SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
- ----------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Telular Corporation
- ----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
<PAGE>
(5) Total fee paid:
---------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
---------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
---------------------------------------------------------------------
(3) Filing party:
---------------------------------------------------------------------
(4) Date filed:
---------------------------------------------------------------------
<PAGE>
TELULAR CORPORATION
647 NORTH LAKEVIEW PARKWAY
VERNON HILLS, IL 60061
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 26, 1999
TO THE SHAREHOLDERS OF TELULAR CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders
of the Telular Corporation, a Delaware corporation (the Company),
will be held on Tuesday, January 26, 1999, at 9:00 a.m. local time,
at the Northbrook Hilton located at 2855 Milwaukee Avenue,
Northbrook, Illinois 60062 for the purpose of considering and acting
upon the following matters:
1. To elect eight directors to serve until the next Annual
Meeting of Shareholders and until their successors are duly
elected.
2. To approve each of three amendments to the Certificate of
Incorporation of the Company which would effect a reverse
stock split at the rate of 1:2, 1:3 or 1:4.
3. To approve the Company's Third Amended and Restated Stock
Incentive Plan, increasing the number of options authorized
thereunder from 3,000,000 to 7,000,000.
4. To ratify and approve the selection of Ernst & Young LLP
as independent auditors for the fiscal year ending September
30, 1999.
5. Such other or further business as may properly come before
the meeting.
These items of business are more fully described in the Proxy
Statement accompanying this notice.
The Board of Directors has fixed the close of business on
November 20, 1998, as the record date for the determination of
Shareholders entitled to notice of and to vote at such meeting or any
adjournment thereof.
By Order of the Board of Directors
Kenneth E. Millard
Chief Executive Officer and President
Vernon Hills, Illinois
December 15, 1998
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED.
<PAGE>
TELULAR CORPORATION
PROXY STATEMENT FOR 1999
ANNUAL MEETING OF SHAREHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited by the Board of Directors of the
Telular Corporation, a Delaware corporation (the Company), for use at
the Annual Meeting of Shareholders to be held on Tuesday, January 26,
1999, at 9:00 a.m. local time, or at any adjournment thereof, for the
purposes set forth in this Proxy Statement and the accompanying
Notice of Annual Meeting of Shareholders. The Annual Meeting will be
held at the Northbrook Hilton located at 2855 Milwaukee Avenue,
Northbrook, Illinois 60062. The Company's principal executive
offices are located at 647 North Lakeview Parkway, Vernon Hills,
Illinois 60061. The Company's telephone number at that address is
(847) 247-9400.
These proxy solicitation materials are intended to be mailed on
or about December 15, 1998, to all stockholders entitled to vote at
the meeting.
Revocability of Proxies
Any Shareholder who has executed and returned a proxy pursuant
to this solicitation may revoke it any time before it is voted. It
may be revoked by filing with the Secretary of the Company at the
Company's principal executive office, a written notice of revocation
or a duly executed proxy bearing a later date, or it may be revoked
by attending the meeting and voting in person. Attendance at the
meeting will not, by itself, revoke a proxy.
Outstanding Shares and Voting
Only Shareholders of record at the close of business on November
20, 1998, are entitled to notice of the meeting and to vote at the
meeting. Each Shareholder is entitled to one vote for each Share
held. At the record date, 34,710,636 Shares of the Company's Common
Stock were issued and outstanding.
All votes will be tabulated by the inspector of election,
appointed for the Annual Meeting. Under Delaware law, properly
executed proxies that are marked abstain or are held in street name
by brokers that are not voted on one or more particular proposals (if
otherwise voted on at least one proposal) will be counted for
purposes of determining whether a quorum has been achieved at the
Annual Meeting. Abstentions will have the same effect as a vote
against the proposal to which such abstention applies. Broker non-
votes will be treated as neither a vote for nor a vote against any of
the proposals to which such broker non-votes apply. Proxy cards
which are timely signed and returned with no other marking will be
voted in accordance with the recommendation of the Board of
Directors.
<PAGE>
Solicitation
The Company will bear the entire cost of solicitation of proxies
including preparation, assembly, printing and mailing of the proxy
statement, the proxy and any additional information furnished to
Shareholders. In addition, the Company may reimburse brokerage firms
and other persons representing beneficial owners of Shares for their
expenses in forwarding solicitation material to such beneficial
owners. Original solicitation of proxies by mail may be supplemented
by telephone, telegraph or personal solicitations by directors,
officers or employees of the Company. No additional compensation
will be paid for any such services.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors will consist of eight directors to be
elected at the annual meeting of Shareholders to hold office until
the next annual meeting or until their successors are elected and
qualified. The proxies solicited by and on behalf of the Board of
Directors will be voted FOR the election of the eight nominees listed
below, unless authority to do so is withheld as provided in the
proxy. All nominees are currently members of the Company's Board of
Directors. If for any reason one or more of the nominees should be
unable to serve or refuse to serve as a director (an event which is
not anticipated), the persons named as proxies will vote for another
candidate or candidates nominated by the Board of Directors, and
discretionary authority to cast such votes is included in the proxy.
The nominees receiving the highest number of votes of Shares of
Common Stock, up to the number of directors to be elected, shall be
elected.
Pursuant to the Shareholders' Agreement (see Certain
Transactions), among certain Shareholders of the Company, the holders
of approximately 42.6% of the Company Stock are required to vote in
favor of the one nominee designated by Motorola. Director Haning has
been so designated by Motorola.
The nominees, and certain information about them as of December
1, 1998, are set forth below.
William L. De Nicolo, age 52, is the founder of the Company and
has served as Chairman of the Board (including service to DNIC
Brokerage Co. (DNIC) prior to formation of The Telular Group L.P.)
since its formation in 1986. Mr. De Nicolo served as Chief Executive
Officer of the Company from 1986 until November 1993 and from
November 1995 until April 1996. Mr. De Nicolo continues to serve as
President and Chairman of the Board of Directors of DNIC, a principal
stockholder of the Company.
<PAGE>
Kenneth E. Millard, age 51, has served as a director, President
and Chief Executive Officer of the Company since April 1996. Mr.
Millard served as President and Chief Operating Officer of Oncor
Communications, based in Bethesda, Maryland from 1992 to 1996. He
worked for Ameritech from 1982 to 1992 where he served as President
and Chief Executive Officer of Michigan Bell Telephone Company from
1989 to 1992. Prior to 1989, he held the positions of Senior Vice-
President of Corporate Strategy for three years and Senior Vice-
President and General Counsel of Ameritech for four years. From 1972
to 1982, Mr. Millard worked for AT&T and Wisconsin Bell as an
attorney.
Mr. John E. Berndt, age 58, has served as a director of the
Company since December 1996. Mr. Berndt is currently President of
Sprint International, an operating unit of Sprint Corporation. Mr.
Berndt was previously President of Flour Daniel Telecom, an operating
company of Flour Daniel, Inc. and President of New Business
Development/Multimedia Ventures & Technologies for Lucent
Technologies, Inc. He held the same position with AT&T prior to the
Lucent spinoff. Mr. Berndt was employed by AT&T since 1963 and was
President of its Business Services Business Unit from 1991 until 1993
and President of the International Communications Services Business
Unit from 1987 until 1991. Mr. Berndt is a member of the Council of
Foreign Relations and served on the U.S. Trade Representative's
Services Policy Advisory Commission from 1987 until 1993. Mr. Berndt
is a member of the Board of Trustees for the American Graduate School
of International Management and the Board of Directors for the
University of Wisconsin Foundation.
Larry J. Ford, age 57, has served as a director of the Company
since March 1994. Mr. Ford has been the President and Chief
Executive Officer of Information Advantage since April 1995. Mr.
Ford was previously employed by Systems Software Associates, Inc. as
a Vice Chairman from November 1994 - March 1995, and the Chairman,
Chief Executive Officer and President from August 1991 - October
1994. Previously, Mr. Ford spent 28 years with IBM, his most recent
position being Vice President of Information and Telecommunications
Systems.
Richard D. Haning, age 46, has served as a director of the
Company since April 1995. Mr. Haning is a Senior Vice President of
Motorola and has been a Corporate Vice President with Motorola since
1990. Mr. Haning has been with Motorola for the past 20 years. Mr.
Haning is the designee of Motorola for election to the Board pursuant
to a Shareholders' Agreement, see Certain Transactions --
Shareholders' Agreement below.
Robert C. Montgomery, age 57, has served as a director of the
Company since October 28, 1997. He has been the Company's Executive
Vice President and Chief Operating Officer since 1996. Prior to
that, Mr. Montgomery was President (and founder) of Telular-Adcor
Security Products, Inc., a company that was acquired by the Company
in 1993. Previously, Mr. Montgomery was a partner at McKinsey &
Company.
<PAGE>
Dan Giacopelli, age 40, has served as director and Executive
Vice President -- Chief Technology Officer of the Company since
October 28, 1997. Mr. Giacopelli founded and was President and Chief
Executive Officer of Wireless Domain, Incorporated from September
1995 to October 1997. Prior to that time, Mr. Giacopelli was
Director of Engineering of the Wireless Group of Telephonics
Corporation from 1987 to 1995. Prior to 1987, Mr. Giacopelli was
President and CEO of Valinor Electronics, Inc.
Mark R. Warner, age 44, has served as a director of the Company
since October 28, 1997. Mr. Warner also served as director for the
Company and its predecessor in 1993 and 1992. Mr. Warner is a
Managing Director of Columbia Capital Corporation, for which he has
served as an officer since its formation in 1989. Mr. Warner was a
co-founder of Nextel, Inc., f\k\a Fleetcall, Inc.
There are no family relationships among any officers and
directors of the Company.
Board Committees and Meetings
During the fiscal year ended September 30, 1998, the Board of
Directors held four meetings. The Board has an Audit Committee and a
Compensation Committee. Each incumbent Board member attended at
least 75% of the aggregate of (i) the total number of meetings of the
Board held during the period during which he was a director, and (ii)
the total number of meetings held by all committees of the Board on
which he served during the period that he was a committee member.
The Audit Committee is responsible for reviewing the Company's
financial management practices, internal controls, internal audit
function and meetings with the Company's independent accountants to
discuss the scope and results of the annual audit. The Audit
Committee, which is required to have at least two Independent
Directors, in fiscal 1998 consisted of Mr. Berndt and Mr. Ford, and
met six times during fiscal 1998.
The Compensation Committee is responsible for developing and
making a compensation policy for Executive Officers of the Company,
which includes approving employment agreements, reviewing and
approving compensation plans, establishing performance targets and
assessing their performance, and making grants of salary, annual
incentive compensation and long-term incentive compensation. The
Compensation Committee, which as of the end of fiscal 1998 consisted
of Mr. Ford and Mr. Warner, met four times during the fiscal year.
Compensation of Directors
Directors of the Company who are either employees of the Company
or affiliated with a significant beneficial owner of the Company,
receive no compensation for serving on the Board of Directors. Mr.
Millard, Mr. Montgomery and Mr. Giacopelli are employees of the
Company. Mr. De Nicolo, Mr. Warner and Mr. Haning are affiliated
with a significant beneficial owner.
During fiscal 1998, Mr. Berndt and Mr. Ford were the Independent
Directors. Each Independent Director is compensated in the form of
stock options for attending meetings of the Board or committee
meetings of the Board.
