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SCHEDULE 14A INFORMATION
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[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 Section 240.14a-11(c) or Section 240.14a-12
Microelectronic Packaging, Inc.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
3.
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PRELIMINARY
MICROELECTRONIC PACKAGING, INC.
NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS
JUNE 12, 1997
TO THE SHAREHOLDERS OF MICROELECTRONIC PACKAGING, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Microelectronic Packaging, Inc. (the "Company"), a California corporation,
will be held on June 12, 1997, at 10:00 a.m., local time, at 9350 Trade Place,
San Diego, California 92126, for the following purposes:
1. To elect directors to serve for the ensuing year or until their
successors are elected and qualified.
2. To approve various amendments to the Company's 1993 Stock Option/Stock
Issuance Plan including the following:
(i) increase the number of shares of Common Stock authorized for
issuance over the term of such plan by an additional 4,000,000 shares;
(ii) amend the eligibility provisions of the Discretionary Option
Grant and Stock Issuance Programs to make non-employee Board members
eligible to receive stock option grants and direct stock issuances
pursuant to such programs; and
(iii) amend the Automatic Option Grant Program to among other things
(a) provide for special one-time options grants to be made to those
individuals then serving or newly-appointed as non-employee Board
members on November 21, 1996, and (b) increase the number of shares of
Common Stock subject to automatic option grants to be made to new and
continuing non-employee Board members on and after November 21, 1996.
3. To approve an increase in the Company's authorized but unissued
capital stock to consist of 35,000,000 additional shares of Common Stock
for a total of 50,000,000 authorized shares of Common Stock and 10,000,000
shares of undesignated preferred stock.
4. To ratify the appointment of BDO Seidman, LLP ("BDO") as independent
accountants of the Company for the fiscal year ended December 31, 1997.
5. To vote upon such other matters as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on April 15, 1997 are
entitled to notice of and to vote at the meeting. The stock transfer books
will not be closed between the record date and the date of the meeting. A list
of shareholders entitled to vote at the Annual Meeting will be available for
inspection at the executive offices of the Company for a period of ten days
before the Annual Meeting.
All shareholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to sign
and return the enclosed Proxy as promptly as possible in the envelope enclosed
for that purpose.
Any shareholder attending the meeting may vote in person even if he or she
has returned a Proxy.
Sincerely,
Alfred Jay Moran, Jr.
President and Chief Executive
Officer
May , 1997
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE READ THE ATTACHED PROXY
STATEMENT CAREFULLY, AND COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS
PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
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PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
General.................................................................... 1
Revocability of Proxies.................................................. 1
Solicitation............................................................. 1
Deadline for Receipt of Shareholder Proposals............................ 1
Record Date and Voting................................................... 1
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING............................. 2
PROPOSAL ONE--ELECTION OF DIRECTORS...................................... 2
Nominees............................................................... 2
Business Experience of Directors....................................... 2
Director Remuneration.................................................. 4
Certain Relationships and Related Transactions......................... 5
PROPOSAL TWO--APPROVAL OF AMENDMENTS TO
THE 1993 STOCK OPTION/STOCK ISSUANCE PLAN............................... 6
Discretionary Option Grant Program..................................... 7
Automatic Option Grant Program......................................... 8
Stock Issuance Program................................................. 8
Federal Income Tax Consequences........................................ 9
Accounting Treatment................................................... 10
Stock Awards........................................................... 11
New Plan Benefits...................................................... 11
Shareholder Approval................................................... 12
PROPOSAL THREE--INCREASE IN AUTHORIZED CAPITAL STOCK..................... 13
PROPOSAL FOUR--RATIFICATION OF INDEPENDENT ACCOUNTANTS................... 15
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........... 17
EXECUTIVE COMPENSATION AND RELATED INFORMATION............................. 19
Option Grants in Last Fiscal Year........................................ 20
Aggregated Option Exercises and Fiscal Year-End Values................... 21
Compensation Committee Interlocks and Insider Participation.............. 22
Employment Contracts and Termination of Employment and Change in Control
Arrangements............................................................ 22
COMPENSATION COMMITTEE REPORT.............................................. 23
General Compensation Policy.............................................. 23
Factors.................................................................. 23
Base Salary.............................................................. 23
Annual Incentive Compensation............................................ 23
Long-Term Incentive Compensation......................................... 23
CEO Compensation......................................................... 24
Compliance with Internal Revenue Code Section 162(m)..................... 24
COMPARISON OF SHAREHOLDER RETURN........................................... 25
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934....... 25
FORM 10-K.................................................................. 26
</TABLE>
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MICROELECTRONIC PACKAGING, INC.
9350 TRADE PLACE
SAN DIEGO, CALIFORNIA 92126
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 12, 1997
GENERAL
The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors of Microelectronic Packaging, Inc., a California corporation (the
"Company"), for use at the Annual Meeting of Shareholders to be held on June
12, 1997 (the "Annual Meeting"). The Annual Meeting will be held at 10:00
a.m., local time, at the Company's corporate headquarters at 9350 Trade Place,
San Diego, California, 92126.
These proxy solicitation materials were mailed on or about May , 1997 to
all shareholders entitled to vote at the Annual Meeting.
REVOCABILITY OF PROXIES
Any person giving a Proxy has the power to revoke it at any time before its
exercise. It may be revoked by filing with the Chief Financial Officer of the
Company at the Company's principal executive offices, 9350 Trade Place, San
Diego, California, 92126, a notice of revocation or another signed Proxy with
a later date. Any person may also revoke his or her Proxy by attending the
Annual Meeting and voting in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional soliciting materials furnished to shareholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram, or other means by directors, officers, employees or
agents of the Company. No compensation will be paid to these individuals for
any such services. Except as described above, the Company does not presently
intend to solicit proxies other than by mail.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company that are intended to be presented
by such shareholders at the 1998 Annual Meeting of Shareholders must be
received by the Company no later than December 29, 1997 in order that they may
be included in the proxy statement and form of proxy relating to that meeting.
RECORD DATE AND VOTING
Shareholders of record on May , 1997 are entitled to notice of and to vote
at the Annual Meeting. At the record date, 10,793,280 shares of the Company's
common stock ("Common Stock"), no par value, were issued and outstanding.
Abstentions and broker non-votes are counted as present for the purpose of
determining the presence of a quorum for the transaction of business. Each
shareholder is entitled to one vote for each share of Common Stock held by
such shareholder. All votes will be tabulated by the inspector of election
appointed for the meeting, who will separately tabulate affirmative and
negative votes, abstentions and broker non-votes.
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MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL ONE--ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall be
comprised of no fewer than four (4) nor greater than seven (7) Directors, with
the exact number to be fixed by the Board. The currently authorized number of
Directors is five (5). Pursuant to the terms of an agreement dated March 27,
1996 among the Company and Transpac Capital Pte. Ltd. and a group of investors
(collectively, "Transpac"), Transpac has observer rights with respect to
deliberations by the Board of Directors and the right, in the future, to
appoint a representative of Transpac to the Company's Board of Directors. To
date, Transpac has not exercised either such right. At the Annual Meeting,
four (4) Directors referred to below are to be elected to serve until the
Company's next annual meeting or until their successors are elected and
qualified. The Board of Directors has selected four (4) nominees, all of whom
are current Directors of the Company. Each person nominated for election has
agreed to serve if elected and management has no reason to believe that any
nominee will be unavailable to serve. Unless otherwise instructed, the proxy
holders will vote the Proxies received by them FOR the nominees named below.
The four (4) candidates receiving the highest number of affirmative votes of
the shares entitled to vote at the Annual Meeting will be elected Directors of
the Company.
NOMINEES
Set forth below is information regarding the nominees, including information
furnished by them as to principal occupations, certain other directorships
held by them, any arrangements pursuant to which they were selected as
directors or nominees and their ages as of April 10, 1997.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES HELD
NAME AGE WITH THE COMPANY
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<S> <C> <C>
Lewis Solomon(1)(2)(4)................... 63 Chairman of the Board of Directors
Anthony J.A. Bryan(1).................... 74 Director
William R. Thompson(2)(3)................ 62 Director
Frank Howland(1)(3)(4)................... 70 Director
</TABLE>
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(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Stock Option Plan Administration Committee
(4) Member of the Technology Committee
BUSINESS EXPERIENCE OF DIRECTORS
The principal occupations of each current director of the Company for at
least the last five (5) years are as follows:
Lewis Solomon has served on the Board of Directors of the Company and as a
consultant to the Company since November 1996. Since 1988, Mr. Solomon has
been employed by G&L Investments, a strategic business consulting firm. Mr.
Solomon previously served on the Board of Directors of the Company from
January 1984 to February 1995. From October 1983 to February 1987, Mr. Solomon
was Executive Vice President with Alan Patricof & Associates, an international
venture capital fund. From 1969 to October 1983, Mr. Solomon worked at General
Instrument Corporation, a semiconductor and electronics manufacturing company.
Mr. Solomon also serves on the Boards of Directors of Anacomp, Inc. a
manufacturer of magnetic products, Anadigics, Inc., a manufacturer of gallium
arsenide semiconductors, and Computer Products, Inc., a communications
company. Mr. Solomon holds a B.S. degree in physics from St. Joseph's College
and an M.S. in industrial engineering from Temple University.
Anthony J.A. Bryan has served on the Company's Board of Directors since
November 1996. Since March 1996, Mr. Bryan has been Senior Managing Director
of The Watley Group, LLC, a firm that specializes in
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corporate restructurings, management consulting, merchant banking and mergers
and acquisitions. From December 1987 to December 1995, Mr. Bryan was Chairman
of the Executive Committee of Hospital Corporation International, a hospital
management and health care company. From March 1988 to February 1991, Mr.
Bryan was Chairman and Chief Executive Officer of Oceanics Group, a company
specializing in offshore surveying and positioning services. Prior to that,
Mr. Bryan was Chairman, President and Chief Operating Officer of Copperweld
Corporation and President and Chief Executive Officer of Cameron Iron Works.
Mr. Bryan has served on the boards of directors of several industrial,
charitable and educational institutions, including Federal Express, Chrysler
Corporation, Pittsburgh National Corporation and Imetal (Paris). Mr. Bryan
holds a Masters Degree in Business Administration from Harvard University.
Frank L. Howland has served on the Company's Board of Directors since June
1994. Since March 1989, Dr. Howland has been President of Frank L. Howland
Inc., a consulting company specializing in the area of assembly and packaging
of electronic components. From 1955 to 1989, Dr. Howland was a manager in the
Electronic Component Research and Development divisions of Bell Laboratories,
Inc. Dr. Howland holds a B.S. degree in civil engineering from Rutgers
University and an M.S. and Ph.D. in civil/structural engineering from the
University of Illinois.
William R. Thompson joined the Company's Board of Directors in November
1995. Mr. Thompson retired from Cabot Corporation in March 1995, a holding
company with high technology operating units involved in the chemical and
advanced materials industries, where he was Vice President--Corporate
Controller from 1989 to March 1995. Prior to such time, Mr. Thompson was
President of Kurzweil Music Systems, Inc., a manufacturer of computer-based
music synthesizers. Mr. Thompson's business experience also includes several
executive positions at Digital Equipment Corp., a manufacturer of networked
computer systems, peripherals and software, including Vice President--
Corporate Controller, Vice President--External Resources and Manager of
Strategic Planning. Mr. Thompson holds a B.S. degree in business
administration from Colby College and an M.B.A. degree from the University of
Massachusetts.
There are no family relationships among executive officers or directors of
the Company.
During the fiscal year ended December 31, 1996, the Board of Directors held
eight (8) meetings and acted by unanimous written consent on three (3)
occasions. The Board of Directors has an Audit Committee, a Compensation
Committee, a Stock Option Plan Administration Committee and a Technology
Committee. No Director serving for the full fiscal year attended fewer than
75% of the aggregate number of meetings of the Board of Directors and meetings
of the Committees of the Board on which he serves.
The Audit Committee currently consists of three (3) Directors, Messrs.
Thompson, the Chairman, and Solomon and da Silva. The Audit Committee is
primarily responsible for approving the services performed by the Company's
independent accountants and reviewing their reports regarding the Company's
accounting practices and systems of internal accounting controls. During
fiscal year ended December 31, 1996, the Audit Committee held six (6)
meetings.
The Compensation Committee currently consists of three (3) Directors, Mr.
Bryan, the Chairman, Dr. Howland and Mr. Solomon. During the fiscal year ended
December 31, 1996, the Compensation Committee held five (5) meetings. This
Committee reviews and approves the Company's general compensation policies and
sets compensation levels, subject to Board review, for the Company's executive
officers.
The Technology Committee currently consists of two (2) Directors, Mr. Lewis
Solomon, the Chairman, and Dr. Howland and was established in December 1996.
No meetings of such Committee were held in 1996. This Committee reviews and
makes suggestions to the Board about the current technology being marketed and
used by the Company.
In January 1997, the Board of Directors authorized the creation of a Stock
Option Plan Administration Committee to administer the Company's 1993 Stock
Option/Stock Issuance Plan. The Stock Option Plan Administration Committee
currently consists of two (2) Directors, Dr. Howland, the Chairman, and Mr.
Thompson.
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DIRECTOR REMUNERATION
Directors are reimbursed for expenses incurred in connection with attending
Board and Committee meetings. Between April 1994 and October 31, 1996, each
non-employee Board member received a fee of $1,000 for each meeting attended.
Effective as of November 7, 1996, each non-employee Director began to receive
a fee of $1,500 for each meeting attended, $750 for each Board committee
meeting that does not occur on the date of a Board meeting and a fee of $1,000
for each month of Board service as a Director.
Assuming shareholder approval of Proposal Two, each individual who first
joins the Board as a non- employee director at any time after November 21,
1996, or who was a member of the Board of Directors on November 21, 1996, will
receive an option grant for 15,000 shares of Common Stock under the Automatic
Option Grant Program in effect for non-employee Board members under the
Company's 1993 Stock Option/Stock Issuance Plan (the "1993 Plan"). In
addition, at each Annual Shareholders' Meeting, beginning with the 1997 Annual
Meeting, each individual who is to continue to serve as a non-employee Board
member, whether or not he is standing for re-election at that particular
meeting, will receive an option grant for 10,000 shares of Common Stock. Each
grant under the Automatic Option Grant Program will have an exercise price per
share equal to the fair market value per share of the Common Stock on the
grant date and will have a maximum term of ten years, subject to earlier
termination should the optionee cease to serve as a Board member. Each option
granted under the Automatic Option Grant Program becomes exercisable in four
successive equal annual installments over the optionee's period of continued
Board service, measured from the grant date. However, the shares subject to
each outstanding option under the Automatic Option Grant Program will
immediately vest in full upon (i) an acquisition of the Company by merger or
asset sale, (ii) a hostile takeover of the Company or (ii) the optionee's
death or disability while continuing to serve as a Board member. For further
information concerning the terms and conditions of these various option
grants, please see the summary of the Automatic Option Grant Program in
Proposal Two below.
Under the Automatic Option Grant Program, a stock option for 900 shares of
Common Stock was granted on May 29, 1996 to each of Dr. Howland, Mr. Thompson,
Dr. Wilmer Bottoms (a former director) and Mr. Cecil Smith (a former
director), who continued to serve as non-employee Board members following the
Annual Shareholders Meeting held on that date. Each option has an exercise
price of $4.19 per share.
Each individual serving as a non-employee Board member on November 21, 1996
(Mr. Howland and Mr. Thompson), and each non-employee director appointed on
such date (Mr. Solomon and Mr. Bryan), received a stock option grant under the
Automatic Option Grant Program on such date for 15,000 shares of Common Stock.
Each such option has an exercise price of $1.91 per share, the fair market
value of the Common Stock on the date of grant.
On November 21, 1996, each of Messrs. Solomon, Bryan, Thompson, Howland and
da Silva was also awarded an option grant under the Discretionary Option Grant
Program of the 1993 Plan to purchase shares of Common Stock at an exercise
price of $1.91 per share, the fair market value of the Common Stock on such
date. The number of shares subject to each such grant is as follows: Mr.
Solomon--187,500; Mr. Bryan--125,000; Mr. Thompson--100,000; Mr. Howland--
100,000; and Mr. da Silva--15,000. With respect to the options granted to Mr.
Solomon and Mr. Bryan, such options were immediately vested as to 150,000 and
100,000 of the option shares, respectively, and each of the remaining option
shares are to become vested upon the provision of six (6) full years of
continuous service to the Company, subject to acceleration of vesting upon the
consummation by the Company of a Board-approved financing plan for up to $15
million at a price per share of not less than $1.875. With respect to the
options granted to Messrs. Thompson, Howland and da Silva, vesting of all of
the option shares was also conditional upon the provision of six (6) full
years of continuous service to the Company, subject to acceleration of vesting
upon the consummation of such a Board-approved financing plan for up to
$15 million at a price per share of not less than $1.875. In addition, the
Board of Directors agreed to grant at a later date additional options to
Messrs. Bryan (75,000) and Solomon (112,500) at the then fair market value of
the Company's Common Stock on the date that is the earlier of (i) two full
business days after the public announcement of the execution of a Board-
approved term sheet for a financing plan as described in this
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paragraph or (ii) July 1, 1997. The vesting on such shares shall be identical
to the first set of option grants to such two individuals as set forth above.
All such options referred to in this paragraph vest in full on a change of
control.
