516 $7.56
</TABLE>
UNITED STATES FEDERAL INCOME TAX INFORMATION
The following is a brief summary of the United States federal income tax
consequences of transactions under the 1993 Stock Incentive Plan based on
federal securities and income tax laws in effect as of the date of this proxy
statement (which laws could change at any time hereafter). This summary is not
intended to be exhaustive and does not discuss the tax consequences of a
participant's death or provisions of the income tax laws of any municipality,
state or other country in which an optionee may reside. This summary does not
purport to be complete. The Company advises all optionees to consult their own
tax advisors concerning tax implications of option grants and exercises, and the
disposition of shares acquired upon such exercise, under the 1993 Stock
Incentive Plan.
Options granted under the 1993 Stock Incentive Plan may be either
"incentive stock options," as defined in Section 422 of the Code or nonstatutory
stock options. If an option granted under the 1993 Stock Incentive Plan is an
incentive stock option, the optionee will recognize no income upon grant of the
incentive stock option and incur no regular tax liability upon its exercise,
although the exercise of an incentive stock option may give rise to
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alternative minimum tax (see below). The Company will not be allowed a deduction
for federal income tax purposes as a result of the exercise of an incentive
stock option regardless of the applicability of the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and more than one year after receipt of the shares by the optionee, any
gain will be treated as long-term capital gain. If both of these holding periods
are not satisfied (a "disqualifying disposition"), the optionee will recognize
ordinary income equal to the difference between the exercise price and the lower
of the fair market value of the stock at the date of the option exercise or the
sale price of the stock. The Company will be entitled to a deduction in the same
amount as the ordinary income recognized by the optionee. Any gain recognized on
such a disqualifying disposition of the shares in excess of the amount treated
as ordinary income will be characterized as long-term capital gain if the sale
occurs more than one year after exercise of the option or as short-term capital
gain if the sale is made earlier. Currently, the tax rate on net capital gain
(net long-term capital gain minus net short-term capital loss) is capped at 28%.
Capital losses are allowed in full against capital gains plus $3,000 of other
income.
All options which do not qualify as incentive stock options are referred to
as nonstatutory stock options. An optionee will not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. However,
upon its exercise, the optionee will recognize ordinary income for tax purposes
measured by the excess of the then fair market value of the shares over the
exercise price. In certain circumstances, where the shares are subject to a
substantial risk of forfeiture when acquired or where the optionee is an
officer, director or 10% shareholder of the Company, the date of taxation may be
deferred unless the optionee files an election with the Internal Revenue Service
under Section 83(b) of the Code. The income recognized by an optionee who is
also an employee of the Company will be subject to income and employment tax
withholding by the Company by payment in cash or out of the current earnings
paid to the optionee. Upon sale of such shares by the optionee, any difference
between the sales price and the exercise price, to the extent not recognized as
ordinary income as provided above, will be treated as capital gain or loss, and
will qualify for long-term capital gain or loss treatment if the shares have
been held for more than one year.
As noted above, the exercise of an incentive stock option may subject the
optionee to the alternative minimum tax ("AMT") under Section 55 of the Code.
The AMT is calculated for federal tax purposes by applying a tax rate of 26% to
alternative minimum taxable income up to $175,000 ($87,500 for married taxpayers
filing separately) and 28% to alternative minimum income above such amount.
Alternative minimum taxable income for federal tax purposes is equal to (i)
taxable income adjusted for certain items, plus (ii) items of tax preference
less (iii) an exclusion of $45,000 for joint returns and $33,750 for individual
returns (with the exclusion amount phased out for upper-income taxpayers).
In computing alternative minimum taxable income, shares purchased upon
exercise of an incentive stock option are treated as if they had been acquired
by the optionee pursuant to a nonstatutory stock option, as described above.
Because the AMT rules are complex and their effects depend upon the personal
circumstances of each taxpayer, an optionee should consult his or her own tax
advisor prior to exercising an incentive stock option. If an optionee pays AMT,
the amount of such AMT may be carried forward as a credit against any subsequent
year's regular tax in excess of the AMT.
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DESCRIPTION OF THE 1996 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The following summary does not purport to be a complete description of
the 1996 Employee Stock Purchase Plan (the "1996 Purchase Plan"). Any
shareholder of the Company who wishes to obtain a copy of the actual document
may do so upon written request to Dale J. Bartos at the Company's principal
executive offices at 26679 West Agoura Road, Calabasas, California 91302.