All directors are reimbursed for all reasonable expenses of
attendance at each meeting.
<PAGE>
PROPOSAL 2
APPROVAL OF AMENDMENTS OF CERTIFICATE OF INCORPORATION
TO EFFECT REVERSE STOCK SPLIT OF OUTSTANDING SHARES
OF COMMON STOCK
The Board of Directors is seeking to obtain stockholder
authorization for the Board of Directors of the Company to amend the
Certificate of Incorporation of the Company to effect a reverse split
of the Company's Common Stock (the Reverse Stock Split). If approved
by the stockholders, the Board will have the authority without
further stockholder approval to effect the Reverse Stock Split at any
of three ratios: one new Share for every two, three or four Shares
outstanding (the ratio ultimately selected by the Board of Directors
being referred to herein as the Split Factor). The Reverse Stock
Split will be effected by one of three amendments to the Certificate
of Incorporation, approval for all of which is now being sought from
the stockholders by the Board of Directors. The Board of Directors
reserves the right, notwithstanding stockholder approval and without
further action or approval by the stockholders, to select from among
the three amendments approved by the stockholders or to decide not to
proceed with the amendment to the Certificate of Incorporation, if at
any time prior to its effectiveness the Board of Directors
determines, in its sole discretion, that the Reverse Stock Split is
no longer in the best interests of the Company and its stockholders.
Effect of Reverse Stock Split
The Company is currently authorized to issue 75,000,000 Shares
of Common Stock, of which 34,710,636 Shares were issued and
outstanding as of the Record Date. The Company is further authorized
to issue 10,000,000 Shares of Preferred Stock, of which 13,506 Shares
were issued and outstanding as of the Record Date. If effected, the
Reverse Stock split would reduce the number of outstanding Shares of
Common Stock to approximately 17,355,318 (if the Split Factor is
1:2), 11,507,212 (if the Split Factor is 1:3) or 8,677,659 (if the
Split Factor is 1:4). The number of Shares of Common Stock into
which the Preferred Stock is now convertible would, pursuant to the
terms of the Preferred Stock, be reduced by the Split Factor as well.
The proposed Reverse Stock Split would not affect any stockholder's
proportionate equity interest in the Company or the number of
authorized Shares. None of the rights currently accruing to holders
of Common Stock will be affected by the Reverse Stock Split.
Background and Reasons for the Proposal
Nasdaq Listing Requirements
The Common Stock of the Company has been listed on the Nasdaq
National Market System since the Company's initial public offering in
January 1994. In August 1997, Nasdaq amended its requirements for
continued listing to provide, among other things, that listed stock
must have a minimum trading price of $1.00 per Share.
<PAGE>
From October 2, 1998, until November 20, 1998, the price for the
Company's Common Stock has closed in the range of $0.969 to $0.594.
On November 12, 1998, the Company received notification from Nasdaq
that the Company has a 90-day period to bring itself back into
compliance with the Nasdaq's rules, prior to any delisting action.
By effectuating the Reverse Stock Split, the Company would raise its
per Share price in order to bring itself back into compliance with
this listing requirement.
Of course, there can be no assurance that the increased market
price of the Common Stock after the Reverse Stock Split will be
sustained or will continue to meet this requirement of the Nasdaq,
nor can there be any assurance that the Company will remain in
compliance with the Nasdaq's other requirements for continued
listing.
If the Company's stock is delisted from the Nasdaq National
Market System, it would continue to be traded over the counter, but
the delisting would likely adversely affect the attractiveness of the
stock to many investors, including many institutional investors. In
addition, delisting of the stock would give rise to a right on the
part of the holders of the Company's Series A Convertible Preferred
Stock (the Preferred Stock) to redeem their Preferred Stock at a
redemption price per Share equal to the greater of (i) $1,250 and
(ii) the product of the conversion rate at the time of delisting and
the closing bid price immediately prior to that date. As of November
20, 1998, 13,506 Shares of Preferred Stock were issued and
outstanding.
Other Considerations
The policies and practices of many brokerage houses tend to
discourage brokers within those firms from dealing in lower-priced
stocks. Some of such policies and practices pertain to the payment
of brokers' commissions and to time-consuming procedures that make
handling of lower-priced stocks economically unattractive to brokers.
The structure of trading commissions also tends to have an adverse
impact upon holders of lower-priced stock because the brokerage
commission payable on its sale generally represents a higher
percentage of the sales price than on higher-priced stock.
In light of these factors, the Board of Directors believes that
the relatively low Share price of the Common Stock, when compared
with the market prices of the Common Stock of publicly-held companies
in the same or comparable industries, may impair the marketability of
the Common Stock and create a negative impression of the Company, and
the Company's ability to raise capital through further sales of
equity securities and to use Common Stock for acquisitions and
similar purposes. The increase in the market price of the Company's
stock as a result of the Reverse Stock Split is intended to enhance
the marketability of the stock to the financial community and the
investing public at large.
<PAGE>
The Board is hopeful that the Reverse Stock Split will result in
a trading price for the Company's Common Stock that meets the
requirements of the Nasdaq and that will better suit the preferences
of institutional investors and brokerage firms described above and
mitigate the adverse impact of trading commissions on the potential
market for the Company's Shares. As noted above, however, there can
be no assurance that the increased market price for the Company's
Shares will be sustained or that it will have the intended effect on
the marketability of the Company's Common Stock.
The Company is not aware of any current efforts to accumulate
Common Stock or obtain control of the Company, and the Reverse Stock
Split is not intended to be an anti-takeover device.
Execution and Consequences of Reverse Stock Split
Exchange of Stock Certificates
Each stock certificate representing issued and outstanding
Shares of Common Stock prior to the effective date of the Reverse
Stock Split will, after such effective date, represent the
appropriate number of Shares of Common Stock reflecting the Reverse
Stock Split. IT WILL NOT BE NECESSARY FOR STOCKHOLDERS TO EXCHANGE
THEIR EXISTING STOCK CERTIFICATES.
Payment for Fractional Shares
Under the terms of the Company's Preferred Stock, the Company
may not, without the consent of the holders of at least two-thirds
(2/3) of the outstanding Preferred Stock, redeem any of the Company's
Common Stock. The Company intends to seek the consent of the holders
of the Preferred Stock to the payment in cash for fractional Shares
that would otherwise be issuable in connection with the Reverse Stock
Split. If this consent is received prior to effectuation of the
Reverse Stock Split, then the Company will proceed with Alternative
A, described below, under which no fractional Shares will be issued.
If this consent is not received prior to effectuation of the Reverse
Stock Split, then the Company will issue fractional Shares to the
extent necessary to effect the Reverse Stock Split, as described in
Alternative B below.
Alternative A - No Fractional Shares Issued:
Under this alternative, no scrip or fractional Shares will
be issued in the Reverse Stock Split. Instead, stockholders who
would be entitled to receive fractional Shares because they hold
a number of Shares not evenly divisible by the Split Factor will
be entitled to receive a cash payment in lieu thereof at a price
equal to the fair market value of the stock as determined by the
Board on the effective date of the Reverse Stock Split. The
ownership of a fractional interest will not give the holder
thereof any voting, dividend or other right except to receive
payment therefor as described herein.
<PAGE>
Stockholders should be aware that, under the escheat laws
of the various jurisdictions where stockholders reside, where
the Company is domiciled and where funds will be deposited, sums
due for fractional interests that are not timely claimed after
the effective date of the Reverse Stock Split may be required to
be paid to the designated agent for each such jurisdiction,
unless correspondence has been received by the Company or its
transfer agent, as the case may be, concerning ownership of such
funds within the time permitted in such jurisdictions.
Thereafter, stockholders otherwise entitled to receive such
funds will have to seek to obtain them directly from the state
to which they are paid.
Alternative B - Fractional Shares Issued
Under this alternative, any holder of record who holds a
number of Shares not evenly divisible by the Split Factor will
be entitled to receive, in addition to the largest whole number
of Shares to which such holder is entitled, a fractional Share
representing the remainder. Each fractional Share will be
entitled to proportionate dividend and voting rights.
Fractional Shares generally do not readily trade as such,
but may be aggregated and exchanged for whole Shares that are
readily tradable.
Certain Federal Income Tax Consequences
The following description of federal income tax consequences of
the Reverse Stock Split is based on the Internal Revenue Code, the
applicable Treasury Regulations promulgated thereunder, judicial
authority and current administrative rulings and practices as in
effect on the date of this Proxy Statement. This discussion is for
general information only and does not address all the tax
consequences that may be relevant to a particular stockholder (such
as non-resident aliens, broker-dealers or insurance companies).
Furthermore, no foreign, state or local tax consequences are
discussed herein. Accordingly, stockholders are urged to consult
their own tax advisors to determine the specific tax consequences of
the Reverse Stock Split to them.
The exchange of Shares of stock for Shares of post-split stock
(including fractional Shares) will not result in recognition of gain
or loss (except in the case of cash received for fractional Shares as
described below). The holding period of the Shares of post-split
stock (including fractional Shares) will include the stockholders'
holding period for the Shares of stock exchanged therefor (including
fractional Shares), assuming the stockholder held the Shares
exchanged as capital assets. The basis of such Shares shall equal
the basis of the stock exchanged, reduced by the tax basis allocable
to the receipt of cash, if any, in lieu of fractional Shares.
<PAGE>
A stockholder who receives cash in lieu of fractional Shares
will be treated as if the Company had issued fractional Shares to him
or her and then immediately redeemed them for cash. Such stockholder
should generally recognize gain or loss, as the case may be, measured
by the difference between the amount of cash received and the basis
of such stockholder's pre-split stock allocable to such fractional
Shares, had such fractional Shares actually been issued. Such gain
or loss will be capital gain or loss (if such stock was held as a
capital asset), and any such capital gain or loss will generally be
long-term capital gain or loss to the extent such stockholder's
holding period for his or her stock exceeds 12 months.
Vote Required
Approval of the Reverse Stock Split and adoption of the
amendments to the Certificate of Incorporation require the
affirmative vote of the holders of not less than two-thirds (2/3) of
the outstanding Shares of the Company's Common Stock. Abstention and
broker non-votes will be counted as votes against adoption of the
amendments to the Certificate of Incorporation. Any stockholder
entitled to vote may vote part of his or her Shares in favor of the
proposed amendments to the Certificate of Incorporation and refrain
from voting Shares against the proposed amendments. In such a case,
the stockholder must specify the number of Shares which he or she is
voting affirmatively or else it will be conclusively presumed that
such stockholder intended to vote all of his or her Shares in favor
of the proposed amendments to the Certificate of Incorporation. The
Board of Directors unanimously recommends that stockholders vote, FOR
adoption of Proposal 2.
PROPOSAL 3
APPROVAL OF THE THIRD AMENDED
AND RESTATED STOCK INCENTIVE PLAN
The Third Amended and Restated Stock Incentive Plan (the Plan)
amends the Company's current Second Amended and Restated Stock
Incentive Plan by increasing the number of Shares for which options
may be awarded under the Plan from 3,000,000 to 7,000,000.
The amendment to the Plan is outlined below. A copy of the Plan
is attached as Exhibit A hereto.