The Company currently intends to cancel and regrant substantially all
existing options (other than options granted pursuant to the Automatic Option
Grant Program), including the options described in this section after the 1997
Annual Meeting. Based in part upon the delisting of the Company's Common Stock
from the Nasdaq National Market, the financial condition of the Company, the
stock price, the probable lack of a request for a $15 million financing, the
desire to avoid any compensation expense in the Company's financial statements
and the necessity of retaining its employees, the Company believes that this
cancellation and regrant program would be in the best interests of the
shareholders. As such, the Board of Directors and the Stock Option Plan
Administration Committee currently intend to cancel and regrant substantially
all options outstanding under the Discretionary Option Grant Program of the
Plan and grant an equivalent number of additional options to persons who have
received options under the Automatic Option Grant Program with an exercise
price in excess of the fair market value of the Common Stock of the Company as
traded on the Nasdaq Electronic Bulletin Board on the Grant Date. Pursuant to
such program, each such outstanding option will be cancelled and a new
replacement option will be granted for the same number of shares, with an
exercise price based on the fair market value of the Common Stock on the new
grant date, and with a new vesting schedule measured from such date. In
addition, on the new grant date, each of the non-employee directors will be
granted an additional option under the Discretionary Option Grant Program of
the 1993 Plan to purchase shares of Common Stock.
For options granted to Messrs. Solomon and Bryan on November 21, 1996, on
the new grant date, it is currently anticipated that such options shall be
immediately vested with respect to 50% of the option shares and will become
vested for the remaining option shares in a series of equal annual
installments over the consultant's two-year period of service with the Company
measured from new grant date. It is presently anticipated that the director
grants to Messrs. Thompson and Howland shall vest in full on such new grant
date. In addition, it is currently anticipated that the additional options to
be granted under certain future events to Messrs. Solomon (112,500) and Bryan
(75,000) will be granted to such persons on such new grant date with the fair
market value on the new date of grant with the same vesting schedule as set
forth in the sentence preceding the previous sentence. Vesting of all of these
option shares will be subject to full acceleration in the event of a change in
control of the Company. The options granted to the nonemployee directors and
consultants on November 21, 1996 and subsequently cancelled and regranted on
the new grant date will be subject to approval by the shareholders of the
amendments to the 1993 Plan at the Annual Meeting.
During 1996, the Company paid Dr. Howland $6,840 for fees and expenses
incurred in connection with consulting services provided to the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1996, the Company entered into an agreement for consulting
services with G&L Investments, which establishes a consulting relationship
with, among others, Lewis Solomon (Chairman of the Board of Directors). In
exchange for consulting services, G&L Investments receives $15,000 plus
reasonable expenses for each month that G&L Investments provides services to
the Company. In January 1997, the Company agreed to pay an additional
aggregate sum of $50,000 to G&L Investments over the six-month period starting
in January 1997. In November 1996, the Company also entered into an agreement
for consulting services with The Watley Group, LLC which employs Mr. Moran
(the President and Chief Executive Officer) and Mr. Anthony Bryan (a
Director), among others, pursuant to which The Watley Group, LLC receives
$15,000 plus reasonable expenses for each month that it provides services to
the Company. In January 1997, the Company agreed to pay The Watley Group, LLC
an additional aggregate sum of $50,000 over the six-month period starting in
January 1997. Starting in January 1997, the Company also retained Mr. Moran as
a full-time employee and will pay Mr. Moran the prevailing minimum wage (which
prevailing wage shall be deducted from the additional $50,000 fee).
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In March 1996, pursuant to a subscription agreement, the Company consummated
the sale and issuance of 842,013 shares of Common Stock (the "Transpac
Shares") to Transpac Capital Pte. Ltd. and a group of related investors
(collectively, "Transpac"), at the purchase price of $2.37526 per share, for a
total purchase price of $2,000,000 (the "Transpac Financing"). The Transpac
Shares represented approximately 7.8% of the Common Stock issued and
outstanding on March 31, 1997. In conjunction with the Transpac Financing, MPM
(S) Pte. Ltd. ("MPM"), a wholly-owned subsidiary of the Company, issued a
debenture ("Debenture") to Transpac in the principal amount of $9,000,000.
From and after April 23, 1997, the Debenture can be converted into shares of
MPM's Common Stock provided MPM is then a publicly traded company, or can be
repaid in cash. In addition, the Debenture will also be convertible, at
Transpac's option, into shares of the Company's Common Stock. Under its terms,
the Debenture may be convertible into up to the number of shares of the
Company's Common Stock that, when combined with the number of shares of the
Company's Common Stock then issued to Transpac upon the closing of the
Transpac Financing or otherwise, will equal 49.0% of the Company's then
outstanding capitalization. The Debenture will also be convertible into the
number of shares of MPM common stock that is equivalent to up to 45% of MPM's
then outstanding capitalization at the time of conversion. Transpac has board
observer rights and the right in the future to appoint a representative of
Transpac to the Company's Board of Directors. The Company guaranteed the
repayment of the Debenture. The Company and Transpac are currently negotiating
an equity conversion of such debt.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE NOMINEES TO SERVE AS DIRECTORS OF THE COMPANY UNTIL
THE NEXT ANNUAL MEETING OR UNTIL THEIR SUCCESSORS HAVE BEEN ELECTED AND
QUALIFIED.
PROPOSAL TWO--APPROVAL OF AMENDMENTS TO
THE 1993 STOCK OPTION/STOCK ISSUANCE PLAN
On November 21, 1996 and April 10, 1997, the Board of Directors adopted,
subject to shareholder approval, amendments to and a restatement of the
Company's 1993 Plan to effect the following changes: (i) increase the maximum
number of shares of Common Stock authorized for issuance over the term of the
1993 Plan from 690,632 shares to 4,690,632 shares; (ii) make the non-employee
Board members eligible to receive option grants under the Discretionary Option
Grant Program of such plan and direct stock issuances under the Stock Issuance
Program; (iii) amend the Automatic Option Grant Program to provide for a
special one-time option grant of 15,000 shares of Common Stock to be awarded
on November 21, 1996 to each individual continuing to serve or newly-appointed
as a non-employee Board member on such date; (iv) amend the Automatic Option
Grant Program to increase the number of shares of Common Stock for which
option grants are to be made to each new non-employee Board member from 10,000
to 15,000 shares and to increase the number of shares for which option grants
are to be made annually to each continuing non-employee Board member from 900
to 10,000 shares; (v) provide that unvested shares of Common Stock repurchased
by the Company pursuant to its repurchase rights under the 1993 Plan will be
made available for future option grants and stock issuances under such plan;
and (vi) effect a number of additional changes to the administrative
provisions and shareholder approval requirements of the 1993 Plan to conform
the 1993 Plan with recent amendments made by the Securities and Exchange
Commission with respect to the short-swing trading exemptions available for
transactions effected under the 1993 Plan by the Company's executive officers
and Board members.
The 1993 Plan was adopted by the Board of Directors on December 9, 1993 and
subsequently approved by the Company's shareholders. The 1993 Plan is the
successor to the Company's 1988 Stock Option Plan (the "Predecessor Plan"). As
of March 31, 1997, options covering an aggregate of 2,071,556 shares of Common
Stock were outstanding under the 1993 Plan, 61,015 shares of Common Stock had
been issued under such plan, and 2,558,061 shares of Common Stock remained
available for future option grants and stock issuances, assuming shareholder
approval of the 4,000,000-share increase which forms part of this Proposal.
The following is a summary of the principal features of the 1993 Plan,
including the amendments which will become effective upon shareholder approval
of this proposal. The summary, however, does not purport to
6
<PAGE>
be a complete description of all the provisions of the 1993 Plan. Any
shareholder of the Company who wishes to obtain a copy of the actual plan
document may do so upon written request to the Chief Financial Officer of the
Company at the Company's principal executive offices in San Diego, California.
PLAN STRUCTURE
The 1993 Plan contains three separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) an Automatic Option Grant Program and
(iii) a Stock Issuance Program. The principal features of these programs are
described below.
ADMINISTRATION
As of January 9, 1997, the 1993 Plan (other than the Automatic Option Grant
Program) is administered by the Stock Option Plan Administration Committee
(the "Plan Committee") of the Board, which Committee is comprised of two (2)
non-employee members of the Board. The Plan Committee, as Plan Administrator,
has complete discretion (subject to the provisions of the 1993 Plan) to
authorize option grants and direct stock issuances under the 1993 Plan.
However, the Board of Directors retains the complete discretion to administer
the Discretionary Option Grant and Stock Issuance Programs of the 1993 Plan
with respect to members of the Plan Committee. In addition, the Board of
Directors may appoint a secondary committee, comprising two or more Board
members, to act as Plan Administrator of the 1993 Plan with respect to
individuals other than officers and directors of the Company who are subject
to the short-swing profit trading restrictions of Section 16 of the Securities
Exchange Act of 1934. All grants under the Automatic Option Grant Program are
made in strict compliance with the provisions of that program and no
administrative discretion is exercised by the Plan Administrator with respect
to the grants made thereunder.
SHARE RESERVE
A total of 4,690,632 shares of Common Stock (including the 4,000,000 shares
subject to approval under this Proposal) has been reserved for issuance over
the ten-year term of the 1993 Plan. In no event may any one participant in the
1993 Plan be granted stock options and direct stock issuances for more than
500,000 shares in the aggregate per calendar year. In the event any change is
made to the outstanding shares of Common Stock by reason of any
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares or other change in corporate structure effected without the
Company's receipt of consideration, appropriate adjustments will be made to
the securities issuable (in the aggregate and to each participant) under the
1993 Plan and to each outstanding option.
ELIGIBILITY
Employees (including officers), non-employee Board members and consultants
and independent advisors of the Company and its parent and subsidiaries are
eligible to participate in the Discretionary Option Grant and Stock Issuance
Programs of the 1993 Plan. Only non-employee members of the Board are eligible
to participate in the Automatic Option Grant Program.
As of March 31, 1997, five (5) executive officers, four (4) non-employee
Board members and approximately 550 other employees were eligible to
participate in the 1993 Plan.
VALUATION
On and before March 12, 1997, the fair market value per share of Common
Stock on any relevant date under the 1993 Plan was the closing selling price
per share on that date on The Nasdaq National Market. Beginning March 13,
1997, the fair market value per share on any relevant date under the 1993 Plan
will be the average of the highest bid and lowest ask trading price per share
on that date on The Nasdaq Electronic Bulletin Board, provided the Company
timely files all reports required under the Securities Exchange Act of 1934,
as amended. On March 31, 1997 the average of the highest and lowest trading
prices per share was $0.297.
7
<PAGE>
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at an
exercise price per share not less than 85% of the fair market value per share
of Common Stock on the option grant date. No granted option will have a term
in excess of ten (10) years.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which such optionee's outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of
service.
The Plan Administrator is authorized to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Predecessor Plan) which have exercise prices in
excess of the then current market price of the Common Stock and to issue
replacement options with an exercise price based on the market price of the
Common Stock at the time of the new grant. The Plan Administrator intends to
effect such a cancellation and regrant of outstanding options immediately
following the 1997 Annual Meeting. For more information regarding this
cancellation and regrant of options, see the discussion after the section
below entitled "Stock Awards."
AUTOMATIC OPTION GRANT PROGRAM
Under the amended provisions of the Automatic Option Grant Program, each
individual who was serving as a non-employee Board member on November 21, 1996
and each individual who was appointed by the Board as a new non-employee Board
member on such date, was granted on such date a non-statutory option to
purchase 15,000 shares of Common Stock. Each individual who first becomes a
non-employee Board member after November 21, 1996, whether through election by
the shareholders or appointment by the Board, will automatically be granted,
at the time of such initial election or appointment, a non-statutory option to
purchase 15,000 shares of Common Stock.
On the date of each Annual Meeting, beginning with the 1997 Annual Meeting,
each individual who is to continue to serve as a non-employee Board member
will automatically be granted a non-statutory option to purchase 10,000 shares
of Common Stock. There will be no limit to the number of such 10,000-share
option grants any one non-employee Board member may receive over his or her
period of Board service.
Each option will have an exercise price per share equal to 100% of the fair
market value per share of Common Stock on the option grant date and a maximum
term of ten (10) years measured from the option grant date.
Each option will become vested for the option shares in four (4) equal
annual installments over the optionee's period of Board service, with the
first such installment to become vested upon the completion of one year of
Board service measured from the option grant date. The vesting of each
automatic option grant will immediately accelerate upon the optionee's death
or permanent disability or upon certain changes in the ownership or control of
the Company.
Upon cessation of Board service, the non-employee Board member will have a
limited time to exercise his or her automatic options, but in no event may the
option be exercised after the expiration date of the option term. Any shares
not exercisable at the time of such cessation of Board service will terminate
and cease to be outstanding.
8
<PAGE>
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share not
less than 85% of the fair market value per share of Common Stock, payable in
cash or through a promissory note payable to the Company. Shares may also be
issued solely as a bonus for past services.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. The Plan Administrator will, however, have the
discretionary authority at any time to accelerate the vesting of any unvested
shares.
ACCELERATION
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not
to be assumed by the successor corporation or replaced with a comparable
option to purchase shares of the capital stock of the successor corporation
will automatically accelerate in full, and all unvested shares under the Stock
Issuance Program will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. Any options assumed or replaced in connection with such
acquisition may, in the Plan Administrator's discretion, be subject to
immediate acceleration, and any unvested shares which do not vest at the time
of such acquisition may be subject to full and immediate vesting, in the event
the individual's service is subsequently terminated within a specified period
following the acquisition. Under the Predecessor Plan, certain options did not
accelerate upon an asset sale but did accelerate upon a merger or
consolidation.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
FINANCIAL ASSISTANCE
The Plan Administrator may permit one or more participants to pay the
exercise price of outstanding options or the purchase price of shares under
the 1993 Plan by delivering a promissory note payable in installments. The
Plan Administrator will determine the terms of any such promissory note.
However, the maximum amount of financing provided any participant may not
exceed the cash consideration payable for the issued shares plus all
applicable taxes incurred in connection with the acquisition of the shares.
Any such promissory note may be subject to forgiveness in whole or in part, at
the discretion of the Plan Administrator, over the participant's period of
service.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of
those options or the vesting of those shares. Alternatively, the Plan
Administrator may allow such individuals to deliver previously acquired shares
of Common Stock in payment of such tax liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1993 Plan in any or all respects
whatsoever subject to any required shareholder approval. The Board may
terminate the 1993 Plan at any time, and the 1993 Plan will in all events
terminate on December 8, 2003.
9
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 1993 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of option differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise
disposed of. For Federal tax purposes, dispositions are divided into two
categories: (i) qualifying and (ii) disqualifying. A qualifying disposition
occurs if the sale or other disposition is made after the optionee has held
the shares for more than two years after the option grant date and more than
one year after the exercise date. If either of these holding periods is not
satisfied, then a disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of shares purchased under
incentive options.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option without a readily ascertainable fair
market value. The optionee will in general recognize ordinary income, in the
year in which the option is exercised, equal to the excess of the fair market
value of the purchased shares on the exercise date over the exercise price
paid for the shares, and the optionee will be required to satisfy the tax
withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee will not recognize any taxable income at the time of exercise but
will have to report as ordinary income, as and when the Company's repurchase
right lapses, an amount equal to the excess of (i) the fair market value of
the shares on the date the repurchase right lapses over (ii) the exercise
price paid for the shares. The optionee may, however, elect under Section
83(b) of the Internal Revenue Code to include as ordinary income in the year
of exercise of the option an amount equal to the excess of (i) the fair market
value of the purchased shares on the exercise date over (ii) the exercise
price paid for such share. If the Section 83(b) election is made, the optionee
will not recognize any additional income as and when the repurchase right
lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the
optionee.
DIRECT STOCK ISSUANCES
The tax principles applicable to direct stock issuances under the 1993 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
ACCOUNTING TREATMENT
Deductibility of Executive Compensation. The Company anticipates that any
compensation deemed paid by it in connection with disqualifying dispositions
of incentive stock option shares or exercises of non-statutory options granted
with an exercise price equal to the fair market value of the option shares at
the time of grant will
10
<PAGE>
qualify as performance-based compensation for purposes of Internal Revenue
Code Section 162(m) and will not have to be taken into account for purposes of
the $1 million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of the Company. Accordingly,
all compensation deemed paid with respect to those options will remain
deductible by the Company without limitation under Internal Revenue Code
Section 162(m).
Option grants or stock issuances with exercise or issue prices less than the
fair market value of the shares on the grant or issue date will result in a
compensation expense to the Company's earnings equal to the difference between
the exercise or issue price and the fair market value of the shares on the
grant or issue date. Such expense will be accruable by the Company over the
period that the option shares or issued shares are to vest. Option grants or
stock issuances made under the 1993 Plan with exercise or issue prices equal
to 100% of the fair market value of the Common Stock will not result in any
charge to the Company's earnings, but the Company must disclose, in footnotes
to the Company's financial statements, the impact those options would have
upon the Company's reported earnings were the value of those options treated
as compensation expense. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis.