The Company's 1996 Purchase Plan was adopted by the Board of Directors in
January 1996 and approved by the shareholders in February 1996. A total of
1,500,000 shares of Common Stock are reserved for issuance under the 1996
Purchase Plan.
The 1996 Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under Section 423 of the Code. The 1996
Purchase Plan is not a qualified deferred compensation plan under Section 401(a)
of the Code, and is not subject to the provisions of ERISA.
PURPOSE
The purpose of the 1996 Purchase Plan is to provide employees of the
Company (and any of its subsidiaries designated by the Board) who participate
in the 1996 Purchase Plan with an opportunity to purchase Common Stock of the
Company through payroll deductions.
ADMINISTRATION
The 1996 Purchase Plan may be administered by the Board or a committee
appointed by the Board. The composition of any committee shall be in
accordance with the requirements to obtain or retain any available exemption
from the operation of Section 16(b) of the Exchange Act pursuant to Rule 16b-3
promulgated thereunder. All questions of interpretation of the 1996 Purchase
Plan are determined by the Board or its committee, and its decisions are final
and binding upon all participants. Members of the Board or its committee who
are eligible employees are permitted to participate in the 1996 Purchase Plan,
provided that any such eligible member may not vote on any matter affecting
the administration of the 1996 Purchase Plan or the grant of any option
pursuant to it, or serve on a committee appointed to administer the 1996
Purchase Plan. No charges for administrative or other costs may be made
against the payroll deductions of a participant in the 1996 Purchase Plan.
Members of the Board receive no additional compensation for their services in
connection with the administration of the 1996 Purchase Plan.
ELIGIBILITY
Any person who is employed by the Company (or any of its majority-owned
subsidiaries) for at least twenty hours per week and more than five months in a
calendar year is eligible to participate in the 1996 Purchase Plan, provided
that the employee is employed on the first day of an offering period and subject
to certain limitations imposed by Section 423(b) of the Code.
OFFERING DATES
The 1996 Purchase Plan will be implemented by a series of offering
periods of 24 months duration with new offering periods (other than the first
offering period) commencing on or about February 1 and August 1 of each year.
Each offering period will consists of four consecutive purchase periods of six
months duration, with the last day of each period being designated a purchase
date. The first such offering period commenced on the effective date of the
Company's public offering (March 11, 1996) and continues through January 31,
1998. The Board may alter the duration of the offering periods without
shareholder approval.
PARTICIPATION IN THE PLAN
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Eligible employees become participants in the 1996 Purchase Plan by
delivering to the Company a subscription agreement authorizing payroll
deductions prior to the applicable offering date, unless a later time for
filing the subscription agreement has been set by the Board for all eligible
employees with respect to a given offering.
PURCHASE PRICE
The purchase price per share at which shares are sold under the 1996
Purchase Plan is the lower of 95% of the fair market value of the Common Stock
on the applicable date of commencement of the offering period or on the
applicable exercise date. The fair market value of the Common Stock on a given
date shall be the closing price of the Common Stock as reported on the Nasdaq
National Market as of such date. If the fair market value of the Common Stock
on a purchase date is less than the fair market value at the beginning of the
period, a new twenty-four month offering period will automatically begin on
the first business day following the purchase date with a new fair market
value.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions
during the offering period. The deductions may be not less than 1% and not
more than 10% of a participant's eligible compensation received on each payday
during the offering period. Eligible compensation consists of the regular
straight time gross earnings and commissions and excludes payments for
overtime, shift premium, incentive compensation, incentive payments, bonuses
and other compensation. Payroll deductions shall commence on the first payday
following the offering date, and shall continue at the same rate until the end
of the offering period unless sooner terminated as provided in the 1996
Purchase Plan. Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and eligibility requirements and
certain purchase limitations of the Plan, a participant's payroll deductions
may be decreased to 0% if the aggregate of the participant's payroll
deductions during the same calendar year equals $21,250 or would result in the
aggregate purchase of more than 375,000 shares of the Company's Common Stock
by all participants on a purchase date.
A participant may discontinue his or her participation in the 1996
Purchase Plan at any time during an offering period. A participant may, on one
occasion only during any particular offering period, decrease the rate of his
or her contributions during such offering period by completing and filing with
the Company a new subscription agreement. The change in rate shall be
effective as of the beginning of the calendar month following the date of
filing of the new subscription agreement.