General
The original Telular Corporation Stock Incentive Plan was
effective as of November 17, 1993. Under the Plan, as subsequently
amended, incentive options of up to 3,000,000 Shares may be issued to
officers and key employees of the Company. On October 27, 1998, the
Board of Directors approved and adopted, subject to Shareholder
approval, amendments to increase the number of Shares of Common Stock
authorized for issuance under such Plan from 3,000,000 to 7,000,000.
Reason for Amendment
<PAGE>
In reviewing its records, the Company has determined that it has
in fact issued options for 4,911,114 Shares. This includes 2,750,254
currently outstanding and 2,160,860 that had already been exercised.
The exercises occurred primarily during fiscal year 1996 and prior
years. Therefore, the Company has issued options for 1,911,114
Shares in excess of the 3,000,000 currently permitted under the Plan.
Most of the currently outstanding options are at prices
substantially above the current stock price, and so, although
nominally outstanding, are currently of limited economic effect.
The increase in the number of authorized Shares is intended to
permit the authorization under the Plan of all outstanding options,
and to assure that the Company has sufficient capacity for additional
options that are needed in order to provide appropriate incentives to
officers and employees.
On October 27, 1998, the Compensation Committee of the Board
authorized the issuance, subject to the approval of the Plan by the
stockholders, of options for an additional 2,737,000 Shares, at an
option exercise price of $0.9375 per Share (the closing price of the
Company's Common Stock on that date), as follows:
<TABLE>
Market Value
Options to Exercise Expiration of Underly-
Name Position be granted Price Date ing Shares(1)
- ---- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Kenneth E. Millard President & CEO 650,000 $0.9375 10/27/08 $447,200
Robert C. Montgomery Executive VP
& COO 321,000 0.9375 10/27/08 220,848
Daniel D. Giacopelli Executive VP
& CTO 250,000 0.9375 10/28/08 172,000
Jeffrey L. Herrmann Senior VP & CFO 105,000 0.9375 10/29/08 72,240
S.W.R. (Sandy) Senior Vice
Moore President 50,000 0.9375 10/30/08 34,400
Executive Group 1,376,000 0.9375 10/31/08 946,688
Non-Executive
Directors 80,000 0.9375 11/01/08 55,040
Non-Executive Officer
Employee Group 781,000 0.9375 11/02/08 537,328
</TABLE>
<PAGE>
Market value of the Company's Common Stock underlying the
options, based upon the closing price of the Company's common
stock on November 13, 1998 ($0.688).
SUMMARY OF PLAN, AS AMENDED:
Purpose
The Plan is designed to enable officers and key employees of the
Company to acquire or increase a proprietary interest in the Company,
and thus to Share in the future success of the Company's business.
Accordingly, the Plan is intended as a means of attracting and
retaining officers and key employees of outstanding ability, and of
increasing the identity of interests between such officers and
employees and the Company's Shareholders, by providing an incentive
to perform in a superior manner and rewarding such performance.
Because the individuals eligible to receive awards under the Plan
will be those who are in positions to make important and direct
contributions to the success of the Company, the directors believe
that the grant of awards will advance the interests of the Company
and its Shareholders.
Number and Source of Shares Subject to the Plan
The Company may grant awards under the Plan (including options
granted under this plan prior to this amendment and restatement) with
respect to not more than 750,000 Shares (subject, however, to changes
in capitalization), which Shares may be provided from the Company's
treasury, by the issuance of authorized but unissued Shares, and/or
by the purchase of outstanding Shares in the open market or in
private transactions.
Administration
The Compensation Committee (the Committee) of the Board of
Directors shall solely grant or award Options, Stock Appreciation
Rights, or any other stock incentives under the Plan, determine the
selection of participants in the Plan, and make decisions concerning
the timing, pricing and the amount of grants or awards under the
Plan.
TYPES OF AWARDS:
Incentive Stock Options
Incentive Stock Options will be issued within the meaning of
Section 422(b) of the Internal Revenue Code of 1986 (the Code), as
amended from time to time. The term of each Incentive Stock Option
shall end on a date fixed by the Committee and set forth in the
agreement. In no event shall the term of the option extend beyond
ten years from the date of grant of option.
<PAGE>
The option price per Share established by the Committee for an
Incentive Stock Option shall not be less than the fair market value
of a Share on the date the option is granted, except that in the case
of an Incentive Stock Option granted to a grantee who, on the date
the Option is granted, owns more than ten (10) percent of the total
combined voting power of all classes of stock of the Company, the
Option price for each Share shall not be less than ten percent of the
fair market value of a Share on the date the Option is granted. In
no event may an Incentive Stock Option be granted if the option price
per Share is less than the par value of a Share.
Nonqualified Stock Options
Unless an option is designated by the Committee as an Incentive
Stock Option, it is intended that the option will not be an Incentive
Stock Option within the meaning of Section 422(b) of the Code and,
instead, will be a Nonqualified Stock Option. The term of each
Nonqualified Stock Option shall end on a date fixed by the Committee
and set forth in the agreement. In no event shall the term of the
option extend beyond ten years from the date of grant of option.
The option price to be paid by the grantee for each Share
purchased upon the exercise of a Nonqualified Stock Option shall be
established by the Committee and set forth in the applicable
agreement. The option price per Share of a Nonqualified Stock Option
may not be less than the par value of a Share.
Stock Appreciation Rights
The Committee may, from time to time, grant Stock Appreciation
Rights either (1) in tandem with all or a portion of an option
granted under the Plan, or (2) independent of any option granted
under the Plan. A tandem right shall be exercisable only at such
times, and to such extent, as the related option is exercisable. An
independent right shall be exercisable at such time and to such
extent as the Committee shall determine.
Any Stock Appreciation Right shall permit the grantee to
receive, upon exercise of the Right, an amount (to be paid in cash,
in Shares, or in both cash and Shares, as determined by the Company
in its sole discretion at any time prior to or after exercise) equal
to the difference between (1) the fair market value on the date of
exercise of the Shares with respect to which the right is exercised,
and (2) either (i) the option price of the related option in the case
of a right that is related to an option, or (ii) the fair market
value of a Share on the date the right was granted in the case of a
right that is not related to any option.
<PAGE>
Performance Shares
The Committee may, from time to time, grant Performance Shares.
A Performance Share shall entitle the grantee to receive as a
payment as soon as practicable after a Payment Date (specified by the
Committee at the time of the grant of Performance Share), an amount
equal to the excess (if any) between (1) the fair market value of a
share on the Payment Date, and (2) the fair market value of a Share
on the date the Performance Share is granted. Unless the Committee
provides otherwise at the time of grant, a grantee may receive
payment only if the grantee remains continuously employed with the
Company or a Subsidiary until such Payment Date.
Stock-Based Awards
The Committee may, from time to time, grant awards under the
Plan that consist of, are denominated in or payable in, are valued in
whole or in part by reference to, or otherwise are based on or
related to, Shares, provided that such grants comply with applicable
law. The Committee may subject such awards to such vesting or
earnout provisions, restrictions on transfer, and/or other
restrictions on incidents of ownership as the Committee may
determine, provided that such restrictions are not inconsistent with
the terms of the Plan. The Committee may grant awards under this
plan that require no payment of consideration by the grantee (other
than services previously rendered or, as may be permitted by
applicable law, services to be rendered), either on the date of the
grant or the date one or more restrictions thereon are removed.
Shareholder Rights
No award shall confer upon a grantee any rights of a Shareholder
unless and until the Shares are actually issued to the awardee.
Subject to any required approval by the Company's Shareholders, if
the Company shall be a party to any merger, consolidation or
reorganization in which Shares are changed or exchanged, a grantee
holding an outstanding award shall be entitled to receive, upon the
exercise of such award, the same consideration that a holder of the
same number of Shares that are subject to the award is entitled to
receive pursuant to such merger, consolidation or reorganization.
<PAGE>
Termination, Suspension or Modification of Plan
The Board of Directors may at any time terminate, suspend or
modify the Plan, except that the Board shall not, without the
approval of the holders of a majority of the Company's outstanding
Shares present in person or represented by proxy and entitled to vote
at a meeting of the stockholders of the Company duly called for such
purpose or by the written consent of the holders of a majority of the
outstanding Shares entitled to vote, (a) change the class of persons
eligible for awards; (b) change the exercise price or purchase price
of awards (other than through adjustment for changes in
capitalization); (c) increase the maximum duration of the Plan;
(d) materially increase the benefits accruing to participants under
the Plan; or (e) materially increase the number of securities that
may be issued under the Plan. No termination, suspension, or
modification of the Plan shall adversely affect any right acquired by
any grantee or by any beneficiary, under the terms of any award
granted before the date of such termination, suspension or
modification, unless such grantee or beneficiary shall consent.
However, it is conclusively presumed that any adjustment for changes
in capitalization hereof does not adversely affect any such right.
Application of Proceeds
The proceeds received by the Company from the sale of Shares
under the Plan shall be used for general corporate purposes.
Recommendation
Approval of the Plan requires the affirmative vote of the
holders of a majority of the outstanding Shares present in person or
represented by proxy and entitled to vote at the Annual Shareholders
Meeting. Abstentions and broker non-votes will be counted as votes
against approval of the Plan. Any stockholder entitled to vote may
vote part of his or her Shares in favor of the Plan and refrain from
voting Shares against approval of the Plan. In such a case, the
stockholder must specify the number of Shares that he or she is
voting affirmatively or else it will be conclusively presumed that
such stockholder intended to vote all of his or her Shares in favor
of approval of the Plan. The Board of Directors unanimously
recommends that stockholders vote FOR adoption of Proposal 3.
PROPOSAL 4
RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending September
30, 1999, and has further directed that management submit the
selection of independent auditors for ratification by the
stockholders at the Annual Meeting. Ernst & Young LLP has audited
the Company's financial statements since December 1992.
Representatives of Ernst & Young LLP are expected to be present at
the 1999 Annual Meeting of Shareholders, will have an opportunity to
make a statement if they so desire, and are expected to be available
to respond to appropriate questions.
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the
Company with respect to beneficial ownership of the Company's Common
Stock as of November 20, 1998, (i) by each person who is known by the
Company to own beneficially more than 5% of the outstanding Shares of
Common Stock, (ii) by each director of the company, (iii) by each
Named Executive Officer, and (iv) by all directors and executive
officers of the Company as a group:
<TABLE>
Name of Number of
Beneficial Owner Shares Percent
---------------- --------- -----
<S> <C> <C>
Motorola 4,752,989 13.7%
1303 E. Algonquin Rd.
Schaumburg, IL 60601
DNIC Brokerage (1) 4,479,841 12.9%
20546 N. Milwaukee Ave., #356
Deerfield, IL 60014
Mark R. Warner (2)(3) 2,460,470 7.1%
201 North Union St., Suite 300
Alexandria, VA 22314
Robert B. Blow (2) 2,120,775 6.1%
6410 Poplar Avenue, Suite 395
Memphis, TN 38119
Columbia Capital Corporation (2) 21,000 *
William L. De Nicolo (1)(3)(5) 4,538,081 13.1%
Kenneth E. Millard (3)(4)(7) 202,362 *
John E. Berndt (3)(7) 45,000 *
Larry J. Ford (3)(7) 55,000 *
Richard D. Haning (3)(6)(8) 4,752,989 13.7%
Robert C. Montgomery (3)(4)(7) 210,910 *
S.W.R. (Sandy) Moore (4)(7) 25,462 *
Daniel D. Giacopelli (3)(4)(7) 752,626 2.2%
Jeffrey L. Herrmann (4)(7) 28,332 *
All Directors and Officers as a
group (10 Persons) (8) 13,092,232 37.7%
</TABLE>
<PAGE>
* Less than one percent
(1) Through his ownership of stock of DNIC, Mr. De Nicolo has an
indirect beneficial interest of 71.2% of the Shares of the
Company held by DNIC. As a director and principal stockholder
of DNIC, he may be deemed to have voting and investment power
with respect to all Shares of the Company held by DNIC.