STOCK AWARDS
The following table shows, as to each of the executive officers named in the
Summary Compensation Table and each of the indicated groups, the number of
shares of Common Stock subject to options granted between January 1, 1996 and
March 31, 1997, together with the current weighted average exercise price
payable per share. A portion of the options granted to such individuals is
subject to shareholder approval of this Proposal Two, as described in the New
Plan Benefits Table below.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
NAME OPTION SHARES EXERCISE PRICE
- ---- ------------- --------------
<S> <C> <C>
Alfred J. Moran, Jr............................... 125,000 $1.91
President and Chief Executive Officer
Timothy da Silva.................................. 15,000 $1.91
Former President and Chief Executive Officer,
Director
Jee Fook Pak...................................... 45,280 $1.0625
Senior Vice President of Microelectronic Packaging
(S) Pte., Ltd. ("MPS") and Managing Director of
CERDIPS
Charles F. Wheatley............................... 178,678 $1.0625
Vice President, Sales and Marketing
Ernest J. Joly.................................... 0 $0.00
Former Senior Vice President and General Manager
of Microelectronic Packaging America ("MPA")
All current executive officers as a group (5
persons)......................................... 648,958 $1.45
All current directors (other than executive
officers) as a group (4 persons)................. 589,300 $1.91
All employees, including current officers who are
not executive officers, as a group (550 persons). 115,333 $1.31
</TABLE>
11
<PAGE>
1997 CANCELLATION/REGRANT PROGRAM
The Company currently intends to cancel and regrant substantially all
existing options (other than options granted pursuant to the Automatic Option
Grant Program), including the options described in this section after the 1997
Annual Meeting. Based in part upon the delisting of the Company's Common Stock
from the Nasdaq National Market, the financial condition of the Company, the
stock price, the probable lack of a request for a $15 million financing,
desire to avoid any compensation expense in the Company's financial statements
and the necessity of retaining its employees, the Company believes that this
cancellation and regrant program would be in the best interests of the
shareholders. As such, the Board of Directors and the Stock Option Plan
Administration Committee currently intends to cancel and regrant substantially
all options outstanding under the Discretionary Option Grant Program of the
Plan and grant an equivalent number of additional options to persons who have
received options under the Automatic Option Grant Program with an exercise
price in excess of the fair market value of the Common Stock of the Company as
traded on the Nasdaq Electronic Bulletin Board on the Grant Date. Pursuant to
such program, each such outstanding option will be cancelled and a new
replacement option will be granted for the same number of shares, with an
exercise price based on the fair market value of the Common Stock on the new
grant date.
NEW PLAN BENEFITS
The following table shows, as to each of the Named Executive Officers and
each of the indicated groups, the number of shares subject to options granted
through March 31, 1997 on the basis of the amendments to the 1993 Plan for
which shareholder approval is sought under this Proposal, together with the
weighted average exercise price payable per share.
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
NAME OPTION SHARES EXERCISE PRICE
- ---- ------------- --------------
<S> <C> <C>
Alfred J. Moran, Jr............................... 125,000 $1.91
President and Chief Executive Officer
Timothy da Silva.................................. 15,000 $1.91
Former President and Chief Executive Officer,
Director
Jee Fook Pak...................................... 45,280 $1.0625
Senior Vice President--MPS
Charles F. Wheatley............................... 178,678 $1.0625
Vice President Sales and Marketing
Ernest J. Joly.................................... 0 $0.00
Former Vice President and General Manager of MPA
All current executive officers as a group (5
persons)......................................... 598,958 $1.24
All current directors who are not executive
officers, as a group (4 persons)................. 587,500 $1.91
All employees, including current officers who are
not executive officers,
as a group (550 persons)......................... 106,333 $1.06
</TABLE>
12
<PAGE>
SHAREHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting of
the Shareholders is required for approval of the amendments to the 1993 Plan.
Should such shareholder approval not be obtained, then all options (or
portions thereof) previously granted under the 1993 Plan on the basis of the
aggregate 4,000,000-share increase will terminate without becoming exercisable
for any of the shares of Common Stock subject to those options, and the 1993
Plan will terminate once the balance of the share reserve as last approved by
the shareholders has been issued pursuant to outstanding option grants and
stock issuances under the 1993 Plan. In addition, should such shareholder
grant not be obtained, then the automatic option grants made to those
individuals serving as non-employee Board members on November 21, 1996,
including the grants made to those individuals appointed as non-employee Board
members on such date, will terminate. The automatic option grants to be made
to eligible non-employee Board members upon their initial election or
appointment to the Board after November 21, 1996 will remain at 10,000 shares
per individual and the automatic option grants to be made to continuing non-
employee Board members at each Annual Meeting will remain at 900 shares per
individual. In addition, the non-employee Board members will not become
eligible to participate in the Discretionary Option Grant and Stock Issuance
Programs of the 1993 Plan and unvested shares repurchased by the Company at
the option or issue price per share will not be available for reissuance under
the 1993 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENTS TO THE 1993 PLAN. THE BOARD BELIEVES THAT IT IS IN
THE BEST INTERESTS OF THE COMPANY TO CONTINUE TO HAVE A COMPREHENSIVE EQUITY
INCENTIVE PROGRAM FOR THE COMPANY WHICH WILL PROVIDE A MEANINGFUL OPPORTUNITY
FOR OFFICERS, EMPLOYEES AND NON-EMPLOYEE BOARD MEMBERS TO ACQUIRE A
SUBSTANTIAL PROPRIETARY INTEREST IN THE ENTERPRISE AND THEREBY ENCOURAGE SUCH
INDIVIDUALS TO REMAIN IN THE COMPANY'S SERVICE AND MORE CLOSELY ALIGN THEIR
INTERESTS WITH THOSE OF THE SHAREHOLDERS.
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<PAGE>
PROPOSAL THREE--INCREASE IN AUTHORIZED CAPITAL STOCK
The Board of Directors is requesting shareholder approval of an amendment of
the Company's Amended and Restated Articles of Incorporation ("Articles of
Incorporation") to increase the number of shares of Common Stock authorized
for issuance from 15,000,000 to 50,000,000, to create an additional class of
stock to be designated "Preferred Stock", the terms of which shall be
determined by the Board of Directors in its sole discretion without further
shareholder approval, and to authorize the issuance of up to 10,000,000 shares
of undesignated Preferred Stock.
On April 15, 1997, 10,793,280 shares of the Company's Common Stock were
issued and outstanding. As of such date, there are approximately 893,746
shares of the Company's Common Stock reserved for issuance upon exercise of
options or warrants. The remaining 38,516,088 shares of authorized but
unissued Common Stock are not reserved for any specific use and are available
for future issuance.
The Board of Directors considers it advisable to have additional shares
available for possible future financings, acquisitions, stock dividends or
stock splits, for issuance under the Company's employee benefit plans and for
other general corporate purposes. The Company also intends to enter into
agreements to restructure certain outstanding debts of certain creditors
and/or to obtain financing in exchange for the issuance of shares of Common
and/or Preferred Stock that would be authorized by the approval of this
Proposal Three.(1) The availability of such shares for issuance in the future
will give the Company greater flexibility and permit such shares to be issued
without the expense and delay of a special shareholders' meeting.
- --------
(1) On March 27, 1996, the Company and MPM (S) Pte. Ltd. ("MPM") consummated a
financing (the "Transpac Financing") with Transpac pursuant to which the
Company issued 842,013 shares of its Common Stock to Transpac for the
aggregate purchase price of $2,000,000 and MPM issued a debenture (the
"Debenture") to Transpac in the principal amount of $9.0 million. The
Debenture has a term of five years and bears interest at the rate of 8.5%
per annum. Accrued and unpaid interest is due and payable in annual
installments at the end of each year of the term of the Debenture. The
principal outstanding under the Debenture will be due and payable in full
at the end of the five-year term, however, from and after April 23, 1997
and through the term of the Debenture, the Debenture will be convertible
at Transpac's option into shares of common stock of MPM or Common Stock of
MPI. The Company has not made any payments under the Debenture. MPM is
currently under Judicial Management as such term is defined in Singapore
and is therefore not available for any equity conversion. On March 7,
1997, the Company and Transpac entered into a non-binding memorandum of
understanding, pursuant to which the Company agreed to convert the
outstanding principal and interest totalling approximately $9.7 million
(the "Outstanding Debt") owed to Transpac into a combination of shares of
the Company's Common Stock and shares of a convertible preferred stock (to
be authorized by the shareholders at the 1997 Annual Meeting of the
Shareholders). The current offer provides that $5.5 million of the
Outstanding Debt would be converted into 5,500,000 shares of the Company's
Common Stock and the remaining $4.2 million of the Outstanding Debt would
be converted into a certain number of shares of a convertible preferred
stock at a conversion rate that is proportional to the fair market value
of the Company's Common Stock. In addition, the Company agreed to issue to
Transpac a warrant to purchase one million shares of the Company's Common
Stock at an exercise price of $1.75 per share. The parties have not yet
entered into a definitive, binding agreement pursuant to which the
Outstanding Debt would be converted into MPI securities. There can be no
assurance that the Company and Transpac will ultimately be able to agree
on the terms of such conversion, nor can there be any assurance that such
conversion, if agreed upon, will be on terms favorable to the Company. In
addition, were the Company and Transpac to agree to a conversion, such
conversion would significantly dilute any earnings per share amounts and
significantly dilute the ownership interest of MPI's existing investors.
14
<PAGE>
The proposed amendment of the Articles of Incorporation would authorize the
Board of Directors to determine, with respect to each series of Preferred
Stock which may be issued, the powers, designations, preferences, and rights
of the shares of such series and the qualifications, limitations, or
restrictions thereof, including without limitation: (a) the distinctive
designation and number of shares constituting such series; (b) the dividend
rates, if any, on the shares of that series and whether dividends would be
cumulative or non-cumulative, and if cumulative, the date from which dividends
on the series would accumulate; (c) whether, and upon what terms and
conditions, the shares of that series would be convertible into or
exchangeable for other securities or cash or other property or rights; (d)
whether, and upon what terms and conditions, the shares of that series would
be redeemable, including the date or dates upon or after which they shall be
redeemable; (e) the rights and preferences, if any, to which the shares of
that series would be entitled in the event of voluntary or involuntary
dissolution or liquidation of the Company; (f) whether a sinking fund would be
provided for the redemption of the series and, if so, the terms of and amount
payable into such sinking fund; (g) whether the holders of such securities
would have voting rights and the extent of those voting rights; (h) whether
the issuance of any additional shares of such series, or of any other series,
shall be subject to restrictions as to issuance or as to the powers,
preferences or rights of any such other series; and (i) any other preferences,
privileges and relative rights of such series as the Board of Directors may
deem advisable. Holders of the Company's Common Stock would have no preemptive
right to purchase or otherwise acquire any Preferred Stock that may be issued
in the future.
The effects of the authorization of the Preferred Stock upon the rights of
holders of the Company's Common Stock depends upon the respective powers,
designations, preferences, rights, qualifications, limitations and
restrictions of the shares of one or more series of Preferred Stock as
determined by the Board of Directors. Such effects might include: (a) dilution
of the voting power of the Common Stock if and to the extent that shares of
the Preferred Stock have voting rights or are convertible into shares of
Common Stock and such conversion rights are exercised; (b) the subordination
of the rights of holders of Common Stock to share in the Company's assets upon
liquidation to the prior satisfaction of any liquidation preference granted to
shares of the Preferred Stock; and (c) reduction of the amount otherwise
available for payment of dividends on common stock, to the extent dividends
are payable on any issued shares of Preferred Stock, and restrictions on
dividends on Common Stock if dividends on the Preferred Stock are in arrears.
Under certain circumstances, the shares of undesignated Preferred Stock that
are authorized but unissued could be issued to create voting impediments or to
frustrate persons seeking to effect a takeover, engage in proxy contests or
otherwise gain control of the Company. The Company could authorize holders of
undesignated Preferred Stock to vote as a class, either separately or with the
holders of the Common Stock or other Preferred Stock, and with voting rights
per share that are the same as or different than the voting rights of a share
of Common Stock or other Preferred Stock, on the election of directors, a
merger, sale or exchange of assets by the Company or any other extraordinary
corporate transaction. If a separate class vote of undesignated Preferred
Stock were required, approval of such a transaction would require the consent
of the holders of such stock. In addition, the shares of undesignated
Preferred Stock could be privately placed with purchasers who might side with
the Board of Directors in opposing a hostile takeover bid. Such uses could
enhance the Board's ability to deal with attempts to gain control of, or
impose transactions upon, the Company that the Board of Directors believes are
coercive, unfair or otherwise not in the best interests of the Company and its
shareholders.
Authorizing the undesignated Preferred Stock might also have the possible
effect of discouraging an attempt by another person to acquire control of the
Company, since the issuance of shares of the undesignated Preferred Stock
could be used to dilute the stock ownership of a person seeking to obtain
control and to increase the cost to a person seeking to acquire that
percentage of the voting stock of the Company required to accomplish certain
business transactions or to take certain actions regarding directors.
As of the date hereof, other than as set forth herein, the Board of
Directors of the Company has no present knowledge of any attempts to
accumulate stock of the Company or other attempts to change the control of the
Company. Other than as set forth herein, the Company has no agreements or
understandings to issue any shares of the undesignated Preferred Stock. The
Board of Directors believes the Company will benefit from having the
15
<PAGE>
flexibility to provide for the issuance of the undesignated Preferred Stock
for any future financing, acquisition or related purposes without the need for
further action by the shareholders in this respect.
No further actions or authorization by shareholders would be necessary or
sought by the Board of Directors prior to an issuance of shares of Preferred
Stock except as may be required by law or applicable stock exchange
regulations.
The proposed amendment to the Company's Amended and Restated Articles of
Incorporation was approved by all of the directors of the Company present at a
meeting of the Board of Directors on April 10, 1997 at which meeting a quorum
was present.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
INCREASE IN THE COMPANY'S AUTHORIZED BUT UNISSUED SHARES OF CAPITAL STOCK TO
INCLUDE 35,000,000 ADDITIONAL SHARES OF COMMON STOCK AND 10,000,000 SHARES OF
UNDESIGNATED PREFERRED STOCK.
PROPOSAL FOUR--RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed the firm of BDO Seidman, LLP ("BDO"),
independent accountants, to audit the financial statements of the Company for
the fiscal year ended December 31, 1997, and is asking the shareholders to
ratify this appointment.
In the event the shareholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified,
the Board of Directors in its discretion may direct the appointment of a
different independent accounting firm at any time during the year if the Board
of Directors believes that such a change would be in the best interests of the
Company and its shareholders. The affirmative vote of the holders of a
majority of the Company's voting shares represented and voting at the Annual
Meeting is required to ratify the selection of BDO.
Prior to November 21, 1995, the Company's independent accountants were Price
Waterhouse LLP ("Price Waterhouse"). Price Waterhouse had audited the
Company's financial statements annually since 1984. Effective November 21,
1995, the Company dismissed Price Waterhouse as the Company's independent
accountants. The decision to dismiss Price Waterhouse was approved by the
Company's Board of Directors and Audit Committee on November 20, 1995. The
Company retained BDO as the Company's independent certified accountants
effective November 21, 1995. The decision to retain BDO was approved by the
Company's Board of Directors and Audit Committee on November 20, 1995. Prior
to November 21, 1995, the Company did not consult with BDO regarding any
matters relating to accounting principles or practices, financial statement
disclosure, the type of opinion that might be rendered on the Company's
financial statements, or on any matter that was either the subject of a
disagreement or a reportable event with Price Waterhouse.
Prior to its dismissal, Price Waterhouse delivered to the Company Reports of
Independent Accountants dated March 1, 1994 and April 11, 1995, on the
Company's financial statements for the two (2) fiscal years ended December 31,
1993 and December 31, 1994, respectively. Neither of these reports contained
an adverse opinion or a disclaimer of opinion and neither of such reports was
qualified or modified as to uncertainty, audit scope, or accounting principles
except that each of such reports contained an explanatory paragraph regarding
the Company's ability to continue as a going concern.
In connection with the audits for the fiscal years ended December 31, 1993,
December 31, 1994 and through November 21, 1995 (the date of dismissal), there
were no disagreements with Price Waterhouse over any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Price
Waterhouse, would have caused Price Waterhouse to make reference thereto in
their reports on the financial statements for such years.
16
<PAGE>
In connection with its audit of the Company's financial statements for the
fiscal year ended December 31, 1994, Price Waterhouse reported to the Audit
Committee of the Company's Board of Directors that the Company's accounting
treatment for foreign currency transactions represented a material weakness in
the Company's internal controls.
A representative of BDO is expected to be present at the Annual Meeting,
will have the opportunity to make a statement if he or she desires to do so,
and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF BDO TO SERVE AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages as of April 10, 1997, and
their positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Alfred Jay Moran, Jr.... 53 President and Chief Executive Officer
Denis J. Trafecanty..... 54 Senior Vice President, Chief Financial Officer and Secretary
Charles F. Wheatley..... 62 Executive Vice President
Jee Fook Pak............ 49 Senior Vice President of MPS and Managing Director for CERDIPs
</TABLE>
BACKGROUND
The principal occupations of each executive officer of the Company for at
least the last five years are as follows:
Alfred Jay Moran, Jr. joined the Company as a Consultant to the Company and
as acting President and Chief Executive Officer in November 1996. On January
1, 1997, Mr. Moran became President and Chief Executive Officer of the
Company. Since March 1996, Mr. Moran has been Senior Managing Director of The
Watley Group, LLC, a firm that specializes in corporate restructurings,
management consulting, merchant banking and mergers and acquisitions. From
November 1992 to February 1996, Mr. Moran was Chairman, President and Chief
Executive Officer of SeraCare, Inc., a hyperimmune plasma company (formerly
known as American Blood Institute). From April 1993 to February 1996, Mr.