All payroll deductions are credited to the participant's account under
the 1996 Purchase Plan and are deposited with the general funds of the
Company. All payroll deductions received or held by the Company may be used by
the Company for any corporate purpose. No interest accrues on the payroll
deductions of a participant in the 1996 Purchase Plan.
PURCHASE OF STOCK; EXERCISE OF OPTION
By executing a subscription agreement to participate in the 1996 Purchase
Plan, the participant is entitled to have shares placed under option. The
maximum number of shares a participant may purchase during each calendar year
shall be determined by dividing $25,000 by the fair market value of a share at
the beginning of an offering period, subject to certain limitations provided
by the Code, provided, however, that the participant's actual purchase will be
limited to the number of shares determined by dividing the amount of the
participant's total payroll deductions accumulated during each six-month
offering period by the lower of (i) 95% of the fair market value of the Common
Stock at the beginning of the offering period, or (ii) 95% of the fair market
value of the Common Stock on the applicable exercise date. Unless the
participant's participation is discontinued, each participant's option for the
purchase of shares will be exercised automatically at the end of the offering
period at the applicable price.
Notwithstanding the foregoing, no participant shall be permitted to
subscribe for shares under the 1996
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Purchase Plan if immediately after the grant of the option the participant
would own five percent or more of the voting power or value of all classes of
stock of the Company or of a parent or of any of its subsidiaries (including
stock that may be purchased under the 1996 Purchase Plan or pursuant to any
other options), nor shall any participant be granted an option that would
permit the participant to buy pursuant to the 1996 Purchase Plan 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. Furthermore, if the
number of shares that would otherwise be placed under option at the beginning
of an offering period exceeds the number of shares then available for issuance
under the 1996 Purchase Plan, a pro rata allocation of the available shares
shall be made in as equitable a manner as is practicable.
WITHDRAWAL
While each participant in the 1996 Purchase Plan is required to sign a
subscription agreement authorizing payroll deductions, the participant's
interest may be decreased once during any given offering period by completing
and filing a new subscription agreement with the Company. In addition, a
participant's interest may be terminated in whole, but not in part, by signing
and delivering to the Company a notice of withdrawal from the 1996 Purchase
Plan. Such withdrawal may be elected at any time prior to the end of the
applicable six-month period prior to an exercise date under the Plan.
Any withdrawal by the participant of accumulated payroll deductions for a
given offering period automatically terminates the participant's interest in
that offering period. In effect, the participant is given an option, for a
maximum number of shares, which may or may not be exercised at the end of each
six-month purchase period. However, unless the participant actively withdraws
from the offering period, the option will be exercised automatically at the
end of each purchase period, and the maximum number of full shares purchasable
(within the limits of the 1996 Purchase Plan) with the participant's
accumulated payroll deductions will be purchased for that participant at the
applicable price.
A participant's withdrawal from an offering period does not have an
effect upon such participant's eligibility to participate in subsequent
offering periods under the 1996 Purchase Plan; however, the participant may
not re-enroll in the same offering period after withdrawal.
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including
retirement or death, prior to any exercise date cancels his or her
participation in the 1996 Purchase Plan immediately. In such event, the
payroll deductions credited to the participant's account during the offering
period will be returned to such participant, or in the case of death, to the
person or persons entitled thereto as specified in the participant's
subscription agreement.
CAPITAL CHANGES
In the event any change, such as a stock split of stock dividend, is made
in the Company's capitalization which results in an increase or decrease in
the number of outstanding shares of Common Stock without receipt of
consideration by the Company, appropriate adjustments will be made in the
shares subject to purchase and in the purchase price per share, as well as in
the number of shares available for issuance under the 1996 Purchase Plan.
NONTRANSFERABILITY
No rights or accumulated payroll deductions of a participant under the 1996
Purchase Plan may be assigned, transferred, pledged or otherwise disposed of for
any reason (other than by will, or the laws of descent and distribution, or as
otherwise provided in the 1996 Purchase Plan) and any such attempt may be
treated by the Company as an election to withdraw from the 1996 Purchase Plan.