(2) Through their ownership of stock of Columbia Capital
Corporation, Mr. Warner and Mr. Blow have indirect beneficial
interest in 21,000 Shares of the Company held by or attributed
to Columbia Capital Corporation. As directors of Columbia
Capital Corporation, they may be deemed to Share voting and
investment power with respect to all Shares of the Company
held by or attributed to Columbia Capital Corporation.
(3) The named individual is a director of the Company.
(4) The named individual is a Named Executive Officer of the
Company as of September 30, 1998.
(5) Includes 4,479,841 Shares held by DNIC. Mr. De Nicolo, as
a director and principal stockholder of DNIC, may be deemed to
Share voting and investment power with respect to the Shares
held by DNIC.
(6) Includes 4,752,989 Shares held by Motorola. As an
executive officer of Motorola, the director may be deemed to
Share voting and investment power with respect to the Shares
held by Motorola. The Director disclaims beneficial ownership
of these Shares.
(7) The number of Shares shown as beneficially owned includes
options that are exercisable within 60 days of November 20,
1998.
(8) Includes 475,409 Shares that Officers of the Company may
acquire pursuant to options exercisable within 60 days of
November 20, 1998.
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation earned
by the Chief Executive Officer and the four most highly compensated
executive officers whose salary and bonus combined exceeded $100,000
in fiscal 1998. During that period, no Named Executive Officer
received any restricted stock award, stock appreciation right or
payment under any long-term incentive plan.
<TABLE>
Annual Compensation
Long-Term
Compensati All
Awards Other
Name Year Salary Bonus Options(1) Compensation
- ---- ---- -------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
Kenneth E. Millard 1998 $250,000 $200,000 0 $9,615 (2)
Chief Executive Officer 1997 250,000 150,000 150,000 2,487 (2)
President and Director 1996 114,423 50,000 500,000 22,973 (2)
Robert C. Montgomery 1998 205,000 100,000 0 7,885 (3)
Chief Operating Officer 1997 189,323 75,000 7,500 46,799 (3)
Executive Vice-President 1996 177,184 54,788 246,000 0
Director
Daniel D. Giacopelli 1998 197,240 100,000 250,000 0
Chief Technology Officer
Executive Vice-President
Director
Jeffrey L. Herrmann 1998 112,500 52,025 40,000 0
Chief Financial Officer
Senior Vice-President
Secretary
S.W.R. (Sandy) Moore 1998 177,509 23,725 (4) 0 0
Senior Vice-President 1997 133,077 2,280 (4) 50,000 0
</TABLE>
(1) Represents the number of Shares underlying options granted
during each fiscal year. In the first fiscal quarter of fiscal
1998, the Company decided to reprice all outstanding options
then held by active employees and directors.
(2) The 1998 and 1997 amounts represent medical expenses in
accordance with an employment agreement. The 1996 amount
represents approximately $10,000 in moving expenses and
$13,000 in consulting fees paid to Mr. Millard, which were
incurred prior to being employed by the Company.
(3) The 1998 amount represents medical expenses in accordance with
an employment contract. The 1997 amount represents relocation
expenses ($26,565), personal auto expenses ($10,605) and
medical expenses ($9,629) in accordance with an employment
agreement.
(4) Represents sales commissions.
<PAGE>
Employment Contracts
On April 18, 1996, the Company entered into an employment
agreement with Kenneth E. Millard, pursuant to which Mr. Millard
agreed to serve as Chief Executive Officer and President of the
Company. Employment is on an at-will basis and shall continue in
effect until terminated by either the Company or Mr. Millard with at
least 60 days prior notice. Under the agreement, Mr. Millard is to
receive an annual salary of $250,000 and an target incentive bonus of
$200,000 payable quarterly, one-half in stock and one-half in cash,
under the guidelines of the Company's Senior Management Bonus Plan.
Mr. Millard was granted 500,000 options as part of his employment
agreement with the Company. Options to acquire 50,000 Shares of the
Company's Common Stock at $5.00 per Share vested on April 18, 1996.
Options to acquire 150,000 Shares of the Company's Common Stock at
$4.50 per Share vested in 36 monthly installments from June 1996
through May 1998. Options to acquire 300,000 Shares of the Company's
Common Stock at $4.50 per Share shall vest on April 30, 2003 or
earlier if certain cliff vesting targets are met. Under cliff
vesting, for each $2.00 increase over a base price of $5.00 in the
closing bid price on Nasdaq for the Company Shares which remains in
effect for 30 consecutive trading days, options for 25,000 Shares
will vest on the first business day after such 30-day period. There
may be coterminous periods for which the closing bid price of the
Shares has increased over the applicable base price by more than
$4.00. Under cliff vesting, during the first, second and third years
of Mr. Millard's employment, of the 300,000 options subject to cliff
vesting no more than 40%, 30% and 30%, respectively of the options
may vest. All options granted to Mr. Millard terminate on the
earlier of May 1, 2006 and the date that is 180 days after Mr.
Millard is no longer employed with the Company.
On September 22, 1992, in connection with the Company's
acquisition of Adcor Electronics International, Inc., Robert C.
Montgomery entered into an employment agreement with the Company's
wholly-owned subsidiary, Telular-Adcor Security Products, Inc., for a
term extending through December 31, 1997. The amended agreement
provided for an annual salary of $181,500, payment of all operating
expenses for automobiles operated by immediate family members as well
as a monthly automobile allowance, fees related to the preparation of
personal income tax returns, participation in the Company's Employee
Stock Incentive Plan, participation in the Company's bonus plan for
executives and a minimum severance payment equivalent to six months
of salary if terminated without cause before the term of the
contract. On April 22, 1997, a new employment agreement was executed
to replace the previous one in its entirety. The new agreement
provides for an annual salary of $205,000; an annual target bonus of
$100,000 payable quarterly, one-half in stock and one-half in cash,
under the guidelines of the Company's Senior Management Bonus Plan;
an option to acquire 75,000 Shares of Company's stock at $4.78 per
Share, with 100% vesting on April 22, 1999; and up to one year's
salary in severance if terminated for other than cause.
<PAGE>
On November 10, 1997, in connection with the Company's
acquisition of Wireless Domain, Inc., the Company entered into an
employment agreement with Daniel D. Giacopelli, pursuant to which Mr.
Giacopelli agreed to serve as Executive Vice-President and Chief
Technology Officer of the Company. The agreement provides for an
annual salary of $200,000; an annual target bonus of $100,000 payable
quarterly, one-half in stock and one-half in cash, under the
guidelines of the Company's Senior Management Bonus Plan; an option
to acquire 250,000 Shares of Company's stock at $3.0625 per Share,
with 100% vesting on October 29, 2004; and up to six month's salary
in severance if terminated for other than cause.
Employment agreements are terminable for cause.
Option/SAR Grants
The following table sets forth information concerning stock
option/SAR grants made to each of the Named Executive Officers for
the twelve months ended September 30, 1998.
<TABLE>
Individual Grants
% of Total
Options/SARS
Granted to
Employees
in Twelve Potential Realizable Value at
Months Asssumed Annual Rates of
ended Stock Price Appreciation
Options/SAR Sept. 30, Exercise Expiration for Option/SAR Term
Name Granted 1998 Price Date 0% 5% 10%
- ---- --------- ---- ----- -------- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel D.
Giacopelli 250 (1) 100% $3.06 10/28/07 $0 $260,173 $590,244
Jeffrey L.
Herrmann 4 (1) 100% 2.75 12/3/03 0 37,411 84,872
</TABLE>
(1) The dollar amounts under these columns are the result of
calculations at the 5% and 10% assumed annual growth rates
mandated by the Securities and Exchange Commission and, therefore,
are not intended to forecast possible future appreciation,if any,
in the Company's stock price. The calculations were based on the
market price of the option/SAR from the date of the grant to the
end of the option/SAR term. No gain to the options/SARS is
possible without an increase in stock price, which will benefit
all Shareholders proportionately.
<PAGE>
Option/SAR Exercises and Holdings
The following table sets forth information concerning the value
of exercisable and unexercisable options/SARS held by each of the
Named Executive Officers as of September 30, 1998:
<TABLE>
Number of Value of
Unexercised Unexcerised in the
Shares Options/ Money
Acquired SARS at FY-End Options/SARS(1)
Upon Value Exeris- Unexeris- Exeris- Unexeris-
Name exercise Realized able able able able
- ---- --- --- ------- ------- --- ---
<S> <C> <C> <C> <C> <C> <C>
Kenneth E. Millard 0 $0 167,567 482,433 $0 $0
Robert C. Montgomery 0 0 110,944 210,056 0 0
Daniel D. Giacopelli 0 0 116,071 133,929 0 0
Jeffrey L. Herrmann 0 0 9,999 60,001 0 0
S.W.R. (Sandy) Moore 0 0 23,610 26,390 0 0
</TABLE>
(1) Represents the fair market value per Share of the underlying
Shares on the last day of the fiscal year less the option/SAR
exercise price multiplied by the number of Shares. The fair
market value per Share was $0.969 based upon the closing price
of the Common Stock on the NASDAQ National Market System on the
last trading day of the fiscal year.
CERTAIN TRANSACTIONS
Shareholders Agreement
Certain Shareholders of the Company are parties to a
Shareholders' Agreement that contains certain provisions as to voting
and transfer of Common Stock held by those stockholders. Pursuant to
the Shareholders' Agreement, each of Telular Canada and Motorola has
the right to nominate for election a number of directors
proportionate to its respective holdings of outstanding Shares,
rounded to the nearest whole number in the case of Telular Canada and
rounded up to the nearest whole number in the case of Motorola
(provided, in the case of Telular Canada, that as long as it holds at
least 10% of the outstanding Shares of Common Stock it may nominate
at least one director and, in the case of Motorola, that as long as
it holds at least 10% of the outstanding Shares of Common Stock it
may nominate at least one director, and that as long as it holds at
least 20% of the outstanding Shares of Common Stock it may nominate
at least two directors), and the principal Shareholders of the
Company have agreed to vote in favor of each such nominee. For the
eight person Board to be elected at the Meeting, this arrangement
entitles Motorola to one nominee but does not entitle Telular Canada
to a nominee. As required by the Shareholders' Agreement, the
Certificate of Incorporation provides that the following actions may
not be taken without the affirmative vote of stockholders holding at
least two-thirds of the outstanding voting Shares:
<PAGE>
(i) merger, consolidation, reorganization, amalgamation or
similar transaction (other than certain permitted
transactions);
(ii) disposition of all or substantially all of the assets of
the Company;
(iii) amendment or supplement to the Certificate of
Incorporation or Bylaws of the Company; or
(iv) discontinuance, dissolution or liquidation of the Company
or the Company's business.