Moran was Chairman, President and Chief Executive Officer of Gerant Companies,
Inc., a holding company for turnaround companies (now known as Xplorer, Inc.).
From August 1990 to August 1992, Mr. Moran was President and Chief Operating
Officer of Web Enterprises, Inc., an international water feature design
engineering and installation company. From March 1988 to October 1992, Mr.
Moran was a senior consultant at Kibel, Green, Inc., a crisis management
consulting firm. Mr. Moran holds a B.A. degree in Philosophy from the
University of North Carolina at Chapel Hill and a Master Degree in Business
Administration from Harvard University.
Denis J. Trafecanty joined the Company in August 1996 as its Vice President
and Chief Financial Officer and Secretary. In March 1997, he was promoted to
Senior Vice President, Chief Financial Officer and Secretary. Prior to joining
the Company, Mr. Trafecanty was the Vice President and Chief Financial Officer
for Tandon Magnetics/Tandon USA, a manufacturer and distributor of personal
computers and a distributor of computer hard disk drives, from September 1995
to August 1996. From December 1984 to August 1995, he was Vice President and
Chief Financial Officer for Tandon Corporation (renamed TSL Holdings, Inc. in
1993), a manufacturer and distributor of personal computers and peripheral
equipment.
Charles F. Wheatley has been Senior Vice President, Sales and Marketing of
MPI since January 1994. In March 1997, he was promoted to Executive Vice
President. Prior to joining the Company, from May 1988 to January 1994, Mr.
Wheatley served as a financial planning independent contractor for
IDS/American Express Corp., a personal and business financial planning
company. Mr. Wheatley also has 23 years of electronics
17
<PAGE>
industry experience in a variety of manufacturing, marketing and general
management positions with several companies. Mr. Wheatley holds a B.A. degree
in political science from Boston University.
Jee Fook Pak has been the Senior Vice President of MPS and Managing Director
for CERDIPs since January 1993. Mr. Pak joined the Company as Operation
Manager for CERDIPs in 1984. Mr. Pak holds a B.S. degree in mathematics and
chemistry from the National University of Singapore.
To the Company's knowledge, based solely upon representations from its
shareholders, each beneficial owner of more than ten percent of the Company's
capital stock and all officers and directors filed all reports and reported
all transactions on a timely basis with the Securities and Exchange Commission
(the "Commission"), the NASD and the Company, except for Mr. Lewis Solomon.
Mr. Lewis Solomon filed an amended Form 3 on February 14, 1997 indicating that
he beneficially owned 616 shares of the Company's Common Stock. Such ownership
was not reported on Mr. Solomon's initial Form 3 filed on or about November
21, 1996.
18
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to the Company regarding
the ownership of the Company's Common Stock as of March 31, 1997 for (i) each
Director and nominee who owns Common Stock, (ii) all persons or entities who
were known by the Company to be beneficial owners of five percent (5%) or more
of the Company's Common Stock, (iii) the Chief Executive Officer and the other
executive officers whose compensation for 1996 were each in excess of $100,000
and (iv) all executive officers and Directors of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT OF TOTAL SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OUTSTANDING BENEFICIALLY OWNED
- ------------------- --------------------- ------------------------------
<S> <C> <C>
Entities that may be
deemed to be affiliated
with
Transpac Capital Pte. Ltd.
6 Shenton Way
#2D-09 DBS Building
Tower Two
Singapore 068809 (2)...... 842,013 7.8%
Entities that may be
deemed to be affiliated
with
Patricof & Co. Ventures,
Inc.
2100 Geng Road, Suite 200
Palo Alto, CA 94303 (3)... 733,997 6.8%
Cabot Ceramics, Inc.
c/o Cabot Corporation
75 State Street
Boston, MA 02119-1806 (4). 656,992 6.09%
Timothy da Silva (5)...... 197,905 1.8%
Lewis Solomon (6)......... 150,000 1.4%
Anthony J.A. Bryan (6).... 100,000 *
William R. Thompson (7)... 3,250 *
Frank Howland (6)......... 4,725 *
Alfred J. Moran, Jr. (6).. 100,000 *
Jee Fook Pak (6).......... 18,790 *
Charles F. Wheatley (6)... 10,662 *
Ernest J. Joly (6)........ 7,996 *
All directors and
executive officers as a
group (10 persons) (8)... 592,328 5.5%
</TABLE>
- --------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Percentage beneficially owned
is based on a total of 10,793,280 shares of Common Stock issued and
outstanding as of March 31, 1997. Shares of Common Stock subject to
options or warrants currently exercisable or convertible, or exercisable
or convertible within 60 days of March 31, 1997 are deemed outstanding for
computing the percentage of the person holding such options or warrants
but are not outstanding for computing the percentage of any other person.
Except as indicated in the footnotes to this table and pursuant to
applicable community
19
<PAGE>
property laws, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned.
(2) The Transpac entities include Transpac Capital Pte Ltd (the "Manager"), a
Singapore private limited company; Transpac Industrial Holdings Limited
("TIH"), a Singapore private limited company; Regional Investment Company
Limited ("Regional"), a Singapore public limited company; Transpac Equity
Fund ("TEF"), a British Virgin Islands trust; Transpac Venture Partnership
II ("TVP"), a collective investment scheme; Transpac Manager's Fund
("TMP"), a British Virgin Islands international business company; and
NatSteel Equity III Pte Ltd ("NatSteel"), a Singapore private limited
company. The Manager does not have any direct ownership interest in the
Company's Common Stock. The Manager has, in its capacity as investment
adviser to each of TIH, Regional, TEF and TVP, the power to control the
voting and disposition of the 765,466 shares of Common Stock held in the
aggregate by TIH, Regional, TEF and TVP and, therefore, may be deemed to
be a beneficial owner of such shares. Such shares constitute approximately
7.1 percent of the outstanding Common Stock. TIH has direct beneficial
ownership of 334,069 shares (approximately 3.1%) of the Common Stock. TIH
shares the power to control the voting and disposition of such 334,069
shares of Common Stock with the Manager. TIH disclaims beneficial
ownership of any shares of Common Stock held by any other Transpac entity.
Regional has direct beneficial ownership of 92,066 shares (approximately
1%) of the Common Stock. Regional shares the power to control the voting
and disposition of such 92,066 shares of Common Stock with the Manager.
Regional disclaims beneficial ownership of any shares of Common Stock held
by any other Transpac entity. TEF has direct beneficial ownership of
197,285 shares (approximately 1.8%) of the Common Stock. TEF shares the
power to control the voting and disposition of such 197,285 shares of
Common Stock with the Manager. TEF disclaims beneficial ownership of any
shares of Common Stock held by any other Transpac entity. TVP has direct
beneficial ownership of 5,727 shares (approximately 1.3%) of the Common
Stock. TVP shares the power to control the voting and disposition of such
139,415 shares of Common Stock with the Manager. TVP disclaims beneficial
ownership of any shares of Common Stock held by any other Transpac entity.
TMF has direct beneficial ownership of 2,631 shares (approximately 0.02%)
of the Common Stock. NatSteel has direct beneficial ownership of 75,547
shares (approximately 0.69%) of the Common Stock. NatSteel and the Manager
have no formal relationship, advisory or otherwise, in respect of the
shares of Common Stock held by NatSteel. However, NatSteel anticipates
that it may rely upon the advice of Transpac in connection with the voting
and disposition of the shares of Common Stock held by it. NatSteel
disclaims beneficial ownership of the shares of Common Stock held by any
other Transpac entity. The preceding information was obtained from a
Schedule 13D filed with the Securities and Exchange Commission on or about
April 3, 1996. Mr. Steven Koo is Vice President of Transpac Capital Pte
Ltd, and as such may be deemed to share voting and investment power with
respect to the Transpac entities' shares. Mr. Koo disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein. Amount does not include any shares that may be issued upon
conversion of the Transpac Debenture.
(3) Includes 202,736, 353,600, 90,466 and 87,195 shares owned by APA Excelsior
Fund, APA Excelsior II, Coutts & Co. (Jersey) Ltd., Custodian for APA
Excelsior Venture Capital Holding (Jersey) Ltd., and APA Venture Capital
Fund, respectively, and 1,148, 1,143, 1,173 and zero shares, respectively,
in the form of immediately exercisable warrants owned by such entities.
(4) Includes 654,236 shares owned by Cabot Ceramics, Inc. and 2,666 shares
issuable upon exercise of a warrant. Cabot Ceramics, Inc. is a corporation
wholly-owned by Cabot Corporation. The executive management of Cabot
Corporation has voting and investment power over such shares and may be
deemed to beneficially own such shares.
(5) Includes 1,000 shares registered in the name of Barbara da Silva, Mr. da
Silva's spouse. All other shares beneficially owned by Mr. da Silva are in
the form of stock options exercisable within sixty (60) days of March 31,
1997.
(6) All shares in the form of stock options exercisable within 60 days of
March 31, 1997.
20
<PAGE>
(7) Includes 1,000 shares owned by Mr. Thompson. All other shares beneficially
owned by Mr. Thompson are in the form of stock options exercisable within
sixty (60) days of March 31, 1997.
(8) See Notes 4 and 5 above.
To the Company's knowledge, based solely upon representations from such
shareholders, each beneficial owner of more than ten percent of the Company's
capital stock and all officers and directors filed all reports and reported
all transactions on a timely basis with the Securities and Exchange Commission
(the "Commission"), the NASD and the Company, except for Mr. Lewis Solomon.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation earned, for services rendered in all capacities to the Company
and its subsidiaries, for the fiscal years ended December 31, 1994, 1995 and
1996, respectively, by the Company's Chief Executive Officer and each of the
other three (3) most highly compensated executive officers of the Company who
earned more than $100,000 in compensation for the 1996 fiscal year (hereafter
referred to as the Named Executive Officers).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG
TERM
COMPEN-
SATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ----------
OTHER
ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL COMPEN- UNDERLYING COMPENSA-
POSITION YEAR SALARY($)(1) BONUS($) SATION($) OPTIONS(#) TION($)(2)
- ------------------ ---- ------------ -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alfred Jay Moran,
Jr(6).................. 1996 -- -- -- 125,000 --
President and Chief
Executive Officer 1995
1994
Timothy da Silva(3)..... 1996 196,309 -- -- 15,000 20,473
Former President and
Chief Executive
Officer 1995 180,000 -- -- 97,471 19,691
1994 169,730 -- -- 76,500 17,363
Jee Fook Pak............ 1996 175,186 -- 36,867(4) -- 26,744
Senior Vice President--
MPS 1995 161,810 -- 34,371(4) 16,396 18,617
1994 139,130 -- 20,426(4) 6,396 20,673
Charles F. Wheatley..... 1996 120,000 6,670 -- -- 3,330
Vice President Sales
and Marketing 1995 120,000 -- 77,348(5) 10,661 3,046
1994 108,460 -- 60,028(5) 10,661 3,600
Ernest J. Joly.......... 1996 100,000 -- -- -- 2,712
Former Senior Vice
President and 1995 100,006 -- -- 7,996 2,423
General Manager--MPA 1994 98,083 -- -- 15,992 2,250
</TABLE>
- --------
(1) Includes pre-tax contributions by the Named Executive Officers to the
Company's 401(k) Plan or, in the case of Mr. Pak, the Central Provident
Fund.
(2) All other compensation is comprised of (i) the Company's matching
contributions to its 401(k) Plan or, in the case of Mr. Pak, to the
Central Provident Fund, and (ii) annual premiums paid for whole life
insurance policies maintained for Messrs. da Silva and Pak. Under such
policies, Messrs. da Silva and Pak may designate the beneficiary of the
insurance proceeds payable upon death. In addition, Messrs. da Silva and
21
<PAGE>
Pak will be entitled to the cash surrender value of the policy should such
individual continue in the Company's employ through the year 2002. The
amounts of the Company's matching contribution to its 401(k) Plan and the
life insurance premiums are set forth below:
<TABLE>
<CAPTION>
MATCHING 401(K) LIFE INSURANCE
CONTRIBUTION PREMIUM
--------------- --------------
<S> <C> <C> <C>
Alfred J. Moran, Jr.(6).................. 1996 $ -- $ --
1995 -- --
1994 -- --
Timothy da Silva......................... 1996 4,500 15,973
1995 4,569 15,122
1994 4,470 12,893
Jee Fook Pak............................. 1996 20,557 6,187
1995 12,496 6,121
1994 15,008 5,665
Charles F. Wheatley...................... 1996 3,330 --
1995 3,046 --
1994 3,600 --
Ernest J. Joly........................... 1996 2,712 --
1995 2,423 --
1994 2,250 --
</TABLE>
(3) Mr. da Silva resigned as President and Chief Executive Officer effective
December 31, 1996, although Mr. da Silva remained an employee until
February 14, 1997.
(4) The Company provided Mr. Pak with a 1990 Toyota Corona for his use during
1994 and a 1995 Audi for his use during 1995 and 1996, the values of which
use in Singapore are estimated to be $20,426 for 1994, $34,371 for 1995
and $36,857 for 1996.
(5) For 1995, Other Annual Compensation is comprised of housing reimbursement
of $31,280 and the value of the use of a 1989 Toyota Corona estimated to
be $34,371, as well as other payments in connection with Mr. Wheatley's
overseas assignment. For 1994, Other Annual Compensation is comprised of
the value of the use of a 1989 Toyota Corona provided to Mr. Wheatley by
the Company estimated to be $20,426 and $22,832 of living expenses, as
well as other payments in connection with his overseas assignment.
(6) Although Mr. Moran was not paid a salary in 1996, Mr. Moran is a member of
The Watley Group, LLC, which is being paid a monthly fee by the Company of
$15,000 starting in October 1996. Starting in January 1997, The Watley
Group, LLC will be paid an aggregate of $50,000 additionally for the six-
month period beginning in January 1997. In addition, starting in January
1997, Mr. Moran will be paid the prevailing minimum wage of an employee
(which prevailing wage shall be deducted from the additional $50,000 fee).
22
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning stock option grants made
to the Company's Chief Executive Officer and each of the other Named Executive
Officers during the fiscal year ended December 31, 1996. No stock appreciation
rights were granted or exercised during such fiscal year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE AT
SECURITIES % OF TOTAL ASSUMED ANNUAL RATES OF STOCK PRICE
OPTIONS APPRECIATION FOR OPTION TERM
UNDERLYING GRANTED TO EXERCISE OR --------------------------------------
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH)(2) DATE 5%($)(3) 10%($)(3)
- ---- ---------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Alfred J. Moran, Jr..... 125,000(4) 11.2% 1.9063 11/21/06 149,858 379,769
Timothy da Silva........ 15,000(1) 1.34% 1.9063 11/21/06 18,056 45,572
Jee Fook Pak............ -- -- -- -- -- --
Charles F. Wheatley..... -- -- -- -- -- --
Ernest J. Joly.......... -- -- -- -- -- --
</TABLE>
- --------
(1) Mr. da Silva's option grant was awarded on November 21, 1996 at an
exercise price of $1.91 per share, the fair market value of the Common
Stock on such date, and is subject to shareholder approval at the 1997
Annual Meeting of the 4,000,000-share increase to the number of shares
reserved for issuance under the 1993 Plan. Mr. da Silva's option would
have vested upon the provision of six (6) full years of continous service
to the Company subject to acceleration upon consummation of a Board-
approved financing plan for up to $15 million at a price per share of not
less than $1.875. The option will become immediately exercisable for all
the option shares in the event of certain changes in control of the
Company. The option has a maximum term of ten years, subject to earlier
termination in the event of Mr. da Silva's cessation of service with the
Company.
(2) The exercise price may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date. The Plan Administrator may also
permit the optionee to pay the exercise price in installments over a
period of years. The Plan Administrator has the discretionary authority to
reprice outstanding options through the cancellation of those options and
the grant of replacement options with an exercise price equal to the fair
market value of the option shares on the regrant date.
(3) The 5% and 10% rates of appreciation are mandated by the rules of the
Commission and do not represent the Company's estimates or projections of
future Common Stock prices. There can be no assurance provided to any
executive officer or any other holder of the Company's securities that the
actual stock price appreciation over the ten (10)-year option term will be
at the assumed 5% and 10% levels or at any other defined level.
(4) It is presently anticipated that Mr. Moran's stock option will be
cancelled and a new option granted in its place after the 1997 Annual
Meeting. See "Proposal Two--1997 Cancellation/Regrant."
23
<PAGE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information concerning option exercises and
option holdings for the fiscal year ended December 31, 1996 with respect to
the Company's Chief Executive Officer and each of the other Named Executive
Officers. The fair market value of the Common Stock at fiscal year-end was
$0.96875 per share, based on the closing selling price on the Nasdaq National
Market. The exercise price of all of the outstanding options held by the Chief
Executive Officer and the other Named Executive Officers as of December 31,
1996, was in excess of the fair market value on such date. No stock
appreciation rights were exercised or outstanding during such fiscal year.