A-9
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AMENDMENT AND TERMINATION OF THE PLAN
The Board may at any time amend or terminate the 1996 Purchase Plan,
except that such termination shall not affect options previously granted nor
may any amendment make any change in an option granted prior thereto which
adversely affects the rights of any participant. In addition, to the extent
necessary to comply with Rule 16b-3 of the Exchange Act or Section 423 of the
Code (or any successor rule or provision or any applicable law or regulation),
the Company shall obtain shareholder approval in such a manner and to such a
degree as so required. The 1996 Purchase Plan shall continue in effect for a
term of twenty (20) years unless sooner terminated.
UNITED STATES FEDERAL TAX INFORMATION
The 1996 Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
until the shares purchased under the 1996 Purchase Plan are sold or otherwise
disposed of. Upon sale or other disposition of the shares, the participant will
generally be subject to tax and the amount of the tax will depend upon how long
the shares have been held by the participant. If the shares are sold or
otherwise disposed of more than two years from the first day of the offering
period and one year from the purchase 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 15% of the fair market value of the shares as of
the first day of the offering period. Any additional gain will be treated as
long-term capital gain. If the shares are sold or otherwise disposed of before
the expiration of this holding period, the participant will recognize ordinary
income generally measured as the excess of the fair market value of the shares
on the date the shares are purchased over the purchase price. Any additional
gain or loss on such sale or disposition will be long-term or short-term capital
gain or loss, depending on how long the shares were held by the participant.
The Company 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 a participant upon a sale or disposition of shares prior to the
expiration of the holding period(s) described above. Currently, the tax rate on
net capital gain (net long-term capital gain minus net short-term capital loss)
is capped at 28%. Capital losses are allowed in full against capital gains plus
$3,000 of other income.
The ordinary income reported under the rules described above, added to the
actual purchase price of the shares, determines the tax basis of the shares for
the purpose of determining capital gain or loss on a sale or exchange of the
shares.
The Company is entitled to a deduction for amounts taxed as ordinary
income to a participant only to the extent that ordinary income must be
reported upon disposition of shares by the participant before the expiration
of the holding periods described above.
A-10
<PAGE>
APPENDIX
XYLAN CORPORATION
1996 STOCK PLAN
AS AMENDED MARCH 1997*
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
--------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options, at the
discretion of the Board and as reflected in the terms of the written option
agreement. Stock purchase rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" shall mean the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Affiliate" shall mean an entity in which the Company owns an
---------
equity interest.
(c) "Applicable Laws" shall have the meaning set forth in Section
---------------
4(a) below.
(d) "Board" shall mean the Board of Directors of the Company.
-----
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(f) "Committee" shall mean the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) of the Plan, if one is appointed.
(g) "Common Stock" shall mean the Common Stock of the Company.
------------
(h) "Company" shall mean Xylan Corporation, a California corporation.
-------
(i) "Consultant" shall mean any person who is engaged by the Company
----------
or any Parent, Subsidiary or Affiliate to render consulting services and is
compensated for such consulting services, and any director of the Company
whether compensated for such services or not; provided that if and in the event
the Company registers any class of any equity security pursuant to Section 12 of
the Exchange Act, the term Consultant shall thereafter not include directors who
are not compensated for their services or are paid only a director's fee by the
Company.
* As approved by the Company's Board of Directors in March 1997, and as subject
to the approval of the Company's shareholders.
<PAGE>
(j) "Continuous Status as an Employee or Consultant" shall mean the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Administrator; provided that such leave is for
a period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute. For purposes of this Plan, a change
in status from an Employee to a Consultant or from a Consultant to an Employee
will not constitute a termination of employment.
(k) "Director" shall mean a member of the Board.
----------
(l) "Employee" shall mean any person, including Named Executives,
--------
Officers and Directors employed by the Company or any Parent, Subsidiary or
Affiliate of the Company. The payment by the Company of a director's fee to a
Director shall not be sufficient to constitute "employment" of such Director by
the Company.
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934,
------------
as amended.
(n) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
price for such stock as quoted on such system on the date of determination (if
for a given day no sales were reported, the closing bid on that day shall be
used), as such price is reported in The Wall Street Journal or such other source
-----------------------
as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but
not on the National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the bid and asked prices for the Common Stock or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" shall mean an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.