If at any time the Company or the stockholders party to the
Shareholders' Agreement receive an unsolicited offer to acquire a
majority of the stock of the Company or all or substantially all of
its assets, they must notify Motorola. If the Company or its
stockholders intend to consider the offer, Motorola will have the
right to submit a bid as well. The Company and such stockholders may
not approve a transaction with a third party that is at a valuation
lower than that offered by Motorola. The rights of Motorola will
terminate upon any sale by Motorola of Shares of Common Stock after
which Motorola owns less than 20% of the outstanding Shares of Common
Stock on a fully-diluted basis.
Under the Shareholders' Agreement, each of DNIC and Columbia has
agreed not to compete with the Company for so long as it is a
stockholder and for a period of three years thereafter.
Transactions with DNIC and its Affiliates
Pursuant to the partnership agreement of The Telular Group L.P.,
DNIC retained and did not contribute to the Company the right to
receive the first $250,000 per year in royalty payments under
licensing agreements. A total of $250,000 was received by DNIC
pursuant to the agreement during the fiscal year ended September 30,
1998.
Transactions with Motorola
Pursuant to a Patent Cross License Agreement entered into on
March 23, 1990, and amended November 2, 1993, the Company licenses to
Motorola the right to manufacture and sell cellular interfaces in a
variety of products. In addition, the agreement allows the Company
to couple its interface to Motorola transceivers, and grants the
Company the right to purchase Motorola transceivers. This Patent
Cross License Agreement is royalty-bearing to the Company. During
fiscal year 1998 the Company received approximately $350,000 in
royalties from Motorola and purchased transceivers and other
equipment from Motorola for approximately $8,088,000.
<PAGE>
On November 2, 1993, Motorola purchased from the Company
3,824,240 Shares of Common Stock of the Company in consideration for
$11.0 million in cash (including $1.0 million to be used as a market
development fund for fixed cellular products incorporating Motorola
transceivers) and certain other undertakings by Motorola. These
undertakings include: reduction of the pricing on AMPS transceivers
currently being purchased by the Company from Motorola; an
elimination of the royalties payable by the Company to Motorola under
the Patent Cross License Agreement; increase of the Company's credit
line for purchases; the opportunity to purchase transceivers based on
any transmission technology or standard which Motorola's Cellular
Subscriber Group offers to any of its customers if, as and when
available to the public; and, on a fee-for-services basis, subject to
availability, access to Motorola's Cellular Subscriber Group's
worldwide service and maintenance organization, engineering support,
and purchasing system. These undertakings terminate on the later of
September 20, 1998, and the date on which Motorola ceases to own any
Common Stock. The Company granted to Motorola a limited right of
first refusal with respect to transceiver purchases by the Company.
During October and November of 1995 the Company expanded its
relationship with Motorola. It was awarded a contract to supply a
specifically customized version of its PHONECELLR SX product to
Motorola's Cellular Infrastructure Group (CIG) for deployment in
existing and future wireless local loop (WLL) projects in Hungary.
In addition, CIG agreed to purchase $100 million of the Company's
fixed wireless terminals (FWTs) and provide funding for engineering
and product development activities over a three-year period,
commencing January 1, 1996. During fiscal 1996 and fiscal 1997 the
Company shipped $6 million and $21 million, respectively, of product
under this agreement. During fiscal 1998, no product was shipped
under this agreement.
Relationship and Transactions with Telular Canada
Telular Canada is a publicly-held Canadian corporation, Shares
of which are traded on the Toronto Stock Exchange. The Company does
not own any stock of Telular Canada. Telular Canada holds 107,500
Shares of the Company's Common Stock as of October 30, 1998.
Pursuant to an exclusive distribution agreement between the
Company and Telular Canada, Telular Canada is the exclusive
distributor of the Company's products in Canada. The distribution
agreement expires in 2007, and is terminable prior to 2007 for cause.
Telular Canada holds title to the Canadian patents for the
Company's technology and the right to acquire by transfer, technology
that allows Telular Canada to manufacture and sell in Canada products
incorporating the Company's patented technology. In addition, the
Company has licensed to Telular Canada the use in Canada of the mark
TelularR and the Company's logo. The foregoing licenses to Telular
Canada are without royalty to the Company.
<PAGE>
In February 1995, Global Data Inc. (GDI), a wholly-owned
subsidiary of Telular Canada, entered into a non-exclusive master
distribution with the Company to purchase and resell the Company's
product in the United States. The agreement also will allow GDI to
use the Company's trademarks and logos on its sales literature, and
will provide GDI with an open line of credit. During fiscal year
1998, the Company made sales to GDI and Telular Canada of
approximately $361,740.
Relationship and Transactions with Wireless Domain Incorporated
(formerly Telepath Corporation)
On November 10, 1997, the Company acquired Wireless Domain
Incorporated (WD). Under the terms of the merger, the Company issued
500,000 Shares of Common Stock and relinquished control of the
500,000 Shares of Common Stock held by WD. Prior to November 10,
1997, the Company had acquired 50% of WD in three separate
transactions during 1997 and 1996. Prior to the merger the Company
purchased development services from WD. During the period October 1,
1997 to November 10, 1997, the Company purchased services from
Wireless Domain for approximately $428,000.
The former president of WD, Dan Giacopelli, has served as
director, Executive Vice President and Chief Technology Officer for
the Company since October 28, 1997.
Other Transactions and Events
Hamman and Benn, of which George Hamman and Marvin Benn are
principals, have provided legal services to the Company. Mr. Hamman
and Mr. Benn are Shareholders of the Company and Shareholders of
DNIC. During fiscal year 1998, the Company paid Hamman and Benn
aggregate fees of $479,913. Cash payments totaled $300,600 and
payments made in the form of Common Stock of the Company were valued
at $179,853.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Executive compensation is administered by the Compensation
Committee of the Board of Directors. The Compensation Committee is a
standing committee composed of two independent Directors, Mark Warner
and Larry Ford.
Since Telular's initial public offering in January 1994, the
Compensation Committee of the Board of Directors has developed and
administered the Company's management compensation policies and
plans. The Committee reviews, recommends and grants salary and bonus
incentives for executive officers and employees. The Compensation
Committee also administers the Stock Incentive Plan and is
responsible for the selection of participants in the Plan and
decisions concerning the timing, pricing and the amount of grants or
awards to be made.
<PAGE>
In April 1996, the Company decided to reprice all outstanding
options then held by Company employees. This action was taken in
response to a sustained decline in the market price of the Company's
stock to a level well below the outstanding options' exercise price.
The Compensation Committee determined that the difference between
the market price and the exercise price was so great that the options
had ceased to provide a sufficient incentive to the option holders.
Moreover, in connection with the hiring of new executives, new
options were being issued at an exercise price significantly below
that of the outstanding options.
In all but a few cases, the exercise price was reduced to the
then-prevailing market price of $5.56. In two cases, those of Mr.
Montgomery (the Chief Operating Officer) and Mr. O'Leary (the Vice-
President of Sales), the exercise price was set at $4.50, in order to
be in parity with options that had been granted to Mr. Millard at the
time of his employment.
In October 1997, the Company again decided to reprice all outstanding
options then held by active employees and current directors. The
exercise price was reduced to the then-prevailing market price of
$3.0625. This action was taken in response to a sustained decline in
the market price of the Company's stock to a level well below the
outstanding options' exercise price. The Compensation Committee
determined that the difference between the market price and exercise
prices was so great that the options had ceased to provide a
sufficient incentive to the option holders. The Compensation
Committee upon recommendation of the CEO decided not to provide merit
or Cost Of Living Adjustments (COLA) to the CEO, executive officers
or employees for fiscal year 1998. Instead, all employees have been
granted the opportunity to participate in two Company incentive
plans. In addition, in October 1997, employees not holding stock
options were granted stock options under the Company's Second Amended
and Restated Stock Option Plan.
The following table summarizes options repriced for past and
present executive officers:
<PAGE>
<TABLE>
TEN-YEAR OPTION/SAR REPRICINGS
Number of Market Original
Securities Price of Exercise Option Term
Underlying Stock at Price New Remaining
Options Time of at Time Exercise at Date of
/SARS Repricing of Price
Name and Title Date Repriced Repricing Repricing
- -------------------- -------- -------- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Kenneth E. Millard 10/28/97 150,000 $3.06 $4.78 $3.06 8.5 Years
Kenneth E. Millard 10/28/97 500,000 3.06 4.50 3.06 5.0 Years
Robert C. Montgomery 10/28/97 75,000 3.06 4.78 3.06 5.5 Years
Robert C. Montgomery 10/28/97 185,000 3.06 4.50 3.06 8.5 Years
Robert C. Montgomery 10/28/97 25,000 3.06 5.00 3.06 8.5 Years
Robert C. Montgomery 4/17/96 36,000 5.56 8.25 4.50 5.0 Years
S.W.R. (Sandy) Moore 10/28/97 50,000 3.06 5.56 3.06 9.0 Years
Jeffrey L. Herrmann 10/28/97 20,000 3.06 5.94 3.06 5.5 Years
Raymond M. O'Leary 4/17/96 24,000 5.56 8.25 4.50 5.0 Years
George Claudio Jr. 4/17/96 48,209 5.56 8.25 5.56 5.0 Years
Gordon Jenkins 4/17/96 12,000 5.56 8.25 5.56 5.0 Years
Timothy L. Walsh 4/17/96 10,000 5.56 8.25 5.56 5.0 Years
</TABLE>
Before making compensation recommendations with respect to
officers during the past fiscal year, the Committee reviewed base
salaries proposed by the CEO, and evaluated each officer's experience
and proposed responsibilities and the salaries of similarly situated
executives. In determining its recommendations for adjustments of
officers' base salaries for fiscal 1998, the Committee focused
primarily on each officer's contributions towards the Company's
success in moving toward its long term goals, the accomplishment of
goals set by the officer and approved by the Committee, and the
Committee's assessment of the quality of services rendered by the
officer.
The CEO's compensation for 1998 was established pursuant to an
employment agreement negotiated prior to the CEO's acceptance of the
position in April 1996. The CEO's compensation package has a
significant equity incentive component. For fiscal year 1998, the
CEO received a bonus of $200,000, which was paid half in cash and
half in stock.
Mark Warner, Director
Larry Ford, Director
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON
The following graph compares total stockholder returns of the
Company since its initial public offering of Common Stock on January
27, 1994 to two indices: the Nasdaq Stock Market (U.S.) Index and the
Hambrecht & Quist Technology Index (the HQ-T). The total return
calculations assume the reinvestment of dividends, although dividends
have never been declared for the Company's stock, and is based on the
returns of the component companies weighted according to their
capitalizations as of the end of each monthly period. The Nasdaq
Composite tracks the aggregate return of all equity securities traded
on the Nasdaq National Market System (the NMS). The HQ-T tracks the
aggregate return of technology companies, including electronics,
medical and other related technology industries. The Company's Common
Stock is traded on the NMS and is a component of the Nasdaq Stock
Market (U.S.) Index.