<TABLE>
<CAPTION>
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END(#) AT FISCAL YEAR-END
ACQUIRED ON ------------------------- -------------------------
NAME EXERCISE(#) VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alfred Jay Moran, Jr.... 100,000 25,000 0 0
Timothy da Silva........ 50,000 0 196,905 101,985 0 0
Jee Fook Pak............ 18,790 10,930 0 0
Charles F. Wheatley..... 10,662 10,660 0 0
Ernest J. Joly.......... 7,996 7,996 0 0
</TABLE>
The Company presently intends to cancel and regrant substantially all
existing options (other than options granted pursuant to the Automatic Option
Grant Program). Based in part upon the delisting of the Company's Common Stock
from the Nasdaq National Market, the financial condition of the Company, the
stock price, the probable lack of a request for a $15 million financing,
desire to avoid any compensation expense in the Company's financial statements
and the necessity of retaining its employees, the Company believes that this
program would be in the best interests of the shareholders. As such, the Board
of Directors and the Stock Option Plan Administration Committee currently
intend to cancel and regrant substantially all options outstanding under the
Discretionary Option Grant Program of the Plan (and grant additional options
to persons who have received options under the Automatic Option Grant Program)
with an exercise price in excess of the fair market value of the Common Stock
of the Company as traded on the Nasdaq Electronic Bulletin Board on the Grant
Date. Pursuant to such program, each such outstanding option will be cancelled
and a new replacement option will be granted for the same number of shares,
with an exercise price based on the fair market value of the Common Stock on
the new grant date.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The individuals who served on the Compensation Committee of the Company's
Board of Directors during the fiscal year ended December 31, 1996 were Mr.
Bryan, the Chairman, Dr. Howland and Mr. Solomon. None of these individuals
was at any time during such fiscal year, or at any other time, an officer or
employee of the Company.
The Company has entered into an indemnification agreement with each of its
directors.
The Company and certain of its shareholders entered into a registration
rights agreement pursuant to which entities that may be deemed affiliated with
a greater than five percent shareholder were granted certain registration
rights. Such agreement provides for indemnification by the Company for such
persons. See "Certain Relationships and Related Transactions."
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Employment Agreement with Timothy da Silva
In January 1994, the Company entered into a three (3)-year employment
agreement with Timothy da Silva. Under the terms of such agreement, Mr. da
Silva was entitled to a salary of not less than his then current salary of
$150,000 per year, the exact amount of which was determined by the Board of
Directors on an annual basis.
24
<PAGE>
Mr. da Silva was also entitled to receive monthly payments, in the amount of
at least $599 per month, to be applied to costs related to his automobile plus
payment of automobile insurance and maintenance costs. The employment
agreement also included provision for an annual bonus to be awarded to Mr. da
Silva by the Board of Directors based upon his performance during the
applicable past year. However, no such bonus was awarded over the period of
the employment agreement. Mr. da Silva participated in all of the Company's
employee benefit plans and the Company was obligated to provide him with life
and disability insurance premium payments. In the event of his termination
other than for cause, Mr. da Silva was entitled to a severance payment equal
to six (6) months of his then current salary plus six (6) months additional
coverage under the Company's health, medical and dental plans. Mr. da Silva
resigned as Chief Executive Officer of the Company effective December 31, 1996
but he has continued to serve as a Director since such date, and stayed as an
employee of the Company until February 14, 1997.
Change in Control Arrangements
The Stock Option Plan Administration Committee of the Board of Directors has
the authority as Plan Administrator of the 1993 Plan to provide for the
accelerated vesting of the shares of Common Stock subject to outstanding
options held by the Chief Executive Officer and the Company's other executive
officers under that plan in the event their employment were to be terminated
(whether involuntarily or through a forced resignation) following an
acquisition of the Company by merger or asset sale. In connection with a
hostile change in control of the Company effected through a successful tender
offer for more than 50% of the Company's outstanding voting stock or through a
proxy contest for the election of Board members, the Plan Administrator has
the discretionary authority to provide for automatic acceleration of
outstanding options under the Discretionary Option Grant Program of the 1993
Plan and the automatic vesting of outstanding shares under the Stock Issuance
Program.
25
<PAGE>
COMPENSATION COMMITTEE REPORT
For the 1996 fiscal year, the Compensation Committee of the Board of
Directors was responsible for establishing the base salary and incentive cash
bonus programs for the Company's executive officers and other key employees
and administering certain other compensation programs for such individuals,
subject in each instance to review by the full Board. The Compensation
Committee also had the exclusive responsibility during such year for the
administration of the Company's 1993 Plan under which grants may be made to
executive officers and other key employees.
General Compensation Policy. The fundamental policy of the Compensation
Committee is to provide the Company's executive officers and other key
employees with compensation opportunities based upon their contribution to the
financial success of the Company and their personal performance. It is the
Compensation Committee's objective to have a substantial portion of each
officer's compensation contingent upon the Company's performance as well as
upon his own level of performance. Accordingly, the compensation package for
each executive officer and key employee is comprised of three elements: (i)
base salary which reflects individual performance, (ii) annual variable
performance awards payable in cash and tied to the Company's achievement of
financial performance targets, and (iii) long-term stock-based incentive
awards which strengthen the mutuality of interests between the executive
officers and the Company's shareholders. As an executive officer's level of
responsibility increases, it is the intent of the Compensation Committee to
have a greater portion of his total compensation be dependent upon Company
performance and stock price appreciation rather than base salary.
Factors. For Timothy da Silva, the Compensation Committee followed the terms
of his employment agreement with the Company in determining his compensation
for 1996. That agreement specified the compensation, subject to Board
adjustment, that was paid to Mr. da Silva during 1996. Several of the more
important factors which the Compensation Committee considered in establishing
the components of the compensation packages for executive officers who do not
have an employment agreement with the Company for the 1996 fiscal year are
summarized below. Additional factors were also taken into account, and the
Compensation Committee may in its discretion apply entirely different factors,
particularly different measures of financial performance, in setting executive
compensation for future fiscal years.
Base Salary. The base salary for each officer who does not have an
employment agreement with the Company is determined on the basis of the
following factors: experience, personal performance and internal comparability
considerations. The weight given to each of these factors differs from
individual to individual, as the Compensation Committee deems appropriate.
Annual Incentive Compensation. Annual bonuses are earned by each executive
officer primarily on the basis of the Company's achievement of certain
corporate financial performance targets established for each fiscal year. For
fiscal year 1996, as the Company's results did not meet the established
targets, no bonuses were paid.
Long-Term Incentive Compensation. Long-term incentives are provided through
stock option grants. The grants are designed to align the interests of each
executive officer with those of the shareholders and provide each individual
with a significant incentive to manage the Company from the perspective of an
owner with an equity stake in the business. Each grant allows the individual
to acquire shares of the Common Stock at a fixed price per share (the market
price on the grant date) over a specified period of time (up to ten (10)
years). Each option generally becomes exercisable in installments over a two
(2) or three (3)-year period, contingent upon the executive officer's
continued employment with the Company or a subsidiary. Accordingly, the option
will provide a return to the executive officer only if the executive officer
remains employed by the Company during the two (2) or three (3)-year vesting
period, and then only if the market price of the underlying shares appreciates
over the option term.
The number of shares subject to each option grant is set at a level intended
to create a meaningful opportunity for stock ownership based on the officer's
current position with the Company, the base salary
26
<PAGE>
associated with that position, the size of comparable awards made to
individuals in similar positions within the industry, the individual's
potential for increased responsibility and promotion over the option term, and
the individual's personal performance in recent periods. The Compensation
Committee also takes into account the number of vested and unvested options
held by the executive officer in order to maintain an appropriate level of
equity incentive for that individual. However, the Compensation Committee does
not adhere to any specific guidelines as to the relative option holdings of
the Company's executive officers. In 1996, only Mr. da Silva received an
option grant. Such option is described in the Summary Compensation Table, in
the column entitled "Long Term Compensation Awards--Securities Underlying
Options" and in the "Option Grants in Last Fiscal Year" Table.
CEO Compensation. In setting the compensation payable to the Company's Chief
Executive Officer, Mr. da Silva, the Compensation Committee followed the terms
of the employment agreement that was previously negotiated between Mr. da
Silva and the Company. In accordance with the terms of his employment
agreement, as adjusted by the Board, Mr. da Silva received a base salary of
$196,309 in 1996.
No cash bonus was paid to Mr. da Silva for the 1996 fiscal year. In 1996,
Mr. da Silva was granted an option to purchase 15,000 shares of Common Stock
to make a portion of his total compensation contingent on increased value for
the Company's shareholders; the option will have no value unless there is
appreciation in the value of the Company's Common Stock over the option term
and the option may not be exercised unless and until the shareholders approve
the 4,000,000-share increase to the 1993 Plan which is the subject of Proposal
Two.
Mr. Alfred Moran was acting President and Chief Executive Officer of the
Company during December 1996 and became President and Chief Executive Officer
in January 1997. In 1996, Mr. Moran was not paid a salary by the Company;
however, Mr. Moran is a member of The Watley Group, LLC, which was and still
is being paid a monthly retainer of $15,000 by the Company.
Compliance with Internal Revenue Code Section 162(m). As a result of Section
162(m) of the Internal Revenue Code, the Company will not be allowed a federal
income tax deduction for compensation paid to certain executive officers, to
the extent that compensation exceeds $1 million per officer in any one (1)
year. This limitation applies to all compensation paid to the covered
executive officers which is not considered to be performance based.
Compensation which does qualify as performance-based compensation will not
have to be taken into account for purposes of this limitation. The 1993 Plan
is designed to assure that any compensation deemed paid in connection with the
exercise of stock options granted under such plan with an exercise price equal
to the market price of the option shares on the grant date will qualify as
performance-based compensation.
Dated as of April 21, 1997
Mr. Anthony J.A. Bryan
Dr. Frank L. Howland
Mr. Lewis Solomon
27
<PAGE>
COMPARISON OF SHAREHOLDER RETURN
The graph below reflects a comparison of the cumulative total return (change
in stock price plus reinvestment dividends) of the Company's Common Stock price
with the cumulative total returns of the Nasdaq Market Index and the Company's
Peer Group consisting of Altron, Inc., Ceramics Process Systems Corporation,
Dense-Pac Microsystems, Inc., Irvine Sensors Corporation, and Microsemi Corp.
LOGO
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG MICROELECTRONIC PACKAGING, NASDAQ MARKET INDEX
AND CUSTOMER SELECTED STOCK LIST
PERFORMANCE GRAPH APPEARS HERE
Measurement Period MICROELECTRONIC BROAD
(Fiscal Year Covered) PACK PEER GROUP MARKET
- ------------------- --------------- ------------ ----------
[S] [C] [C] [C]
BASE: $100.00 $100.00 $100.00
FISCAL YEAR ENDING 06/30/94 $ 97.62 $ 98.5 $ 98.29
09/30/94 $ 88.1 $112.83 $103.52
12/30/94 $ 57.14 $114.18 $101.44
03/31/95 $ 33.33 $116.84 $104.44
06/30/95 $ 45.24 $164.48 $114.25
09/29/95 $ 45.24 $216.68 $127.3
12/29/95 $ 38.1 $196.3 $126.28
03/29/96 $ 78.57 $185.08 $132.11
06/28/96 $ 83.33 $174.74 $141.9
09/30/96 $ 64.29 $124.56 $145.81
12/31/96 $ 18.45 $156.62 $152.67
- -------
(1) The graph covers the period from April 21, 1994, the date the Company's
initial public offering commenced, through the fiscal year ended December
31, 1996.
(2) The graph assumes that $100 was invested on April 21, 1994 in the Company's
Common Stock and in each index and that all dividends were reinvested. No
cash dividends have been declared on the Company's Common Stock.
(3) Shareholder returns over the indicated period should not be considered
indicative of future shareholder returns.
(4) The performance graph and all of the material in the Compensation Committee
Report is not deemed filed with the Commission, and is not incorporated by
reference to any filing of the Company under the Securities Act of 1933, as
amended or the Securities Exchange Act of 1934, whether made before or
after the date of this Proxy Statement and irrespective of any general
incorporation language in any such filing.
28
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than ten percent of
the Company's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Executive
officers, directors and greater than ten percent shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Form 5s were
required for such persons, the Company believes that all filing requirements
applicable to its officers, directors, and greater than ten-percent beneficial
owners during the period from January 1, 1996 to December 31, 1996, were
complied with the exception of Mr. Lewis Solomon. Mr. Solomon filed an amended
Form 3 on February 14, 1997 indicating that he beneficially owned 616 shares
of the Company's Common Stock. Such ownership was not reported on Mr.
Solomon's initial Form 3 filed on or about November 21, 1996.
FORM 10-K
The Company files an Annual Report on Form 10-K with the SEC. Shareholders
may obtain a copy of this report, including financial statements and financial
statement schedules, without charge, by writing to Denis J. Trafecanty, Chief
Financial Officer of the Company, at the Company's executive offices at 9350
Trade Place, San Diego, California 92126.
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is
granted by the execution of the enclosed Proxy.
THE BOARD OF DIRECTORS
Dated: May , 1997
29
<PAGE>
MICROELECTRONIC PACKAGING, INC.
1993 STOCK OPTION/STOCK ISSUANCE PLAN
-------------------------------------
(AS AMENDED AND RESTATED THROUGH APRIL 10, 1997)
ARTICLE ONE
GENERAL
-------
I. PURPOSE OF THE PLAN
A. This 1993 Stock Option/Stock Issuance Plan (the "Plan") is
intended to promote the interests of Microelectronic Packaging, Inc., a
California corporation (the "Corpora tion"), by providing eligible individuals
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation (or its parent or subsidiary
corporations).
B. The Discretionary Option Grant and Stock Issuance Programs under
this Plan became effective on April 21, 1994, the date on which the shares of
the Corporation's Common Stock were first registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). Such date is
hereby designated as the Plan Effective Date. The Automatic Option Grant Program
under this Plan became effective immediately upon the execution and final
pricing of the Underwriting Agreement for the initial public offering of the
Corporation's Common Stock. The execution date of such Underwriting Agreement is
hereby designated as the Automatic Grant Program Effective Date.
C. This April 1997 restatement of the Plan shall become effective
immediately upon its adoption by the Board of Directors, subject, however, to
shareholder approval. The Plan shall be administered in compliance with the
applicable requirements of SEC Rule 16b-3, as in effect from time to time.
D. This Plan serves as the successor to the Corporation's 1988
Stock Option Plan (the "Predecessor Plan"), and no further option grants or
share issuances shall be made under the Predecessor Plan from and after the Plan
Effective Date. All outstanding stock options and unvested share issuances under
the Predecessor Plan on such Plan Effective Date are hereby incorporated into
this Plan and shall accordingly be treated as outstanding stock options and
unvested share issuances under this Plan. However, each outstanding option grant
so incorporated shall continue to be governed solely by the express terms and
conditions of the instrument evidencing such grant, and no provision of this
Plan shall be deemed to affect or otherwise modify the rights or obligations of
the holders of such incorporated options with respect to their acquisition of
shares of the Corporation's
<PAGE>
Common Stock thereunder. All unvested shares of Common Stock outstanding under
the Predecessor Plan on the Plan Effective Date shall continue to be governed
solely by the express terms and conditions of the instruments evidencing such
issuances, and no provision of this Plan shall be deemed to affect or modify the
rights or obligations of the holders of such unvested shares.
II. DEFINITIONS
A. For purposes of the Plan, the following definitions shall be in
effect:
BOARD: the Corporation's Board of Directors.
CHANGE IN CONTROL: a change in ownership or control of the Corporation
effected through either of the following transactions:
(i) the acquisition directly or indirectly by any person or
related group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's shareholders which
the Board does not recommend such shareholders to accept; or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of the Board
members ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been elected
or nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in office
at the time such election or nomination was approved by the Board.
CODE: the Internal Revenue Code of 1986, as amended.
COMMON STOCK: shares of the Corporation's common stock.
CORPORATE TRANSACTION: any of the following shareholder-approved
transactions to which the Corporation is a party:
2.
<PAGE>
(i) a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Corporation is incorporated,
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation in complete liquidation or dissolution of
the Corporation, or
(iii) any reverse merger in which the Corporation is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger.
EMPLOYEE: an individual who performs services while in the employ of
the Corporation or one or more parent or subsidiary corporations, subject to the
control and direction of the employer entity not only as to the work to be
performed but also as to the manner and method of performance.
FAIR MARKET VALUE: the Fair Market Value per share of Common Stock
determined in accordance with the following provisions:
- If the Common Stock is at the time traded on the Nasdaq Electronic
Bulletin Board, the Fair Market Value shall be the average of the highest
bid price and the lowest ask price per share on the date in question, as
such prices are reported by the National Association of Securities Dealers
through the Nasdaq Electronic Bulletin Board or any successor system. If
there are no reported bid or ask prices for the Common Stock on the date in
question, then the average of the highest bid price and the lowest ask
price on the last preceding date for which such quotations exist shall be
determinative of the Fair Market Value.
- If the Common Stock is not at the time listed or admitted to
trading on any national stock exchange but is traded on the Nasdaq National
Market, the Fair Market Value shall be the closing selling price per share
on the date in question, as such price is reported by the National
Association of Securities Dealers through the Nasdaq National Market or any
successor system. If there is no reported closing selling price for the
Common Stock on the date in question, then the closing selling price on the
last preceding date for which such quotation exists shall be determinative
of Fair Market Value.
- If the Common Stock is at the time listed or admitted to trading on
any national stock exchange, then the Fair Market Value shall be the
closing selling price per share on the date in question on the exchange
determined by the Plan Administrator to be the primary market for the
3.
<PAGE>
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common Stock
on such exchange on the date in question, then the Fair Market Value shall
be the closing selling price on the exchange on the last preceding date for
which such quotation exists.