(p) "Named Executive" shall mean any individual who, on the last day
---------------
of the Company's fiscal year, is the chief executive officer of the Company (or
is acting in such capacity) or among the four highest compensated officers of
the Company (other than the chief
<PAGE>
executive officer). Such officer status shall be determined pursuant to the
executive compensation disclosure rules under the Exchange Act.
(q) "Nonstatutory Stock Option" shall mean an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(r) "Officer" shall mean a person who is an officer of the Company
---------
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "Option" shall mean a stock option granted pursuant to the Plan.
------
(t) "Optioned Stock" shall mean the Common Stock subject to an
--------------
Option.
(u) "Optionee" shall mean an Employee or Consultant who receives an
--------
Option.
(v) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" shall mean this 1996 Stock Plan.
----
(x) "Restricted Stock" shall mean shares of Common Stock acquired
----------------
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(y) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
------------
Act as the same may be amended from time to time, or any successor provision.
(z) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 15 of the Plan.
(aa) "Stock Purchase Right" shall mean the right to purchase Common
--------------------
Stock pursuant to Section 11 below.
(bb) "Subsidiary" shall mean a "subsidiary corporation," whether now
----------
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 15 of
-------------------------
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 5,000,000 shares of Common Stock (after a 2-for-1 stock
split). The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right should expire or become unexercisable
for any reason without having been exercised in full, the unpurchased Shares
that were subject thereto shall, unless the Plan shall have been terminated,
become available for future grant under the
<PAGE>
Plan. Notwithstanding any other provision of the Plan, shares issued under the
Plan and later repurchased by the Company shall not become available for future
grant or sale under the Plan.
4. Administration of the Plan.
---------------------------
(a) Composition of Administrator.
----------------------------
(i) Multiple Administrative Bodies. If permitted by Rule
------------------------------
16b-3, and by the legal requirements relating to the administration of incentive
stock option plans, if any, of applicable securities laws and the Code
(collectively, the "Applicable Laws"), the Plan may (but need not) be
administered by different administrative bodies with respect to Directors,
Officers who are not directors and Employees who are neither Directors nor
Officers.
(ii) Administration with respect to Directors and Officers.
-----------------------------------------------------
With respect to grants of Options or Stock Purchase Rights to Employees or
Consultants who are also Officers or Directors of the Company, the Plan shall be
administered by (A) the Board, if the Board may administer the Plan in
compliance with Rule 16b-3 as it applies to a plan intended to qualify
thereunder as a discretionary plan and Section 162(m) of the Code as it applies
so as to qualify grants of Options to Named Executives as performance-based
compensation, or (B) a Committee designated by the Board to administer the Plan,
which Committee shall be constituted in such a manner as to permit the Plan to
comply with Rule 16b-3 as it applies to a plan intended to qualify thereunder as
a discretionary plan, to qualify grants of Options to Named Executives as
performance-based compensation under Section 162(m) of the Code and otherwise so
as to satisfy the Applicable Laws.
(iii) Administration with respect to Other Persons. With
--------------------------------------------
respect to grants of Options to Employees or Consultants who are neither
Directors nor Officers of the Company, the Plan shall be administered by (A) the
Board or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws.
(iv) General. If a Committee has been appointed pursuant to
-------
subsection (ii) or (iii) of this Section 4(a), such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of any Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies (however caused) and remove
all members of a Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws and, in the case of a Committee
appointed under subsection (ii), to the extent permitted by Rule 16b-3 as it
applies to a plan intended to qualify thereunder as a discretionary plan, and to
the extent required under Section 162(m) of the Code to qualify grants of
Options to Named Executives as performance-based compensation.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
<PAGE>
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;
(ii) to select the Employees and Consultants to whom Options
may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any vesting
acceleration or waiver of forfeiture restrictions regarding any Option and/or
the shares of Common Stock relating thereto, based in each case on such factors
as the Administrator shall determine, in its sole discretion);
(vii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount, if any, of any
deemed earnings on any deferred amount during any deferral period); and
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
5. Eligibility.
-----------
(a) Recipients of Grants. Nonstatutory Stock Options may be granted
--------------------
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees, provided, however, that Employees of an Affiliate shall not be
eligible to receive Incentive Stock Options. An Employee or Consultant who has
been granted an Option may, if he or she is otherwise eligible, be granted an
additional Option or Options.