<TABLE>
[PERFORMANCE GRAPH DATA FOLLOWS]
COMPARISON OF 56 MONTH CUMULATIVE TOTAL RETURN*
AMONG TELULAR CORPORATION,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX
DOLLARS
1/27/94 9/94 9/95 9/96 9/97 9/98
<S> <C> <C> <C> <C> <C> <C>
TELULAR CORPORATION $100 $ 48 $ 69 $ 26 $ 15 $ 5
NASDAQ STOCK MARKET (U.S.) 100 97 134 159 218 223
HAMBRECHT & QUIST TECHNOLOGY 100 103 181 198 296 275
* $100 INVESTED ON 1/27/94 IN STOCK OR INDEX - INCLUDING REINVESTMENT
OF DIVIDENDS. FISCAL YEAR ENDING SEPTEMBER 30.
* TELULAR CORPORATION'S STOCK PRICE ON THE LAST DATE OF THE 1998
FISCAL YEAR, SEPTEMBER 30, WAS $0.969. THE LATEST SALES PRICE
ATTAINABLE BEFORE THE PRINTING OF THIS PROXY WAS $0.880 PER SHARE ON
NOVEMBER 2, 1998
</TABLE>
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Mr. Ford and Mr.
Warner. Neither Mr. Ford nor Mr. Warner is now or was at any time an
officer of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
All executive officers, directors and holders of more than 10%
of the Company's Common Stock reported all transactions in the
Company's Common Stock during fiscal year 1998 in timely filings with
the Securities and Exchange Commission (SEC) as required under
Section 16(a) of the Securities and Exchange Act of 1934.
Shareholder Proposals
Shareholder proposals submitted for evaluation as to inclusion
in the proxy materials for the Company's next annual meeting of
Shareholders must be received by the Company not later than August
15, 1999, at the Company's principal executive offices. Shareholders
who intend to present a proposal for the next annual meeting of
Shareholders without inclusion of such proposal in the Company's
proxy materials are required to provide notice of such proposal to
the Company no later than October 31, 1999 at the Company's principal
executive offices. All notices should be sent to: Telular
Corporation, Attention: Secretary, 647 North Lakeview Parkway, Vernon
Hills, Illinois 60061.
Other Matters
The Company knows of no other matters to be submitted to the
meeting. If any other matters properly come before the meeting, it is
the intention of the persons named in the enclosed proxy card to vote
the Shares they represent as the Board of Directors may recommend.
By Order of the Board of Directors
Jeffrey L. Herrmann
Senior Vice-President, Chief Financial
Officer and Secretary
Vernon Hills, Illinois
December 15, 1998
Exhibit A
TELULAR CORPORATION
THIRD AMENDED AND RESTATED STOCK INCENTIVE PLAN
1. Purpose
The Telular Corporation Stock Incentive Plan (the Plan) is an
amendment and restatement of the Telular Corporation Amended and
Restated Stock Option Plan. The Plan is designed to enable directors,
officers and all employees of Telular Corporation (the Company) to
acquire or increase a proprietary interest in the Company, and thus
to Share in the future success of the Company's business.
Accordingly, the Plan is intended as a means of attracting and
retaining directors, officers and employees of outstanding ability,
and of increasing the identity of interests between them and the
Company's Shareholders, by providing an incentive to perform in a
superior manner and rewarding such performance. Because the
individuals eligible to receive Awards under the Plan will be those
who are in positions to make important and direct contributions to
the success of the Company, the directors believe that the grant of
Awards will advance the interests of the Company and the
Shareholders.
2. Definitions
In this Plan document, unless the context clearly indicates
otherwise, words in the masculine gender shall be deemed to refer to
females as well as to males, any term used in the singular also shall
refer to the plural, and the following capitalized terms shall have
the following meanings:
(a) "Agreement" means the written agreement to be entered into
by the Company and the Grantee, as provided in Section 7 hereof.
(b) "Award" means an Option, a Stock Appreciation Right, a
Performance Share, or any award described in Section 15 hereof.
(c) "Beneficiary" means the person or persons designated in
writing by the Grantee as his beneficiary with respect to an
Award in the event of the Grantee's death; or, in the absence of
an effective designation or if the designated person or persons
predecease the Grantee, the Grantee's Beneficiary shall be the
person or persons who acquire by bequest or inheritance the
Grantee's rights in respect of an Award. In order to be
effective, a Grantee's designation of a Beneficiary must be on
file with the Committee before the Grantee's death. Any such
designation may be revoked by the Grantee and a new designation
substituted therefor at any time before the Grantee's death.
(d) "Board of Directors" or "Board" means the board of
directors of the Company.
(e) A "Change in Control" shall be deemed to occur when and if
any of the following events occurs:
<PAGE>
(i) the Company acquires knowledge that any "person" or
"group" within the meaning of Section 13(d) and 14(d)(2) of
the 1934 Act in a transaction or series of transactions has
become the "beneficial owner," as defined in Rule 13d-3
under the 1934 Act, directly or indirectly, of a majority
of the then outstanding voting securities of the Company
(not including voting securities held by officers or
directors of the Company within the meaning of Section 16
of the 1934 Act), otherwise than through a transaction or
series of transactions arranged by, or consummated with the
prior approval of, the Board; or
(ii) the consummation of a merger or consolidation of the
Company with, or a sale of all or substantially all of the
assets of the Company to, another corporation unaffiliated
with the Company that has been approved by the holders of a
majority of the outstanding voting securities of the Company
(not including any voting securities that are held by
directors or officers of the Company within the meaning of
Section 16 of the 1934 Act) and after which merger,
consolidation or the Shareholders of the Company immediately
prior thereto do not beneficially own at least a majority of
the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors of the corporation surviving such merger or
consolidation or to which all or substantially all such
assets are transferred.
(f) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(g) "Committee" means a committee, appointed or approved by the
Board pursuant to Section 5(a) below, consisting of not less
than two directors who are "disinterested persons" within the
meaning of Rule 16b-3 under the 1934 Act (or any successor rule
of similar import) or such greater number of directors as may
be required to satisfy the requirements of Rule 16b-3 as in
effect from time to time. To the extent that it is determined
desirable to exempt any compensation earned under the Plan from
the limitation on deductions imposed by Section 162(m) of the
Code and the rules and regulations thereunder, membership in
the Committee may be limited as necessary to exempt such
compensation from such limitation.
(h) "Company" means Telular Corporation.
(i) "Disability" means having a total and permanent disability
as defined in Section 22(e)(3) of the Code.
(j) "Fair Market Value" means, when used in connection with the
Shares on a certain date, (1) the closing price if Shares are
listed on NASDAQ or any national stock exchange, or (2) if
Shares are not so listed, any other appropriate method that the
Committee deems fair and equitable.
(k) "Grantee" means a person to whom an Award has been granted
under the Plan.
<PAGE>
(l) "Incentive Stock Option" means an Option that complies with
the terms and conditions set forth in Section 422(b) of the Code
and is designated by the Committee as an Incentive Stock Option.
(m) "1934 Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(n) "Nonqualified Stock Option" means an Option granted under
the Plan other than an Incentive Stock Option.
(o) "Option" means an option to purchase a Share or Shares
under the Plan. Unless the context clearly indicates otherwise,
the term "Option" shall include both Incentive Stock Options and
Nonqualified Stock Options.
(p) "Parent" means any parent corporation of the Company within
the meaning of Section 424(e) of the Code (or a successor
provision of similar import).
(q) "Payment Date" means the date specified by the Committee at
the grant of a Performance Share that is used to determine the
amount and timing of a payment with respect to a Performance
Share. A Payment Date may be a certain date or the date on which
a performance goal is attained.
(r) "Performance Share" means a right that provides for a
payment in accordance with Section 14 hereof.
(s) "Plan" means the Telular Corporation Stock Incentive Plan,
as set forth herein and as amended from time to time. Unless the
context clearly indicates otherwise, the term "Plan" includes
the Telular Corporation Stock Option Plan prior to its amendment
and restatement.
(t) "Shares" means shares of the Common Stock, par value $.01
per Share, of the Company.
(u) "Stock Appreciation Right" or "Right" means a right that
provides for a payment in accordance with Section 10 hereof.
(v) "Subsidiary" means any subsidiary corporation of the
Company within the meaning of Section 424(f) of the Code (or a
successor provision of similar import).
(w) "Term" means the period during which a particular Option or
Right may be exercised.
3. Adoption and Duration of the Plan
(a) The Plan is effective as of November 17, 1993, and shall
terminate ten years after such effective date, unless it is
sooner terminated in accordance with Section 22 hereof. Any
Award outstanding at the time that the Plan is terminated shall
not cease to be or cease to become exercisable pursuant to its
terms because of the termination of the Plan.
<PAGE>
(b) The Plan shall be approved either (1) by the affirmative
vote of the holders of a majority of the outstanding Shares
present in person or represented by proxy and entitled to vote
at a meeting of the stockholders of the Company duly called for
such purpose, or (2) by the written consent of the holders of a
majority of the outstanding Shares entitled to vote.
4. Number and Source of Shares Subject to the Plan
(a) The Company may grant Awards under the Plan (including
Options granted prior to this amendment and restatement) with
respect to not more than 7,000,000 Shares (subject, however, to
adjustment as provided in Section 21 hereof), which Shares may
be provided from the Company's treasury, by the issuance of
authorized but unissued Shares, and/or by the purchase of
outstanding Shares in the open market or in private
transactions. The grant of an Award shall be deemed to be a
grant of Shares equal to the greater of (i) the number of Shares
on the basis of which the Award is calculated or (ii) the number
of Shares issued (if Shares are issued) or the number of Shares
with a Fair Market Value at the time of distribution equal to
the cash distributed (if cash is distributed).
(b) If, and to the extent that, all or part of an Award
previously granted (including an Option granted prior to this
amendment and restatement) is surrendered, lapses, expires, is
forfeited or is terminated, in whole or in part, in such manner
that all or some of the Shares that are the subject of the
Award are not issued to a Grantee (and cash or any other form of
consideration is not paid in lieu thereof pursuant to any tandem
arrangement or otherwise), then such Shares subject to the Award
again shall become available for the granting of Awards under
the Plan within the limitation stated in subsection (a).
Notwithstanding the foregoing, (i) if, while any Award is
outstanding, the Grantee thereof receives any benefits of
ownership of the Shares (such as the right to vote or receive
dividends) or (ii) if any Shares previously issued under the
Plan are surrendered, or any Shares issuable under the Plan are
withheld, in payment of the exercise price or purchase price of
an Award or to satisfy tax withholding obligations associated
with any Award, then in each such case such Shares shall not
again be available for Awards under the Plan.
5. Administration of the Plan
(a) The Plan shall be administered by the Committee. The
members of the Committee shall be appointed by the Board from
time to time and shall serve at the pleasure of the Board.
(b) The Committee shall adopt such rules of procedure as it may
deem appropriate for the proper administration of the Plan. All
actions of the Committee under the Plan shall be effective if
taken either (1) by a majority vote of the members then in
office at a meeting duly called and held or (2) by execution of
a written instrument signed by all of the members then in
office.