OPTIONEE: a person to whom an option is granted under the
Discretionary Option Grant or Automatic Option Grant Program.
PARTICIPANT: a person who is issued Common Stock under the Stock
Issuance Program.
PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the
Optionee or the Participant to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
PLAN ADMINISTRATOR: the particular entity, whether the Primary
Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
PRIMARY COMMITTEE: the committee of two (2) or more non-employee
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to Section 16 Insiders.
SECONDARY COMMITTEE: a committee of two (2) or more Board members
appointed by the Board to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to eligible persons other than Section 16
Insiders.
SECTION 16 INSIDER: an officer or director of the Corporation subject
to the short-swing profit liabilities of Section 16 of the 1934 Act.
SERVICE: the performance of services on a periodic basis for the
Corporation (or any parent or subsidiary corporation) in the capacity of an
Employee, a non-employee member of the board of directors or an independent
consultant or advisor, except to the extent otherwise specifically provided in
the applicable stock option or stock issuance agreement.
4.
<PAGE>
B. The following provisions shall be applicable in determining the
parent and subsidiary corporations of the Corporation:
Any corporation (other than the Corporation) in an unbroken
chain of corporations ending with the Corporation shall be considered to
be a PARENT of the Corporation, provided each such corporation in the
unbroken chain (other than the Corporation) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
Each corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation shall be considered
to be a SUBSIDIARY of the Corporation, provided each such corporation
(other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
III. STRUCTURE OF THE PLAN
A. Stock Programs. The Plan shall be divided into three separate
--------------
components: the Discretionary Option Grant Program specified in Article Two, the
Automatic Option Grant Program specified in Article Three and the Stock Issuance
Program specified in Article Four. Under the Discretionary Option Grant
Program, eligible individuals may, at the discretion of the Plan Administrator,
be granted options to purchase shares of Common Stock in accordance with the
provisions of Article Two. Under the Automatic Option Grant Program, each
individual serving as an eligible non-employee Board member on the Automatic
Grant Program Effective Date and each individual who first joins the Board as an
eligible non-employee director after the Automatic Grant Program Effective Date
will at periodic intervals receive option grants to purchase shares of Common
Stock in accordance with the provisions of Article Three, with the first such
grants to be made on the Automatic Grant Program Effective Date. Under the
Stock Issuance Program, eligible individuals may be issued shares of Common
Stock directly, either through the immediate purchase of such shares at a price
not less than eighty-five percent (85%) of the fair market value of the shares
at the time of issuance or as a bonus for past services rendered the
Corporation.
B. General Provisions. Unless the context clearly indicates
------------------
otherwise, the provisions of Articles One and Five shall apply to the
Discretionary Option Grant Program, the Automatic Option Grant Program and the
Stock Issuance Program and shall accordingly govern the interests of all
individuals under the Plan.
5.
<PAGE>
IV. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders, other than to those Section 16 Insiders who are
serving on the Primary Committee. The Board shall retain sole and exclusive
authority to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to members of the Primary Committee.
B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to such persons. The members of the
Secondary Committee may be individuals who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any parent or subsidiary).
C. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant or Stock Issuance Program under its jurisdiction or
any option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
6.
<PAGE>
F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the express terms and conditions of Article
Three, and the Plan Administrator shall exercise no discretionary functions with
respect to option grants made pursuant to that program.
V. OPTION GRANTS AND STOCK ISSUANCES
A. The persons eligible to participate in the Discretionary Option
Grant Program under Article Two and the Stock Issuance Program under Article
Four shall be limited to the following:
(i) officers and other key employees of the Corporation (or
its parent or subsidiary corporations) who render services which
contribute to the management, growth and financial success of the
Corporation (or its parent or subsidiary corporations);
(ii) non-employee Board members; and
(iii) those consultants or other independent contractors who
provide valuable services to the Corporation (or its parent or
subsidiary corporations).
B. The Plan Administrator shall have full authority to determine,
(i) with respect to the option grants made under the Discretionary Option Grant
Program, which eligible individuals are to receive option grants, the number of
shares to be covered by each such grant, the status of the granted option as
either an incentive stock option ("Incentive Option") that satisfies the
requirements of Section 422 of the Code or a non-statutory option not intended
to meet such requirements, the time or times at which each granted option is to
become exercisable and the maximum term for which the option may remain
outstanding and (ii), with respect to stock issuances under the Stock Issuance
Program, the number of shares to be issued to each Participant, the vesting
schedule (if any) to be applicable to the issued shares, and the consideration
to be paid by the individual for such shares.
C. Approval by the Plan Administrator of an option grant under the
Discretionary Option Grant Program shall constitute approval by such Plan
Administrator of the subsequent exercise, and payment of the exercise price of,
such option in accordance with the terms and conditions thereof.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the
Plan and shall be drawn from either the Corporation's authorized but unissued
shares of Common Stock or from reacquired shares of Common Stock, including
shares repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock
7.
<PAGE>
which may be issued over the term of the Plan shall not exceed 4,690,632 shares,
subject to adjustment from time to time in accordance with the provisions of
this Section VI. Such authorized share reserve includes the two million two
hundred thousand (2,200,000)-share increase authorized by the Board on November
21, 1996, subject to shareholder approval, and the one million eight hundred
thousand (1,800,000)-share increase authorized by the Board on April 10, 1997,
subject to shareholder approval. To the extent one or more outstanding options
under the Predecessor Plan incorporated into this Plan are subsequently
exercised, the number of shares issued with respect to each such option shall
reduce, on a share-for-share basis, the number of shares available for issuance
under this Plan.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1996 calendar year.
C. Should one or more outstanding options under this Plan
(including outstanding options under the Predecessor Plan incorporated into this
Plan) expire or terminate for any reason prior to exercise in full (including
any option cancelled in accordance with the cancellation-regrant provisions of
Section IV of Article Two of the Plan), then the shares subject to the portion
of each option not so exercised shall be available for subsequent option grants
under the Plan. Unvested shares issued under the Plan and subsequently
repurchased by the Corporation at the original option or issue price paid per
share shall be added back to the share reserve and shall accordingly be made
available for subsequent issuance under the Plan. However, should the exercise
price of an outstanding option under the Plan (including any option incorporated
from the Predecessor Plan) be paid with shares of Common Stock or should shares
of Common Stock otherwise issuable under the Plan be withheld by the Corporation
in satisfaction of the withholding taxes incurred in connection with the
exercise of an outstanding option under the Plan or the vesting of a direct
share issuance made under the Plan, then the number of shares of Common Stock
available for issuance under the Plan shall be reduced by the gross number of
shares for which the option is exercised or which vest under the share issuance,
and not by the net number of shares of Common Stock actually issued to the
holder of such option or share issuance.
D. Should any change be made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
for which any one person may be granted options, separately exercisable stock
appreciation rights and direct stock issuances per calendar year, (iii) the
number and/or class of securities for which automatic option grants are to be
subsequently made per eligible non-employee Board member under the Automatic
Option Grant Program, (iv) the number and/or class of securities and price per
share in effect under each option outstanding under either the Discretionary
Option Grant or Automatic
8.
<PAGE>
Option Grant Program and (v) the number and/or class of securities and price per
share in effect under each outstanding option incorporated into this Plan from
the Predecessor Plan. Such adjustments to the outstanding options are to be
effected in a manner which shall preclude the enlargement or dilution of rights
and benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
9.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant Program
shall be authorized by action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Options or non-statutory
options. Individuals who are not Employees of the Corporation or its parent or
subsidiary corporations may only be granted non-statutory options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; provided, however, that each such instrument shall comply
--------
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. Option Price.
------------
1. The option price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The option price per share of Common Stock subject
to an Incentive Option shall in no event be less than one hundred percent (100%)
of the Fair Market Value of such Common Stock on the grant date.
(ii) The option price per share of Common Stock subject
to a non-statutory stock option shall in no event be less than eighty-five
percent (85%) of the Fair Market Value of such Common Stock on the grant date.
2. The option price shall become immediately due upon
exercise of the option and, subject to the provisions of Section I of Article
Five and the instrument evidencing the grant, shall be payable in one of the
following alternative forms specified below:
(i) full payment in cash or check drawn to the
Corporation's order;
(ii) full payment in shares of Common Stock held for
the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date (as such term is defined below);
10.
<PAGE>
(iii) full payment in a combination of shares of
Common Stock held for the requisite period necessary to avoid a charge
to the Corporation's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date and cash or check drawn
to the Corporation's order; or
(iv) full payment through a broker-dealer sale and
remittance procedure pursuant to which the Optionee shall provide
irrevocable written instructions to (I) a Corporation-designated
brokerage firm to effect the immediate sale of the purchased shares and
remit to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate option price
payable for the purchased shares plus all applicable Federal and state
income and employment taxes required to be withheld by the Corporation
in connection with such purchase and (II) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in
order to complete the sale transaction.
For purposes of this subparagraph 2, the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure is used in
connection with the exercise of the option, payment of the option price for the
purchased shares must accompany such notice.
B. Term and Exercise of Options. Each option granted under this
----------------------------
Discretionary Option Grant Program shall be exercisable at such time or times
and during such period as is determined by the Plan Administrator and set forth
in the instrument evidencing the grant. No such option, however, shall have a
maximum term in excess of ten (10) years from the grant date. During the
lifetime of the Optionee, the option shall be exercisable only by the Optionee
and shall not be assignable or transferable by the Optionee other than by will
or by the laws of descent and distribution following the Optionee's death.
C. Termination of Service.
----------------------
1. The following provisions shall govern the exercise
period applicable to any outstanding options held by the Optionee at the time of
cessation of Service or death.
(i) Should an Optionee cease Service for any reason
(other than death) while holding one or more outstanding options under
this Article Two, then none of those options shall remain exercisable
for more than a ninety (90)-day period (or such shorter period
determined by the Plan Administrator and set forth in the instrument
evidencing the grant) measured from the date of such cessation of
Service.
11.
<PAGE>
(ii) Any option held by the Optionee under this
Article Two and exercisable in whole or in part on the date of his or
her death may be subsequently exercised by the personal representative
of the Optionee's estate or by the person or persons to whom the option
is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution. Such exercise, however, must occur
prior to the earlier of (A) six (6) months measured from the date of the
-------
Optionee's death or (B) the specified expiration date of the option
term. Upon the occurrence of the earlier event, the option shall
terminate.
(iii) Under no circumstances shall any such option be
exercisable after the specified expiration date of the option term.
(iv) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than
the number of shares (if any) in which the Optionee is vested at the
time of his or her cessation of Service. Upon the expiration of the
limited post-Service exercise period or (if earlier) upon the specified
expiration date of the option term, each such option shall terminate and
cease to be outstanding with respect to any vested shares for which the
option has not otherwise been exercised. However, each outstanding
option shall immediately terminate and cease to be outstanding, at the
time of the Optionee's cessation of Service, with respect to any shares
for which the option is not otherwise at that time exercisable or in
which the Optionee is not otherwise vested.
(v) Should (A) the Optionee's Service be terminated
for misconduct (including, but not limited to, any act of dishonesty,
willful misconduct, fraud or embezzlement) or (B) the Optionee make any
unauthorized use or disclosure of confidential information or trade
secrets of the Corporation or its parent or subsidiary corporations,
then in any such event all outstanding options held by the Optionee
under this Article Two shall terminate immediately and cease to be
outstanding.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to permit one or more options held by the Optionee
under this Article Two to be exercised, during the limited post-Service exercise
period applicable under subparagraph 1 above, not only with respect to the
number of vested shares of Common Stock for which each such option is
exercisable at the time of the Optionee's cessation of Service but also with
respect to one or more subsequent installments in which Optionee would have
otherwise vested had such cessation of Service not occurred.
12.
<PAGE>
D. Shareholder Rights.
------------------
An Optionee shall have no shareholder rights with
respect to any shares covered by the option until such individual shall have
exercised the option and paid the option price for the purchased shares.
E. Repurchase Rights.
-----------------
The shares of Common Stock acquired upon the exercise of
any Article Two option grant may be subject to repurchase by the Corporation in
accordance with the following provisions:
(i) The Plan Administrator shall have the
discretion to authorize the issuance of unvested shares of Common Stock
under this Article Two. Should the Optionee cease Service while holding
such unvested shares, the Corporation shall have the right to repurchase
any or all of those unvested shares at the option price paid per share.
The terms and conditions upon which such repurchase right shall be
exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be
established by the Plan Administrator and set forth in the instrument
evidencing such repurchase right.
(ii) All of the Corporation's outstanding
repurchase rights under this Article Two shall automatically terminate,
and all shares subject to such terminated rights shall immediately vest
in full, upon the occurrence of a Corporate Transaction, except to the
extent: (A) any such repurchase right is expressly assigned to the
successor corporation (or parent thereof) in connection with the
Corporate Transaction or (B) such termination is precluded by other
limitations imposed by the Plan Administrator at the time the repurchase
right is issued.
(iii) The Plan Administrator shall have the
discretionary authority, exercisable either before or after the
Optionee's cessation of Service, to cancel the Corporation's outstanding
repurchase rights with respect to one or more shares purchased or
purchasable by the Optionee under this Article Two and thereby
accelerate the vesting of such shares in whole or in part at any time.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees. Options which are specifically
designated as "non-statutory" options when issued under the Plan shall not be
---
subject to such terms and conditions.
13.
<PAGE>
A. Dollar Limitation. The aggregate Fair Market Value (determined
-----------------
as of the respective date or dates of grant) of the Common Stock for which one
or more options granted to any Employee after December 31, 1986 under this Plan
(or any other option plan of the Corporation or its parent or subsidiary
corporations) may for the first time become exercisable as incentive stock
options under the Federal tax laws during any one calendar year shall not exceed
the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee
holds two (2) or more such options which become exercisable for the first time
in the same calendar year, the foregoing limitation on the exercisability of
such options as incentive stock options under the Federal tax laws shall be
applied on the basis of the order in which such options are granted. Should the
number of shares of Common Stock for which any Incentive Option first becomes
exercisable in any calendar year exceed the applicable One Hundred Thousand
Dollar ($100,000) limitation, then that option may nevertheless be exercised in
that calendar year for the excess number of shares as a non-statutory option
under the Federal tax laws.
B. 10% Shareholder. If any individual to whom an Incentive Option
---------------
is granted is the owner of stock (as determined under Section 424(d) of the
Code) possessing ten percent (10%) or more of the total combined voting power of
all classes of stock of the Corporation or any one of its parent or subsidiary
corporations, then the option price per share shall not be less than one hundred
ten percent (110%) of the Fair Market Value per share of Common Stock on the
grant date, and the option term shall not exceed five (5) years, measured from
the grant date.
Except as modified by the preceding provisions of this Section II, the
provisions of Articles One, Two and Five of the Plan shall apply to all
Incentive Options granted hereunder.
III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL
A. In the event of any Corporate Transaction, each option which is
at the time outstanding under this Article Two shall automatically accelerate so
that each such option shall, immediately prior to the specified effective date
for the Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of such shares. However, an outstanding
option under this Article Two shall NOT so accelerate if and to the extent: (i)
such option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation or parent thereof or to be replaced with a
comparable option to purchase shares of the capital stock of the successor
corporation or parent thereof, (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the option spread
existing at the time of the Corporate Transaction and provides for subsequent
payout in accordance with the same vesting schedule applicable to such option,
or (iii) the acceleration of such option is subject to other limitations imposed
14.
<PAGE>
by the Plan Administrator at the time of the option grant. The determination of
option comparability under clause (i) above shall be made by the Plan
Administrator, and its determination shall be final, binding and conclusive.
B. Immediately following the consummation of the Corporate
Transaction, all outstanding options under this Article Two shall terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation or its parent company.
C. Each outstanding option under this Article Two which is assumed
in connection with the Corporate Transaction or is otherwise to continue in
effect shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of securities which
would have been issued to the option holder, in consummation of such Corporate
Transaction, had such person exercised the option immediately prior to such
Corporate Transaction. Appropriate adjustments shall also be made to the option
price payable per share, provided the aggregate option price payable for such
--------
securities shall remain the same. In addition, the class and number of
securities available for issuance under the Plan following the consummation of
the Corporate Transaction shall be appropriately adjusted.
D. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide (upon such terms as it may deem appropriate) for the
automatic acceleration of one or more outstanding options granted under the Plan
that are assumed or replaced in a Corporate Transaction and do not otherwise
accelerate at that time, in the event the Optionee's Service should subsequently
terminate within a designated period following the effective date of such
Corporate Transaction.
E. The grant of options under this Article Two shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
F. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options under this Article Two (and the termination of one or
more of the Corporation's outstanding repurchase rights under this Article Two)
upon the occurrence of a Change in Control. The Plan Administrator shall also
have full power and authority to condition any such option acceleration (and the
termination of any outstanding repurchase rights) upon the subsequent
termination of the Optionee's Service within a specified period following the
Change in Control.
15.
<PAGE>
G. Any options accelerated in connection with the Change in Control
shall remain fully exercisable until the expiration or sooner termination of the
option term.