(b) Type of Option. Each Option shall be designated in the written
--------------
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares
<PAGE>
with respect to which Incentive Stock Options are exercisable for the first time
by an Optionee during any calendar year (under all plans of the Company or any
Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares shall be determined as of the time the
Option with respect to such Shares is granted.
(c) No Employment Rights. The Plan shall not confer upon any Optionee
--------------------
any right with respect to continuation of employment or consulting relationship
with the Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 21 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 17 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Limitation on Grants to Employees. Subject to adjustment as provided
---------------------------------
in this Plan, the maximum number of Shares which may be subject to options or
stock purchase rights granted to any one Employee under this Plan for any fiscal
year of the Company shall be 300,000.
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 such price as is determined by
the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant;
<PAGE>
(B) granted to any other Employee, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant;
(B) granted to a person who, at the time of the grant of such
Option, is a Named Executive of the Company, the per share Exercise Price shall
be no less than 100% of the Fair Market Value on the date of grant;
(iii) In the case of an Option granted on or after the
effective date of registration of any class of equity security of the Company
pursuant to Section 12 of the Exchange Act and prior to six months after the
termination of such registration, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
(b) Permissible Consideration. The consideration to be paid for the
-------------------------
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist entirely of
(1) cash, (2) check, (3) promissory note, (4) other Shares that (x) in the case
of Shares acquired upon exercise of an Option either have been owned by the
Optionee for more than six months on the date of surrender or were not acquired,
directly or indirectly, from the Company, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) authorization from the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds required to pay the exercise price, (7) delivery
of an irrevocable subscription agreement for the Shares that irrevocably
obligates the option holder to take and pay for the Shares not more than twelve
months after the date of delivery of the subscription agreement, (8) any
combination of the foregoing methods of payment, or (9) such other consideration
and method of payment for the issuance of Shares to the extent permitted under
Applicable Laws. In making its determination as to the type of consideration to
accept, the Administrator shall consider if acceptance of such consideration may
be reasonably expected to benefit the Company.
<PAGE>
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 9(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 15 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee or Consultant. In the
---------------------------------------------------
event of termination of an Optionee's Continuous Status as an Employee or
Consultant, such Optionee may, but only within thirty (30) days (or such other
period of time, not exceeding three (3) months in the case of an Incentive Stock
Option or six (6) months in the case of a Nonstatutory Stock Option, as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) after the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. To the extent that the Optionee was not entitled to
exercise the Option at the date of such termination, or if the optionee does not
exercise such Option (which he or she was entitled to exercise) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding Section 10(b) above, in
----------------------
the event of termination of an Optionee's Continuous Status as an Employee or
Consultant as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within six (6) months
(or such other period of time not exceeding twelve (12) months as is determined
by the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) from the date of such
termination (but in
<PAGE>
no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), exercise his or her Option to the extent he or
she was entitled to exercise it at the date of such termination. To the extent
that he or she was not entitled to exercise the Option at the date of
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
-----------------
(i) during the term of the Option who is at the time of his
death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised, at any time within six (6) months (or such
other period of time, not exceeding six (6) months, as is determined by the
Administrator, with such determination in the case of an Incentive Stock Option
being made at the time of grant of the Option) following the date of death (but
in no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance but only to
the extent of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as an Employee or Consultant
three (3) months (or such other period of time as is determined by the
Administrator as provided above) after the date of death, subject to the
limitation set forth in Section 5(b); or
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) after the termination of Continuous Status as an Employee
or Consultant, the Option or may be exercised, at any time within six (6) months
following the date of death (but in no event later than the date of expiration
of the term of such Option as set forth in the Option Agreement), by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of termination.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock Purchase Agreement in the form determined by the
Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right
shall be referred to herein as "Restricted Stock."
<PAGE>
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the higher of either the original
purchase price or the Fair Market Value on the date of the repurchase.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 15
of the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
12. Withholding Taxes. As a condition to the exercise of Options and
-----------------
Stock Purchase Rights granted hereunder, the Optionee or Stock Purchase Right
holder shall make such arrangements as the Administrator may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the exercise, receipt or vesting of such
Option or Stock Purchase Right. The Company shall not be required to issue any
Shares under the Plan until such obligations are satisfied.
13. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees and Stock Purchase Right holders may
satisfy withholding obligations as provided in this paragraph. When an Optionee
or Stock Purchase Right holder incurs tax liability in connection with an Option
or Stock Purchase Right which tax liability is subject to tax withholding under
applicable tax laws, and the Optionee or Stock Purchase Right holder is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee or Stock Purchase Right holder may satisfy the
withholding tax obligation by one or some combination of the following methods:
(a) by cash payment, or (b) out of the Optionee's or the Stock Purchase Right
holder's current compensation, (c) if permitted by the Administrator, in its
discretion, by surrendering to the Company Shares that (i) in the case of Shares
previously acquired from the Company, have been owned by the Optionee or Stock
Purchase Right holder for more than six months on the date of surrender, and
(ii) have a fair market value on the date of surrender equal to or less than the
Optionee's or the Stock Purchase Right holder's marginal tax rate times the
ordinary income recognized, or (d) by electing to have
<PAGE>
the Company withhold from the Shares to be issued upon exercise of the Option or
Stock Purchase Right that number of Shares having a fair market value equal to
the amount required to be withheld. For this purpose, 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 (the "Tax Date").
Any surrender by an Officer or Director of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of an Option or Stock
Purchase Right must comply with the applicable provisions of Rule 16b-3 and
shall be subject to such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
All elections by an Optionee or Stock Purchase Right holder to have
Shares withheld to satisfy tax withholding obligations shall be made in writing
in a form acceptable to the Administrator and shall be subject to the following
restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Stock Purchase Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
(d) if the Optionee or Stock Purchase Right holder is an Officer or
Director, the election must comply with the applicable provisions of Rule 16b-3
and shall be subject to such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee or Stock Purchase Right holder and the Tax Date is deferred under
Section 83 of the Code because no election is filed under Section 83(b) of the
Code, the Optionee shall receive the full number of Shares with respect to which
the Option or Stock Purchase Right is exercised but such Optionee or Stock
Purchase Right holder shall be unconditionally obligated to tender back to the
Company the proper number of Shares on the Tax Date.
14. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights 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. The designation of a beneficiary by an Optionee or
Stock Purchase Right holder will not constitute a transfer. An Option or Stock
Purchase Right may be exercised, during the lifetime of the Optionee or Stock
Purchase Right holder only by the Optionee or Stock Purchase Right holder or a
transferee permitted by this Section 14.
<PAGE>
15. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the shareholders of
----------
the Company, the number of shares of Common Stock covered by each outstanding
Option or Stock Purchase Right, the number of shares of Common Stock that have
been authorized for issuance under the Plan but as to which no Options or Stock
Purchase Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Stock Purchase Right, the
maximum number of shares of Common Stock for which Options or Stock Purchase
Rights may be granted to any employee under Section 8 of the Plan, and the price
per share of Common Stock covered by each such outstanding Option or Stock
Purchase Right, shall be proportionately adjusted for any increase or decrease
in the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
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 Administrator, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) Corporate Transactions. In the event of the proposed dissolution
----------------------
or liquidation of the Company, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Administrator. The Administrator may, in the exercise of its
sole discretion in such instances, declare that any Option or Stock Purchase
Right shall terminate as of a date fixed by the Administrator and give each
Optionee or Stock Purchase Right holder the right to exercise his or her Option
or Stock Purchase Right as to all or any part of the Optioned Stock or
Restricted Stock, including Shares as to which the Option or Stock Purchase
Right would not otherwise be exercisable. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, the Option or Stock Purchase Right
shall be assumed or an equivalent option or stock purchase right shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Administrator determines, in the exercise of
its sole discretion and in lieu of such assumption or substitution, that the
Optionee or Stock Purchase Right holder shall have the right to exercise the
Option or Stock Purchase Right as to some or all of the Optioned Stock or
Restricted Stock, including Shares as to which the Option would not otherwise be
exercisable, or that Restricted Stock held by a purchaser shall be released from
the Company's repurchase option. If the Administrator makes an Option or Stock
Purchase Right exercisable in lieu of assumption or substitution in the event of
a merger or sale of assets, the Administrator shall notify the Optionee or Stock
Purchase Right Holder that the Option or Stock Purchase Right shall be
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Stock Purchase Right will terminate upon the expiration of such
period.
<PAGE>
16. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.