<PAGE>
(c) The powers of the Committee shall include plenary authority
to interpret the Plan. Subject to the provisions of the Plan,
the Committee shall have the authority, in its sole discretion,
from time to time: (1) to select the officers and key employees
to whom Awards shall be granted; (2) to determine the date on
which each Award shall be granted; (3) to prescribe the number
of Shares subject to each Award; (4) to determine the type of
each Award; (5) to determine the Term of each Award; (6) to
determine the periods during which Awards may be exercised and
the restrictions and limitations upon exercise of Awards or the
receipt of Shares; (7) to prescribe any performance criteria
pursuant to which Awards may be granted or may become
exercisable or payable; (8) to prescribe any limitations,
restrictions or conditions on any Award; (9) to prescribe the
provisions of each Agreement, which shall not be inconsistent
with the terms of the Plan; (10) to adopt, amend and rescind
rules and regulations relating to the Plan; and (11) to make all
other determinations and take all other actions that are
necessary or advisable for the implementation and administration
of the Plan.
6. Individuals Eligible to Receive Awards
(a) Awards may be granted under the Plan to officers and key
employees of the Company or any Subsidiary, including officers
and key employees who also serve as members of the Board. All
determinations by the Committee as to the individuals to whom
Awards shall be granted hereunder shall be conclusive.
(b) Directors who are not regular salaried employees of the
Company or any Subsidiary shall not be eligible to receive
Awards.
(c) A Grantee may receive more than one Award. A Grantee may
not receive Awards with respect to more than 750,000 Shares
(subject, however, to adjustment as provided in Section 21) in
any three-year period. For purposes of the application of this
limitation, if an Award is canceled, the Shares subject to the
canceled Award shall continue to be counted against the maximum
number of Shares for which Awards may be granted to the Grantee.
If, after the grant of an Award, the exercise price or purchase
price of the Award is reduced, transaction shall be treated as a
cancellation of the Award and a grant of a new Award, and both
the Shares subject to the Award that is deemed to be canceled
and the Shares subject to the Award that is deemed to be granted
shall reduce the maximum number of Shares for which Awards may
be granted to the Grantee.
7. Agreement
(a) Each Award shall be evidenced by an Agreement setting forth
the number of Shares subject to the Award or to which such Award
corresponds, and the terms, conditions and restrictions
applicable thereto.
(b) Appropriate officers of the Company are hereby authorized
to execute and deliver Agreements in the name of the Company as
directed from time to time by the Committee.
<PAGE>
8. Incentive Stock Options
(a) The Committee may authorize the grant of Incentive Stock
Options to directors, officers and employees, subject to the
terms and conditions set forth in the Plan. The Agreement
relating to an Incentive Stock Option shall state that the
Option evidenced by the Agreement is intended to be an Incentive
Stock Option within the meaning of Section 422(b) of the Code.
(b) The Term of each Incentive Stock Option shall end (unless the
Option shall have terminated earlier under another provision of
the Plan) on a date fixed by the Committee and set forth in the
applicable Agreement. In no event shall the Term of the Option
extend beyond ten years from the date of grant of the Option. In
the case of any Grantee who, on the date the Option is granted,
owns (within the meaning of Section 424(d) of the Code) more
than 10 percent of the total combined voting power of all
classes of stock of the Company, a Parent (if any), or a
Subsidiary (if any), the Term of the Option shall not extend
beyond five years from the date of grant.
(c) To the extent that the aggregate Fair Market Value of the
stock with respect to which Incentive Stock Options (determined
without regard to this subsection (c)) are exercisable by any
Grantee for the first time during any calendar year (under all
stock option plans of the Company, its Parent (if any) and its
Subsidiaries (if any)) exceeds $100,000, such Options shall not
be Incentive Stock Options. For the purposes of this subsection
(c), the Fair Market Value of stock shall be determined as of
the time the Option with respect to such stock is granted. This
subsection (c) shall be applied by taking Options into account
in the order in which they were granted.
(d) The Option price per Share established by the Committee for
an Incentive Stock Option shall not be less than the Fair Market
Value of a Share on the date the Option is granted, except that
in the case of an Incentive Stock Option granted to a Grantee
who, on the date the Option is granted, owns (within the meaning
of Section 424(d) of the Code) more than 10 percent of the total
combined voting power of all classes of stock of the Company, a
Parent (if any), or a Subsidiary (if any), the Option price for
each Share shall not be less than 110 percent of the Fair Market
Value of a Share on the date the Option is granted. In no event
may an Incentive Stock Option be granted if the Option price per
Share is less than the par value of a Share.
(e) Any Grantee who disposes of Shares purchased upon the
exercise of an Incentive Stock Option either (1) within two
years after the date on which the Option was granted, or (2)
within one year after the transfer of such Shares to the
Grantee, shall promptly notify the Company of the date of such
disposition and of the amount realized upon such disposition.
9. Nonqualified Stock Options
<PAGE>
(a) The Committee may authorize the grant of Nonqualified Stock
Options subject to the terms and conditions set forth in the
Plan. Unless an Option is designated by the Committee as an
Incentive Stock Option, it is intended that the Option will not
be an Incentive Stock Option within the meaning of Section
422(b) of the Code and instead, will be a Nonqualified Stock
Option. The Agreement relating to a Nonqualified Stock Option
shall state that the Option evidenced by the Agreement shall not
be treated as an Incentive Stock Option.
(b) The Term of each Nonqualified Stock Option shall end (unless
the Option shall have terminated earlier under another provision
of the Plan) on a date fixed by the Committee and set forth in
the applicable Agreement. In no event shall the Term of the
Nonqualified Stock Option extend beyond ten years from the date
of grant of the Option.
(c) The Option price to be paid by the Grantee for each Share
purchased upon the exercise of a Nonqualified Stock Option shall
be established by the Committee and set forth in the applicable
Agreement. The Option price per Share of a Nonqualified Stock
Option may not be less than the par value of a Share.
10. Stock Appreciation Rights
(a) The Committee may, from time to time, grant Stock
Appreciation Rights either (1) in tandem with all or a portion
of an Option granted under the Plan or (2) independent of any
Option granted under the Plan. A tandem Right shall be
exercisable only at such times, and to such extent, as the
related Option is exercisable. An independent Right shall be
exercisable at such time and to such extent as the Committee
shall determine.
(b) Any Stock Appreciation Right shall permit the Grantee to
receive, upon exercise of the Right, an amount (to be paid in
cash, in Shares or in both cash and Shares, as determined by the
Committee in its sole discretion at any time prior to or after
exercise) equal in value to the difference between (1) the Fair
Market Value on the date of exercise of the Shares with respect
to which the Right is exercised and (2) either (i) the Option
price of the related Option in the case of a Right that is
related to an Option or (ii) the Fair Market Value of a Share on
the date the Right was granted in the case of a Right that is
not related to any Option.
<PAGE>
(c) With respect to Rights granted under the Plan, the
Committee may establish such waiting periods, exercise dates and
other limitations as it shall deem appropriate in its sole
discretion, provided that (1) no Right that is granted in tandem
with an Option may be exercised after the expiration of the Term
of such Option and (2) the exercise of a Right (whether or not
in tandem with an Option) for cash by a director or officer
(within the meaning of Rule 16b-3 under the 1934 Act) of the
Company is subject to the following conditions: (A) the Company
shall have been subject to the reporting requirements of Section
13(a) of the 1934 Act for at least one year prior to the
exercise and shall have filed all reports required to be filed
under Section 13(a) during such period, (B) the Company shall
have regularly released for publication quarterly and annual
summary statements of sales and earnings, (C) the Committee,
which shall have sole discretion to approve or disapprove the
election of the Grantee to receive cash as whole or partial
settlement of the Right, approves the Grantee's election to
receive cash after the election is made, (D) the exercise occurs
during one of the window periods described in clause (e)(3) of
Rule 16b-3 and (E) the Right is not exercised prior to the
expiration of a six-month period after the date of the grant or,
if later, stockholder approval of the Plan as provided in
Section 3(b). In addition, the Committee may impose a
prohibition on the exercise of Rights for such period or periods
as it, in its sole discretion, deems to be in the best interest
of the Company.
(d) The right of a Grantee to exercise an Option shall be
canceled if and to the extent that the Shares subject to the
Option are used to calculate the amount to be received upon the
exercise of a tandem Right, and the right of a Grantee to
exercise a tandem Right shall be canceled if and to the extent
that the Shares subject to the Right are purchased upon the
exercise of the related Option.
(e) A tandem Right may be granted coincident with or after the
grant of any related Option; provided that the Committee shall
consult with counsel before granting a tandem Right after the
grant of a related Incentive Stock Option.
11. Exercisability of Options and Rights
(a) The Committee shall have authority to grant (1) Options and
Rights that are exercisable in full at any time during their
Term and (2) Options and Rights that become exercisable in
installments during their Term. In exercising an Option or
Right, the Grantee may purchase less than all of the Shares
available under the Option or Right. No Option or Right granted
to a director or officer of the Company (within the meaning of
Section 16 of the 1934 Act) shall be exercisable within six
months after the date of the grant of such Option or Right (or,
if later, within six months following the date of stockholder
approval of the Plan as provided in Section 3(b)).
<PAGE>
(b) The Committee may provide in the Agreement that the Option
and/or Right becomes exercisable in full, notwithstanding the
applicability of any limitation on the exercise of such Option
or Right (other than the six-month waiting period described in
the final sentence of subsection (a) above) beginning on the
date on which a Change in Control has occurred.
12. Exercise of Option or Right
(a) Options or Rights shall be exercised by delivering or
mailing to the Committee: (1) in the form and in the manner
prescribed by the Committee, a notice specifying the number of
Shares to be purchased or the number of Shares with respect to
which a Right shall be exercised, and (2) if an Option is
exercised, payment in full of the Option price for the Shares so
purchased by a method described in Section 17 hereof.
(b) Subject to Section 16(a) hereof, upon receipt of the notice
of exercise and payment of the Option price in the case of an
Option, the Company shall promptly deliver to the Grantee (or
Beneficiary) a certificate or certificates for the Shares to
which he is entitled, without charge to him for issue or
transfer tax.
(c) Upon the purchase of Shares under an Option or Right,
the stock certificate or certificates may, at the request of
the purchaser or recipient, be issued in his name and the name
of another person as joint tenants with right of survivorship.
13. Exercise of Options or Rights After Termination of Employment
(a) The Committee may provide in the Agreement that the Option
and/or Right shall cease to be exercisable after the Grantee's
employment with the Company and its Subsidiaries (if any)
terminates. The Committee also may provide in the Agreement that
the Option and/or Right shall continue to be exercisable for a
specified period (but not after such period) after the Grantee's
employment with the Company and its Subsidiaries (if any)
terminates. The period during which the Option and/or Right
shall remain exercisable may vary according to the reason for
the termination. In no event shall an Option and/or Right be
exercisable after the expiration date specified in the
Agreement.
(b) An Incentive Stock Option shall be treated as a
Nonqualified Stock Option if it is exercised more than 12 months
after a termination of employment because of a Disability or
more than three months after a termination of employment for any
reason other than death or Disability.
<PAGE>
(c) The Committee may provide in the Agreement that the Option
and/or Right shall become immediately exercisable in full upon
the Grantee's termination of employment for specified reasons
such as Disability or death; notwithstanding any provision of
the Option and/or Right that provides for the exercise of the
Option and/or Right in installments, except for the six-month
waiting period described in the final sentence of Section 11(a).