H. The exercisability as incentive stock options under the Federal
tax laws of any options accelerated under this Section III in connection with a
Corporate Transaction or Change in Control shall remain subject to the dollar
limitation of Section II of this Article Two. To the extent such dollar
limitation is exceeded, the accelerated option shall be exercisable as a non-
statutory option under the Federal tax laws.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under this Article Two (including
outstanding options under the Predecessor Plan incorporated into this Plan) and
to grant in substitution new options under the Plan covering the same or
different numbers of shares of Common Stock but with an option price per share
not less than (i) one hundred percent (100%) of the Fair Market Value on the new
grant date in the case of a grant of an Incentive Option, (ii) one hundred ten
percent (110%) of such Fair Market Value in the case of a grant of an Incentive
Option to a 10% Shareholder or (iii) eighty-five percent (85%) of such Fair
Market Value in the case of all other grants.
16.
<PAGE>
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. ELIGIBILITY
The individuals eligible to receive automatic option grants pursuant
to the provisions of this Article Three program shall be limited to those
individuals who are serving as non-employee Board members on the Automatic Grant
Program Effective Date or who are first elected or appointed as non-employee
Board members on or after such Effective Date, whether through appointment by
the Board or election by the Corporation's shareholders. Each non-employee
Board member eligible to participate in the Automatic Option Grant Program
pursuant to the foregoing criteria shall be designated an Eligible Director for
purposes of the Plan.
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Subject to shareholder approval of the amendments
-----------
to the Plan adopted by the Board on November 21, 1996, option grants shall be
made under this Article Three on the dates specified below:
1. Initial Grant. Each Eligible Director who is first
elected or appointed as a non-employee Board member on or after November 21,
1996, shall automatically be granted, on the date of such initial election or
appointment (as the case may be), a Non-Statutory Option to purchase 15,000
shares of Common Stock upon the terms and conditions of this Article Three.
2. Annual Grant. On the date of each Annual Shareholders
Meeting, beginning with the 1997 Annual Meeting, each individual who is to
continue to serve as an Eligible Director shall automatically be granted,
whether or not such individual is standing for re-election as a Board member at
that Annual Meeting, a Non-Statutory Option to purchase an additional 10,000
shares of Common Stock upon the terms and conditions of this Article Three.
There shall be no limit on the number of such 10,000-share option grants any one
Eligible Director may receive over his or her period of Board service.
3. November 1996 Grant. Each individual who is serving as
an Eligible Director on November 21, 1996, shall automatically be granted on
such date a Non-Statutory Option to purchase 15,000 shares of Common Stock upon
the terms and conditions of this Article Three.
17.
<PAGE>
B. Exercise Price. The exercise price per share of Common Stock
--------------
subject to each automatic option grant made under this Article Three shall be
equal to one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the automatic grant date.
C. Payment.
-------
The exercise price shall be payable in one of the alternative
forms specified below:
(i) full payment in cash or check drawn to the Corporation's
order;
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date (as such term is defined below);
(iii) full payment in a combination of shares of Common Stock
held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at
Fair Market Value on the Exercise Date and cash or check drawn to the
Corporation's order; or
(iv) full payment through a sale and remittance procedure
pursuant to which the Optionee shall provide irrevocable written
instructions to (I) a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the Corporation,
out of the sale proceeds available on the settlement date, sufficient
funds to cover the aggregate exercise price payable for the purchased
shares and (II) the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete
the sale transaction.
For purposes of this subparagraph C, the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure specified
above is used for the exercise of the option for vested shares, payment of the
exercise price for the purchased shares must accompany the exercise notice.
D. Option Term. Each automatic grant under this Article Three
-----------
shall have a maximum term of ten (10) years measured from the automatic grant
date.
18.
<PAGE>
E. Exercisability. Each automatic grant shall become exercisable
--------------
in a series of four (4) equal and successive annual installments over the
Optionee's period of continued service as a Board member, with the first such
installment to become exercisable one (1) year after the automatic grant date.
The exercisability of each automatic grant outstanding under this Article Three
shall be accelerated as provided in Section II.G and Section III of this Article
Three.
F. Non-Transferability. During the lifetime of the Optionee, each
-------------------
automatic option grant shall be exercisable only by the Optionee and shall not
be assignable or transferable by the Optionee other than by will or by the laws
of descent and distribution following Optionee's death.
G. Effect of Termination of Board Membership.
-----------------------------------------
1. Should the Optionee cease to serve as a Board member for
any reason (other than death or Permanent Disability) while holding one or more
automatic option grants under this Article Three, then such individual shall
have a ninety (90)-day period following the date of such cessation of Board
membership in which to exercise each such option for any or all of the shares of
Common Stock for which that option is exercisable at the time of such cessation
of Board service. Each such option shall immediately terminate and cease to be
outstanding, at the time of such cessation of Board service, with respect to any
shares for which the option is not otherwise at that time exercisable.
2. Should the Optionee die within ninety (90) days after
cessation of Board service, then any automatic option grant held by the Optionee
at the time of death may subsequently be exercised, for any or all of the shares
of Common Stock for which such option is exercisable at the time of the
Optionee's cessation of Board membership (less any option shares subsequently
purchased by the Optionee prior to death), by the personal representative of the
Optionee's estate or by the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent and
distribution. Any such exercise must occur within six (6) months after the date
of the Optionee's death.
3. Should the Optionee die or become Permanently Disabled
while serving as a Board member, then any automatic option grant held by such
Optionee under this Article Three shall accelerate in full, and the Optionee (or
the representative of the Optionee's estate or the person or persons to whom the
option is transferred upon the Optionee's death) shall have a six (6)-month
period following the date of the Optionee's cessation of Board membership in
which to exercise such option for any or all of the shares of Common Stock
subject to the option at the time of such cessation of Board membership.
19.
<PAGE>
4. In no event shall any automatic grant under this Article
Three remain exercisable after the expiration date of the ten (10)-year option
term. Upon the expiration of the applicable post-service exercise period under
subparagraph 1, 2 or 3 above or (if earlier) upon the expiration of the ten
(10)-year option term, the automatic grant shall terminate and cease to be
outstanding for any unexercised shares for which the option was otherwise
exercisable at the time of the Optionee's cessation of Board membership.
H. Shareholder Rights. The holder of an automatic option grant
------------------
under this Article Three shall have none of the rights of a shareholder with
respect to any shares subject to such option until such individual shall have
exercised the option and paid the exercise price for the purchased shares.
I. Remaining Terms. The remaining terms and conditions of each
---------------
automatic option grant shall be as set forth in the form Director Automatic
Grant Agreement attached as Exhibit A.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each automatic option
grant at the time outstanding under this Article Three shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of those shares as
fully-vested shares. Immediately after the consummation of the Corporate
Transaction, all automatic option grants under this Article Three shall
terminate and cease to be outstanding.
B. In connection with any Change in Control, each automatic option
grant at the time outstanding under this Article Three shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for the Change in Control, become fully exercisable with respect
to the total number of shares of Common Stock at the time subject to such option
and may be exercised for all or any portion of those shares as fully-vested
shares. Any option accelerated in connection with the Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.
C. The automatic option grants outstanding under this Article Three
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
20.
<PAGE>
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
----------------------
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares may be issued under the Stock Issuance Program through direct
and immediate purchases without any intervening stock option grants. The issued
shares shall be evidenced by a Stock Issuance Agreement ("Issuance Agreement")
that complies with the terms and conditions of this Article Four.
A. Consideration.
-------------
1. Shares of Common Stock shall be issued under the Stock
Issuance Program for one or more of the following items of consideration which
the Plan Administrator may deem appropriate in each individual instance:
(i) cash or check drawn to the Corporation's order;
(ii) a promissory note payable to the Corporation's
order in one or more installments, which may be subject to cancellation
in whole or in part upon terms and conditions established by the Plan
Administrator; or
(iii) past services rendered to the Corporation or any
parent or subsidiary corporation.
2. Shares of Common Stock may, in the absolute discretion
of the Plan Administrator, be issued for consideration with a value less than
one hundred percent (100%) of the Fair Market Value of such shares at the time
of issuance, but in no event less than eighty-five percent (85%) of such Fair
Market Value.
B. Vesting Provisions.
------------------
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the absolute discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service. The elements of the vesting schedule
applicable to any unvested shares of Common Stock issued under the Stock
Issuance Program, namely:
(i) the Service period to be completed by the
Participant or the performance objectives to be achieved by the
Corporation,
21.
<PAGE>
(ii) the number of installments in which the shares
are to vest,
(iii) the interval or intervals (if any) which are to
lapse between installments, and
(iv) the effect which death, Permanent Disability or
other event designated by the Plan Administrator is to have upon the
vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued.
2. The Participant shall have full shareholder rights with
respect to any shares of Common Stock issued to him or her under the Plan,
whether or not his or her interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to receive any regular
cash dividends paid on such shares. Any new, additional or different shares of
stock or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to
his or her unvested shares by reason of any stock dividend, stock split,
reclassification of Common Stock or other similar change in the Corporation's
capital structure or by reason of any Corporate Transaction shall be issued,
subject to (i) the same vesting requirements applicable to his or her unvested
shares and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock under the Plan, then those
shares shall be immediately surrendered to the Corporation for cancellation, and
the Participant shall have no further shareholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money promissory note), the Corporation shall repay to
the Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
4. The Plan Administrator may in its discretion elect to
waive the surrender and cancellation of one or more unvested shares of Common
Stock (or other assets attributable thereto) which would otherwise occur upon
the non-completion of the vesting schedule applicable to such shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service.
22.
<PAGE>
II. CORPORATE TRANSACTIONS/CHANGE IN CONTROL
A. Upon the occurrence of any Corporate Transaction, all unvested
shares of Common Stock at the time outstanding under the Stock Issuance Program
shall immediately vest in full, except to the extent the Plan Administrator
imposes limitations in the Issuance Agreement which preclude such accelerated
vesting in whole or in part.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the shares are issued under the Stock Issuance
Program or at any time while the issued shares remain unvested, to provide for
the immediate and automatic vesting of one or more of those shares at the time
of a Change in Control. The Plan Administrator shall also have full power and
authority to condition any such accelerated vesting upon the subsequent
termination of the Participant's Service within a specified period following the
Change in Control.
III. TRANSFER RESTRICTIONS/SHARE ESCROW
A. Unvested shares may, in the Plan Administrator's discretion, be
held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing such unvested shares. To the extent an
escrow arrangement is utilized, the unvested shares and any securities or other
assets issued with respect to such shares (other than regular cash dividends)
shall be delivered in escrow to the Corporation to be held until the
Participant's interest in such shares (or other securities or assets) vests.
Alternatively, if the unvested shares are issued directly to the Participant,
the restrictive legend on the certificates for such shares shall read
substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE
ACCORDINGLY SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS AND (II)
CANCELLATION OR REPURCHASE IN THE EVENT THE REGISTERED HOLDER (OR
HIS/HER PREDECESSOR IN INTEREST) CEASES TO REMAIN IN THE CORPORATION'S
SERVICE. SUCH TRANSFER RESTRICTIONS AND THE TERMS AND CONDITIONS OF SUCH
CANCELLATION OR REPURCHASE ARE SET FORTH IN A STOCK ISSUANCE AGREEMENT
BETWEEN THE CORPORATION AND THE REGISTERED HOLDER (OR HIS/HER
PREDECESSOR IN INTEREST) DATED ________________, 199__, A COPY OF WHICH
IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION."
B. The Participant shall have no right to transfer any unvested
shares of Common Stock issued to him or her under the Stock Issuance Program.
For purposes of this restriction, the term "transfer" shall include (without
limitation) any sale, pledge, assignment, encumbrance, gift, or other
disposition of such shares, whether voluntary or
23.
<PAGE>
involuntary. Upon any such attempted transfer, the unvested shares shall
immediately be cancelled, and neither the Participant nor the proposed
transferee shall have any rights with respect to those shares. However, the
Participant shall have the right to make a gift of unvested shares acquired
under the Stock Issuance Program to his or her spouse or issue, including
adopted children, or to a trust established for such spouse or issue, provided
the donee of such shares delivers to the Corporation a written agreement to be
bound by all the provisions of the Stock Issuance Program and the Issuance
Agreement applicable to the gifted shares.
24.
<PAGE>
ARTICLE FIVE
MISCELLANEOUS
-------------
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any
Optionee or Participant (including an Optionee or Participant who is an officer
of the Corporation) in the exercise of one or more options granted to such
Optionee under the Discretionary Option Grant Program or the purchase of one or
more shares issued to such Participant under the Stock Issuance Program,
including the satisfaction of any Federal and state income and employment tax
obligations arising therefrom, by (i) authorizing the extension of a loan from
the Corporation to such Optionee or Participant or (ii) permitting the Optionee
or Participant to pay the option price or purchase price for the purchased
Common Stock in installments over a period of years. The terms of any loan or
installment method of payment (including the interest rate and terms of
repayment) shall be upon such terms as the Plan Administrator specifies in the
applicable option or issuance agreement or otherwise deems appropriate under the
circumstances. Loans or installment payments may be authorized with or without
security or collateral. However, any loan made to a consultant or other non-
employee advisor must be secured by property other than the purchased shares of
Common Stock. In all events, the maximum credit available to the Optionee or
Participant may not exceed the option or purchase price of the acquired shares
plus any Federal and state income and employment tax liability incurred by the
Optionee or Participant in connection with the acquisition of such shares.
B. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under this financial assistance
program shall be subject to forgiveness by the Corporation in whole or in part
upon such terms and conditions as the Plan Administrator may deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to
amend or modify the Plan (or any component thereof) in any or all respects
whatsoever. However, no such amendment or modification shall adversely affect
rights and obligations with respect to options at the time outstanding under the
Plan, nor adversely affect the rights of any Participant with respect to Common
Stock issued under the Stock Issuance Program prior to such action, unless the
Optionee or Participant consents to such amendment. In addition, amendments to
the Plan shall be subject to shareholder approval to the extent required under
applicable law or regulation.
25.
<PAGE>
B. (i) Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant Program and (ii) shares of Common Stock may
be issued under the Stock Issuance Program, which are in both instances in
excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under the Discretionary Option Grant
Program or the Stock Issuance Program are held in escrow until shareholder
approval is obtained for a sufficient increase in the number of shares available
for issuance under the Plan. If such shareholder approval is not obtained within
twelve (12) months after the date the first such excess option grants or excess
share issuances are made, then (I) any unexercised excess options shall
terminate and cease to be exercisable and (II) the Corporation shall promptly
refund the purchase price paid for any excess shares actually issued under the
Plan and held in escrow, together with interest (at the applicable Short Term
Federal Rate) for the period the shares were held in escrow.
III. TAX WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon
the exercise of stock options for such shares or the vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income tax and employment tax withholding requirements.
The Plan Administrator may, in its discretion and in accordance with
the provisions of this Section III of Article Five and such supplemental rules
as the Plan Administrator may from time to time adopt (including the applicable
safe-harbor provisions of Rule 16b-3 of the Securities and Exchange Commission),
provide any or all holders of non-statutory options (other than the automatic
grants made pursuant to Article Three of the Plan) or unvested shares under the
Plan with the right to use shares of Common Stock in satisfaction of all or part
of the Federal, state and local income and employment tax liabilities incurred
by such holders in connection with the exercise of their options or the vesting
of their shares (the "Taxes"). Such right may be provided to any such holder in
either or both of the following formats:
(i) Stock Withholding: The holder of the non-statutory
-----------------
option or unvested shares may be provided with the election to have the
Corporation withhold, from the shares of Common Stock otherwise issuable
upon the exercise of such non-statutory option or the vesting of such
shares, a portion of those shares with an aggregate Fair Market Value
equal to the percentage of the applicable Taxes (not to exceed one
hundred percent (100%)) designated by the holder.
(ii) Stock Delivery: The Plan Administrator may, in its
--------------
discretion, provide the holder of the non-statutory option or the
unvested shares with the election to deliver to the Corporation, at the
time the non-statutory option is exercised or the shares vest, one or
more shares of
26.
<PAGE>
Common Stock previously acquired by such individual (other than in
connection with the option exercise or share vesting triggering the
Taxes) with an aggregate Fair Market Value equal to the percentage of
the Taxes incurred in connection with such option exercise or share
vesting (not to exceed one hundred percent (100%)) designated by the
holder.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. This Plan, as successor to the Predecessor Plan, became
effective as of the Plan Effective Date, and no further option grants or stock
issuances shall be made under the Predecessor Plan from and after the Plan
Effective Date.
B. Each stock option grant outstanding under the Predecessor Plan
immediately prior to the Plan Effective Date was incorporated into this Plan and
is treated as an outstanding option under this Plan, but each such option shall
continue to be governed solely by the terms and conditions of the instrument
evidencing such grant, and nothing in this Plan shall be deemed to affect or
otherwise modify the rights or obligations of the holders of such options with
respect to their acquisition of shares of Common Stock thereunder. Each unvested
share of Common Stock outstanding under the Predecessor Plan on the Plan
Effective Date shall continue to be governed solely by the terms and conditions
of the instrument evidencing such share issuance, and nothing in this Plan shall
be deemed to affect or otherwise modify the rights or obligations of the holder
of such unvested shares.
C. The option/vesting acceleration provisions of Section III of
Article Two and Section II of Article Four relating to Corporate Transactions
and Changes in Control may, in the Plan Administrator's discretion, be extended
to one or more stock options or unvested share issuances which are outstanding
under the Predecessor Plan on the Plan Effective Date but which do not otherwise
provide for such acceleration.