17. Amendment and Termination of the Plan.
--------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval of
the shareholders of the Company in the manner described in Section 21 of the
Plan:
(i) any increase in the number of Shares subject to the Plan,
other than an adjustment under Section 15 of the Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options or Stock Purchase Rights;
(iii) any change in the limitation on grants to employees as
described in Section 8 of the Plan or other changes which would
require shareholder approval to qualify options or stock purchase
rights granted hereunder as performance-based compensation under
Section 162(m) of the Code; or
(iv) any revision or amendment requiring shareholder approval in
order to preserve the qualification of the Plan under Rule 16b-3.
(b) Shareholder Approval. If any amendment requiring shareholder
---------------------
approval under Section 17(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section 12
of the Exchange Act, such shareholder approval shall be solicited as described
in Section 21 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted and such Options or Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee or Stock Purchase Right Holder
and the Board, which agreement must be in writing and signed by the Optionee or
Stock Purchase Right Holder and the Company.
18. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
<PAGE>
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 or Stock Purchase Right,
the Company may require the person exercising such Option or Stock Purchase
Right to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
19. Reservation of Shares. The Company, during the term of this
---------------------
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan. The inability of
the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
20. Agreements. Options and Stock Purchase Rights shall be
----------
evidenced by written agreements in such form as the Board shall approve.
21. Shareholder Approval.
--------------------
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted. Such shareholder approval shall be obtained in the manner
and to the degree required under applicable federal and state law and the rules
of any stock exchange upon which the Shares are listed.
(b) In the event that the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required approval of
the shareholders of the Company obtained after such registration shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
(c) If any required approval by the shareholders of the Plan itself or
of any amendment thereto is solicited at any time otherwise than in the manner
described in Section 21(b) hereof, then the Company shall, at or prior to the
first annual meeting of shareholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option or Stock
Purchase Right hereunder to an officer or director after such registration, do
the following:
(i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information that would be required (if proxies to be
voted with respect to approval or disapproval of the Plan or amendment were then
being solicited) by the rules and regulations in effect under Section 14(a) of
the Exchange Act at the time such information is furnished; and
<PAGE>
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to shareholders.
22. Information to Optionees and Purchasers. The Company shall
---------------------------------------
provide to each Optionee and Stock Purchase Right holder, during the period for
which such Optionee or holder has one or more Options or Stock Purchase Rights
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company.
<PAGE>
1495-PS-97
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF XYLAN CORPORATION FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 29, 1997
The undersigned shareholder of Xylan Corporation, a California corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and
Proxy Statement, each dated April 18, 1997, and hereby appoints Steve Y. Kim and
Dale J. Bartos or either of them, proxies and attorneys-in-fact, with full power
to each of substitution, on behalf and in the name of the undersigned, to
represent the undersigned at the Annual Meeting of Shareholders of Xylan
Corporation to be held on Thursday, May 29, 1997 at 10:00 a.m., local time, at
the Hyatt Westlake Plaza Hotel, 880 S. Westlake Blvd, Westlake Village, CA
91361, and at any adjournment or postponement thereof, and to vote all shares of
Common Stock which the undersigned would be entitled to vote if then and there
personally present, on the matters set forth below:
1. ELECTION OF DIRECTORS:
___ FOR all nominees listed below (except as indicated).
___ WITHHOLD authority to vote for all nominees listed below.
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW:
Steve Y. Kim, Robert S. Cecil, John L. Walecka, Yuri Pikover, Robert
C. Hawk, Trude C. Taylor
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE 1996 STOCK PLAN TO INCREASE
THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER BY
2,000,000 SHARES:
____FOR ____AGAINST ____ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31,
1997:
____FOR ____AGAINST ____ABSTAIN
and, in their discretion, upon such other matter or matters that may properly
come before the meeting and any postponement(s) or adjournment(s) thereof.
PLEASE SIGN ON REVERSE SIDE AND RETURN IMMEDIATELY
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF DIRECTORS; (2) FOR APPROVAL
OF THE AMENDMENT TO THE 1996 STOCK PLAN TO INCREASE THE NUMBER OF SHARES OF
COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER BY 2,000,000 SHARES; (3) FOR
RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE COMPANY'S
INDEPENDENT AUDITORS, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS
AS MAY COME BEFORE THE MEETING.
_______________________________________ Date:__________________________
Signature
_______________________________________ Date:__________________________
Signature
(This Proxy should be marked, dated, signed by the shareholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