Any Option or Right that would have become immediately
exercisable in full upon such a termination but for the
application of such six-month waiting period shall become
immediately exercisable in full upon the expiration of such six-
month waiting period.
14. Performance Shares
The Committee may, from time to time, grant Performance Shares.
A Performance Share shall entitle the Grantee to receive a payment as
soon as practicable after a Payment Date (specified by the Committee
at the time of the grant of the Performance Share) in an amount equal
to the excess (if any) between (1) the Fair Market Value of a Share
on the Payment Date and (2) the Fair Market Value of a Share on the
date the Performance Share is granted. Unless the Committee provides
otherwise at the time of grant, a Grantee may receive payment only if
the Grantee remains continuously employed with the Company or a
Subsidiary until such Payment Date. Payment may be made in cash,
Shares or in both cash or Shares, as determined by the Committee in
its sole discretion at any time prior to the Payment Date. A
Performance Share does not confer the right to vote or the right to
receive dividends. At the time of the grant of the Performance Share,
the Committee may establish such terms, limitations and restrictions
as it deems advisable, including providing for the acceleration of
the Payment Date upon the occurrence of certain events.
15. Stock-Based Awards
The Committee may, from time to time, grant Awards under the
Plan that consist of, are denominated in or payable in, are valued in
whole or in part by reference to, or otherwise are based on or
related to, Shares, provided that such grants comply with applicable
law. The Committee may subject such Awards to such vesting or earn-
out provisions, restrictions on transfer, and/or other restrictions
on incidents of ownership as the Committee may determine, provided
that such restrictions are not inconsistent with the terms of the
Plan. The Committee may grant Awards under this Section 15 that
require no payment of consideration by the Grantee (other than
services previously rendered or, as may be permitted by applicable
law, services to be rendered), either on the date of grant or the
date any restriction(s) thereon are removed. Awards granted under
this Section 15 may include, by way of example, restricted Shares,
performance bonus awards, and other Awards that are payable in cash,
or that are payable in cash or Shares or other property (at the
election of the Committee or, if the Committee so provides, at the
election of the Grantee), provided that such Awards are denominated
in Shares, valued in whole or in part by reference to Shares, or
otherwise based on or related to Shares.
<PAGE>
16. Conditions on Awards
(a) The grant or exercise of an Award and the distribution of
Shares or cash under the Plan shall be subject to the condition
that if at any time the Company shall determine (in accordance
with the provisions of the following sentence) that it is
necessary as a condition of, or in connection with, such grant,
exercise or distribution (1) to satisfy withholding tax or other
withholding liabilities, (2) to effect the listing, registration
or qualification on any securities exchange, on any quotation
system, or under any federal, state or local law, of any Shares
otherwise deliverable in connection with such grant, exercise or
distribution, or (3) to obtain the consent or approval of any
regulatory body, then in any such event such grant, exercise or
distribution shall not be effective unless such withholding,
listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not
acceptable to the Company in its reasonable and good faith
judgment. In seeking to effect or obtain any such withholding,
listing, registration, qualification, consent or approval, the
Company shall act with all reasonable diligence. Any such
postponement or limitation affecting the right to exercise an
Award or the grant or distribution of an Award, Shares or cash
shall not extend the time within which the Award may be granted
or exercised or the Shares or cash distributed, unless the
Company and the Grantee choose to amend the terms of the Award
to provide for such an extension; and neither the Company nor
any of its directors or officers shall have any obligation or
liability to the Grantee or to a Beneficiary by reason of any
such postponement or limitation.
(b) All Awards granted under the Plan shall be nontransferable
other than by will or by the laws of descent and distribution,
and an Award may be exercised during the lifetime of the Grantee
only by him.
<PAGE>
17. Payment for Award
Any exercise or purchase price of an Award may be payable, at
the discretion of the Committee, by any one or a combination of the
following methods: (1) by money order, cashier's check or certified
check; (2) by having the Company withhold Shares otherwise
deliverable to the Grantee or by the tender of other Shares to the
Company; or (3) unless the Committee expressly provides otherwise (at
the time of grant in the case of Incentive Stock Option or at any
time prior to exercise or purchase in the case of any other Award) by
cash payment made by the Grantee's broker pursuant to the Grantee's
instructions (and, if so instructed by the Grantee, cash payment by
the Grantee's broker of the amount of any taxes to be withheld in
connection with the exercise), accompanied by the Grantee's
irrevocable instructions to the Company to deliver the Shares
issuable upon exercise of the Option promptly to the broker for the
Grantee's account; provided that, in the case of any director or
officer (within the meaning of Section 16 of the 1934 Act) of the
Company, such exercise would not subject the Grantee to short-swing
profit recovery provision of Section 16(b) of the 1934 Act. Shares
tendered in satisfaction of the exercise price or purchase price
shall be valued at their Fair Market Value on the date of tender. The
Committee shall determine acceptable methods for tendering Shares to
exercise an Award under the Plan, and may impose such limitations and
prohibitions on the use of Shares to exercise Awards as it deems
appropriate. The date of exercise of an Award shall be deemed to be
the date on which the notice of exercise and payment of the exercise
price or purchase price are received by the Committee or, if such
notice of exercise and payment are mailed in the United States and
the United States Postal Service has stamped its postmark thereon,
then on the date of such postmark.
19. Tax Withholding
(a) The Company shall have the right to collect an amount
sufficient to satisfy any federal, state and/or local
withholding tax requirements that might apply with respect to
any Award (including, without limitation, the exercise of an
Option or Right, the disposition of Shares, or the grant or
distribution of Shares or cash) in the manner specified in
subsection (b) or (c) below. Alternatively, a Grantee may elect
to satisfy any such withholding tax requirements in the manner
specified in subsection (d) or (e) below to the extent permitted
therein.
(b) The Company shall have the right to require Grantees to
remit to the Company an amount sufficient to satisfy any such
withholding tax requirements.
(c) The Company and any Subsidiary also shall, to the extent
permitted by law, have the right to deduct from any payment of
any kind (whether or not related to the Plan) otherwise due to a
Grantee any such taxes required to be withheld.
<PAGE>
(d) If the Committee in its sole discretion approves, a Grantee
may irrevocably elect to have any withholding tax obligation
satisfied by (i) having the Company withhold Shares otherwise
deliverable to the Grantee with respect to the Award, or (ii)
delivering other Shares to the Company; provided that, to the
extent necessary for a director or an officer (within the
meaning of Section 16 of the 1934 Act) of the Company to obtain
exemption from the short-swing profit recovery provisions of
Section 16(b) of the 1934 Act, any such election either (i)
shall be made by an irrevocable election made at least six
months before the date on which the amount of the tax to be
withheld is determined or (ii) is subject to the following
conditions: (A) the Company shall have been subject to the
reporting requirements of Section 13(a) of the 1934 Act for at
least one year prior to the election and shall have filed all
reports required to be filed under Section 13(a) during such
period, (B) the Company shall have regularly released for
publication quarterly and annual summary statements of sales and
earnings, (C) the Committee, which shall have sole discretion to
approve or disapprove such election, approves the election after
the election is made, (D) the election occurs during (or in
advance to take effect during) one of the window periods
described in clause (c)(3) of Rule 16b-3 and (E) the election
does not occur prior to the expiration of a six-month period
after the date of the grant of the Award or, if later,
stockholder approval of the Plan as provided in Section 3(b).
(e) If permitted by the Committee, a Grantee may elect to have
any withholding tax obligation satisfied in the manner described
in Section 17(3), to the extent permitted therein.
20. Fractional Shares
No fractional Shares shall be issued pursuant to the Plan or any
Award. The Committee shall determine whether cash, other securities,
or other property shall be paid or transferred in lieu of fractional
Shares, or whether fractional Shares or any rights thereto shall be
canceled, terminated or otherwise eliminated.
21. Shareholder Rights
(a) No Award shall not confer upon a Grantee any rights of a
Shareholder unless and until the Shares are actually issued to
him.
(b) Subject to any required action by the Company's
Shareholders, if the Company shall be a party to any merger,
consolidation or reorganization in which Shares are changed or
exchanged, a Grantee holding an outstanding Award shall be
entitled to receive, upon the exercise of such Award, the same
consideration that a holder of the same number of Shares that
are subject to the Award is entitled to receive pursuant to such
merger, consolidation or reorganization.
<PAGE>
22. Adjustment for Changes in Capitalization
In addition to the provisions of Section 20(b) above, in the
event of (i) any change in the Shares through merger, consolidation,
reorganization, recapitalization (ii) any dividend on the Shares that
is payable in such Shares, or (iii) a stock split or a combination of
Shares, then, in any such case, the aggregate number and type of
Shares available for Awards, the number and type of Shares subject to
outstanding Awards, the exercise price or purchase price per Share of
each outstanding Award and the number of Shares with respect to which
Awards may be granted to a Grantee within any three-year period,
shall be adjusted by the Committee as it deems equitable in its sole
and absolute discretion to prevent substantial dilution or
enlargement of the rights of the Grantees, subject to any required
action by the Shareholders of the Company; and provided that with
respect to Incentive Stock Options, no such adjustment shall be
required to the extent that such adjustment would cause such Options
to violate Section 422(b) of the Code.
23. Termination, Suspension or Modification of Plan
The Board of Directors may at any time terminate, suspend or
modify the Plan, except that the Board shall not, without the
approval of the holders of a majority of the Company's outstanding
Shares present in person or represented by proxy and entitled to vote
at a meeting of the stockholders of the Company duly called for such
purpose or by the written consent of the holders of a majority of the
outstanding Shares entitled to vote, (a) change the class of persons
eligible for Awards; (b) change the exercise price or purchase price
of Awards (other than through adjustment for changes in
capitalization as provided in Section 21 hereof); (c) increase the
maximum duration of the Plan; (d) materially increase the benefits
accruing to participants under the Plan; or (e) materially increase
the number of securities that may be issued under the Plan. No
termination, suspension, or modification of the Plan shall adversely
affect any right acquired by any Grantee or by any Beneficiary, under
the terms of any Award granted before the date of such termination,
suspension or modification, unless such Grantee or Beneficiary shall
consent; but it shall be conclusively presumed that any adjustment
for changes in capitalization in accordance with Section 21 hereof
does not adversely affect any such right.
25. Application of Proceeds
The proceeds received by the Company from the sale of Shares
under the Plan shall be used for general corporate purposes.
<PAGE>
26. Unfunded Plan
The Plan shall be unfunded. Neither the Company nor any
Subsidiary shall be required to segregate any assets that may be
represented by any Awards, and neither the Company nor any Subsidiary
nor the Board shall be deemed to be a trustee of any amounts to be
paid under any Award. Any liability of the Company or any Subsidiary
to pay any Grantee or Beneficiary with respect to an Award shall be
based solely upon any contractual obligations created pursuant to the
provisions of the Plan and the applicable Agreement; no such
obligation shall be deemed to be secured by any pledge of, or
encumbrance on, any property of the Company or a Subsidiary.
27. General Provisions
The grant of an Award at any time shall not give the Grantee any
right to similar grants at any other time or any right to be retained
in the employ of the Company or its Subsidiaries.
28. Governing Law
The Plan shall be governed and its provisions construed,
enforced and administered in accordance with the laws of the state of
Illinois, except to the extent that such laws may be superseded by
any federal law.