D. The Plan was amended by the Board on June 5, 1995 to increase
the number of shares of Common Stock authorized for issuance under the Plan by
an additional 110,000 shares, and the Plan was further amended by the Board on
February 29, 1996 to (i) increase the number of shares of Common Stock
authorized for issuance under the Plan by an additional 190,000 shares and (ii)
establish a 500,000-share limit on the aggregate number of shares of Common
Stock for which any one participant may be issued stock options and direct stock
issuances over the remaining term of the Plan. Each of the above amendments was
approved by the shareholders at the 1996 Annual Meeting.
E. The Plan was amended on November 21, 1996 to effect the
following changes: (i) increase the number of shares of Common Stock authorized
for issuance over the term of the Plan by an additional 2,200,000 shares, (ii)
render the non-employee Board members eligible to receive option grants under
the Discretionary Option Grant Program, (iii) provide for administration of the
Plan by either a Primary Committee, Secondary Committee or the Board, (iv) allow
unvested shares issued under the Plan and subsequently
27.
<PAGE>
repurchased by the Company at the option exercise price or issue price paid per
share to be reissued under the Plan, (v) amend the Automatic Option Grant
Program to (a) provide for special option grants to be made to eligible Board
members on November 21, 1996, (b) increase the number of shares of Common Stock
for which Options are to be granted to non-employee Board members on their
initial election or appointment and (c) increase the number of shares of Common
Stock for which options are to be granted on an annual basis to non-employee
Board members upon their re-election to the Board at each Annual Shareholders
Meeting, beginning with the 1997 Annual Meeting, and (v) effect a series of
technical changes to the provisions of the Plan in order to take advantage of
the recent amendments to Rule 16b-3 of the Securities Exchange Act of 1934 which
exempts certain officer and director transactions under the Plan from the short-
swing liability provisions of the federal securities laws.
On April 10, 1997, the Board again amended and restated the Plan to
increase the number shares of Common Stock reserved for issuance over the term
of the Plan by an additional 1,800,000 shares.
Both the November 21, 1996 amendments and the April 10, 1997 amendment
and restatement of the Plan are subject to approval by the shareholders, and no
option grants made on the basis of the share increase adopted by the Board on
November 21, 1996 and April 10, 1997 shall become exercisable in whole or in
part unless and until such amendments are approved by the shareholders. Should
such shareholder approval not be obtained within twelve (12) months of such
amendments to the Plan, then option grants made pursuant to such share
increases shall terminate and cease to remain outstanding, and no further option
grants shall be made on the basis of those share increases. The provisions of
the Plan as in effect immediately prior to the November 21, 1996 amendments
shall automatically be reinstated, and option grants may thereafter continue to
be made pursuant to the reinstated provisions of the Plan.
All option grants made prior to the November 21, 1996 amendments shall
remain outstanding in accordance with the terms and conditions of the respective
instruments evidencing those options, and nothing in the November 21, 1996
amendments shall be deemed to modify or in any way affect those outstanding
options. Subject to the foregoing limitations, the Plan Administrator may make
option grants under the Plan at any time before the date fixed herein for the
termination of the Plan.
F. The Plan shall terminate upon the earlier of (i) December 8,
-------
2003 or (ii) the date on which all shares available for issuance under the Plan
shall have been issued pursuant to the exercise of the options granted under the
Plan or the issuance of shares (whether vested or unvested) under the Stock
Issuance Program. If the date of termination is determined under clause (i)
above, then all option grants and unvested share issuances outstanding on such
date shall thereafter continue to have force and effect in accordance with the
provisions of the instruments evidencing such grants or issuances.
28.
<PAGE>
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants or share issuances under the Plan shall be used for
general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under
the Plan, the issuance of any shares under the Stock Issuance Program, and the
issuance of Common Stock upon the exercise or surrender of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any securities exchange on which stock of the same class is then listed.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor
any action taken by the Plan Administrator hereunder, nor any provision of the
Plan shall be construed so as to grant any individual the right to remain in the
employ or service of the Corporation (or any parent or subsidiary corporation)
for any period of specific duration, and the Corporation (or any parent or
subsidiary corporation retaining the services of such individual) may terminate
such individual's employment or service at any time and for any reason, with or
without cause.
VIII. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the Plan
may not be assigned, encumbered or otherwise transferred by any Optionee or
Participant.
B. The provisions of the Plan relating to the exercise of options
and the vesting of shares shall be governed by the laws of the State of
California, as such laws are applied to contracts entered into and performed in
such State.
C. The provisions of the Plan shall inure to the benefit of, and be
binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Participants and Optionees, the
legal representatives of their respective estates, their respective heirs or
legatees and their permitted assignees.
29.
<PAGE>
MICROELECTRONIC PACKAGING, INC.
NON-EMPLOYEE DIRECTOR AUTOMATIC STOCK OPTION AGREEMENT
RECITALS
- --------
A. The Corporation has approved an automatic option grant program
under the 1993 Stock Option/Stock Issuance Plan (the "Plan") pursuant to which
the non-employee members of the Corporation's Board of Directors (the "Board")
will automatically receive periodic option grants designed to reward them for
services they have rendered to the Corporation and to encourage them to continue
in the service of the Corporation.
B. Optionee is a non-employee member of the Board and this Agreement
is executed pursuant to, and is intended to carry out the purposes of, the Plan
in connection with the automatic grant of a stock option to purchase shares of
the Corporation's common stock ("Common Stock") under the Plan.
C. The granted option is intended to be a non-statutory option which
does not meet the requirements of Section 422 of the Internal Revenue Code and
---
is designed to provide Optionee with a meaningful incentive to continue to serve
as a member of the Board.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
---------------
forth in this Agreement, there is hereby granted to Optionee, as of the date of
grant (the "Grant Date") specified in the accompanying Notice of Grant of Non-
Employee Director Automatic Stock Option (the "Grant Notice"), a stock option to
purchase up to that number of shares of Common Stock (the "Option Shares") as is
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term at the price per share (the "Option Price")
specified in the Grant Notice.
2. OPTION TERM. This option shall have a maximum term of ten (10)
-----------
years measured from the Grant Date and shall expire at the close of business on
the Expiration Date specified in the Grant Notice, unless sooner terminated in
accordance with Paragraph 5 or 7 of this Agreement.
3. LIMITED TRANSFERABILITY. This option shall be neither transferable
-----------------------
nor assignable by Optionee, other than a transfer of this option effected by
will or by the laws of descent and distribution following Optionee's death, and
may be exercised, during Optionee's lifetime, only by Optionee.
<PAGE>
4. DATES OF EXERCISE. This option shall become exercisable in a
-----------------
series of successive annual installments as specified in the Grant Notice. As
the option becomes exercisable for one or more installments, those installments
shall accumulate, and the option shall remain exercisable for the accumulated
installments until the expiration or sooner termination of the option term. In
no event shall this option become exercisable for any additional Option Shares
following Optionee's cessation of service as a Board member.
5. CESSATION OF BOARD SERVICE. Should Optionee's service as a Board
--------------------------
member cease while this option remains outstanding, then the option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
outstanding) prior to the Expiration Date in accordance with the following
provisions:
(i) Should Optionee cease to serve as a Board member for any
reason (other than death or permanent disability) while holding this option,
then the period for exercising this option shall be reduced to a ninety
(90)-day period commencing with the date of such cessation of Board service,
but in no event shall this option be exercisable at any time after the
Expiration Date. During such limited period of exercisability, this option
may not be exercised for more than the number of Option Shares (if any) for
which it is exercisable on the date Optionee ceases service as a Board
member. Upon the expiration of such ninety (90)-day period, the option shall
terminate and cease to be exercisable.
(ii) Should Optionee die during the ninety (90)-day period
following his or her cessation of Board service, then the personal
representative of Optionee's estate or the person or persons to whom the
option is transferred pursuant to Optionee's will or in accordance with the
laws of descent and distribution shall have the right to exercise this
option for any or all of the Option Shares for which the option is
exercisable at the time of Optionee's cessation of Board service (less any
Option Shares purchased by Optionee after his or her cessation of Board
service but prior to death). Such right of exercise shall terminate, and
this option shall accordingly cease to be outstanding, upon the earlier of
-------
(A) the expiration of the six (6)-month period measured from the date of
Optionee's death or (B) the specified Expiration Date of the option term.
(iii) Should Optionee die or become permanently disabled
while serving as a Board member, then this option shall accelerate in full
and Optionee, or the personal representative of Optionee's estate or the
person or persons to whom the option is transferred pursuant to Optionee's
will or in accordance with the laws of descent and distribution, shall have
the right to exercise this option for any or all of the Option Shares
subject to this option at the time of Optionee's cessation of Board service.
Such right of exercise shall terminate, and this option shall accordingly
cease
2
<PAGE>
to be outstanding, upon the earlier of (A) the expiration of the six (6)-
-------
month period measured from the date on which Optionee dies or becomes
permanently disabled or (B) the specified Expiration Date of the option
term.
(iv) Upon Optionee's cessation of Board service for any reason
(other than death or permanent disability), this option shall immediately
terminate and cease to be outstanding with respect to any and all Option
Shares for which such option is not otherwise at that time exercisable in
accordance with the normal exercise provisions of Paragraph 4 or the special
acceleration provisions of Paragraph 7 or 8.
(v) Optionee shall be deemed to be PERMANENTLY DISABLED if
Optionee is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or
more.
6. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
---------------------------
Common Stock issuable under the Plan by reason of any stock split, stock
dividend, combination of shares, exchange of shares or other change affecting
such Common Stock as a class without the Corporation's receipt of consideration,
then the number and class of securities purchasable under this option and the
Option Price payable per share shall be appropriately adjusted to prevent the
dilution or enlargement of Optionee's rights hereunder; provided, however, the
--------
aggregate Option Price shall remain the same.
7. CORPORATE TRANSACTION. In the event of any of the following
---------------------
shareholder-approved transactions to which the Corporation is a party (a
"Corporate Transaction"):
(i) a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which is
to change the state in which the Corporation is incorporated,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation
or dissolution of the Corporation, or
(iii) any reverse merger in which the Corporation is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Corporation's outstanding
securities are transferred to a person or persons different from those who
held such securities immediately prior to such merger,
3
<PAGE>
this option, to the extent outstanding at such time but not otherwise
fully exercisable, shall automatically accelerate so that such option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become fully exercisable for all of the Option Shares at the time subject to
this option and may be exercised for all or any portion of such shares as fully-
vested shares of Common Stock. Upon the consummation of the Corporate
Transaction, this option shall terminate and cease to be outstanding.
8. CHANGE IN CONTROL.
-----------------
(a) This option, to the extent outstanding at the time of a Change in
Control (as defined below), but not otherwise fully exercisable, shall
automatically accelerate so that this option shall, immediately prior to the
effective date of such Change in Control, become fully exercisable for all of
the Option Shares at the time subject to this option and may be exercised for
all or any portion of such shares as fully-vested shares of Common Stock. This
option as so accelerated shall remain fully exercisable until the earlier of (i)
-------
the specified Expiration Date of the option term or (ii) the sooner termination
of this option in accordance with Paragraph 5 or 7.
(b) Definitions: For purposes of this Agreement, a CHANGE IN CONTROL
-----------
shall be deemed to occur in the event of a change of ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the Securities Exchange Act of 1934) of securities
possessing more than fifty percent (50%) of the total combined voting power
of the Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's shareholders which the Board does
not recommend such shareholders to accept; or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the Board
members (rounded up to the next whole number) ceases, by reason of one or
more contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since the
beginning of such period or (B) have been elected or nominated for election
as Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time such
election or nomination was approved by the Board.
4
<PAGE>
9. MANNER OF EXERCISING OPTION.
---------------------------
(a) In order to exercise this option for all or any part of the
Option Shares for which the option is at the time exercisable, Optionee (or in
the case of exercise after Optionee's death, Optionee's executor, administrator,
heir or legatee, as the case may be) must take the following actions:
(i) Provide the Secretary of the Corporation with written notice
of the option exercise (the "Exercise Notice"), in substantially the form of
Exhibit I attached hereto, in which there is specified the number of Option
Shares which are to be purchased under the exercised option.
(ii) Pay the aggregate Option Price for the purchased shares in
one of the following alternative forms:
1. full payment in cash or check drawn to the Corporation's
order;
2. full payment in shares of Common Stock held by Optionee for
the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market Value on
the Exercise Date;
3. full payment in a combination of shares of Common Stock held
for the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market Value on
the Exercise Date and cash or check drawn to the Corporation's order; or
4. full payment effected through a broker-dealer sale and
remittance procedure pursuant to which Optionee shall provide irrevocable
written instructions to (A) a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate Option Price payable for the
purchased shares and (B) the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete the
sale.
(iii) Furnish to the Corporation appropriate documentation that
the person or persons exercising the option (if other than Optionee) have
the right to exercise this option.
5
<PAGE>
(b) For purposes of subparagraph 9(a) above and for all other
valuation purposes under this Agreement, the Fair Market Value per share of
Common Stock on any relevant date shall be the determined in accordance with the
following provisions:
(i) If the Common Stock is not at the time listed or admitted to
trading on any national stock exchange but is traded on the Nasdaq National
Market, the Fair Market Value shall be the closing selling price per share
on the date in question, as such price is reported by the National
Association of Securities Dealers through the Nasdaq National Market or any
successor system. If there is no reported closing selling price for the
Common Stock on the date in question, then the closing selling price on the
last preceding date for which such quotation exists shall be determinative
of Fair Market Value.
(ii) If the Common Stock is at the time listed or admitted to
trading on any national stock exchange, then the Fair Market Value shall be
the closing selling price per share on the date in question on the exchange
determined by the Plan Administrator to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common Stock
on such exchange on the date in question, then the Fair Market Value shall
be the closing selling price on the exchange on the last preceding date for
which such quotation exists.
(c) The Exercise Date shall be the date on which the Exercise Notice
is delivered to the Secretary of the Corporation. Except to the extent the sale
and remittance procedure specified above is utilized in connection with the
option exercise, payment of the Option Price for the purchased shares must
accompany such notice.
(d) As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or other person or persons exercising
this option) a certificate or certificates representing the purchased Option
Shares.
(e) In no event may this option be exercised for any fractional
share.
10. SHAREHOLDER RIGHTS. The holder of this option shall not have
------------------
any of the rights of a shareholder with respect to the Option Shares until such
individual shall have exercised this option and paid the Option Price for the
purchased shares.
11. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any way
-----------------------
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. Nor shall this Agreement in any way be construed or
interpreted so as
6
<PAGE>
to affect adversely or otherwise impair the right of the Corporation or the
shareholders to remove Optionee from the Board at any time in accordance with
the provisions of applicable law.
12. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this
------------------------------------
option and the issuance of the Option Shares upon such exercise shall be subject
to compliance by the Corporation and Optionee with all applicable requirements
of law relating thereto and with all applicable regulations of any stock
exchange on which shares of the Common Stock may be listed at the time of such
exercise and issuance.
13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
-----------------------
provided in Paragraph 3, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Corporation.
14. DISCHARGE OF LIABILITY. The inability of the Corporation to
----------------------
obtain approval from any regulatory body having authority deemed by the
Corporation to be necessary to the lawful issuance and sale of any Common Stock
pursuant to this option shall relieve the Corporation of any liability with
respect to the non-issuance or sale of the Common Stock as to which such
approval shall not have been obtained. However, the Corporation shall use its
best efforts to obtain all such applicable approvals.
15. NOTICES. Any notice required to be given or delivered to the
-------
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of the Corporate Secretary at the Corporate Offices
at 9350 Trade Place, San Diego, CA 92126. Any notice required to be given or
delivered to Optionee shall be in writing and addressed to Optionee at the
address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed to have been given or delivered upon personal delivery
or upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.
16. CONSTRUCTION/GOVERNING LAW. This Agreement and the option
--------------------------
evidenced hereby are made and granted pursuant to the Plan and are in all
respects limited by and subject to the express terms and provisions of the Plan,
including the automatic option grant provisions of Article Three of the Plan.
The interpretation, performance, and enforcement of this Agreement shall be
governed by the laws of the State of California without resort to that State's
conflict-of-laws rules.
7
<PAGE>
EXHIBIT I
---------
NOTICE OF EXERCISE OF
---------------------
NONSTATUTORY STOCK OPTION
-------------------------
I hereby notify Microelectronic Packaging, Inc. (the "Corporation")
that I elect to purchase _________ shares of Common Stock of the Corporation
(the "Purchased Shares") pursuant to that certain option (the "Option") granted
to me on ___________, 199_ to purchase up to __________ shares of the
Corporation's Common Stock at an option price of $______ per share (the
"Exercise Price").
Concurrently with the delivery of this Exercise Notice to the
Secretary of the Corporation, I shall hereby pay to the Corporation the Exercise
Price for the Purchased Shares in accordance with the provisions of my agreement
with the Corporation evidencing the Option and shall deliver whatever additional
documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special broker/dealer sale and remittance
procedure specified in my agreement to effect payment of the Exercise Price for
the Purchased Shares.
_________________________ _____________________________________
Date Optionee
Address: __________________________
__________________________
Print name in exact manner
it is to appear on the
stock certificate: _____________________________________
Address to which certificate
is to be sent, if different
from address above: _____________________________________
_____________________________________
Social Security Number: _____________________________________
8
<PAGE>
MICROELECTRONIC PACKAGING, INC. PROXY
ANNUAL MEETING OF SHAREHOLDERS, JUNE 12, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF MICROELECTRONIC PACKAGING, INC.
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Shareholders to be held June 12, 1997 and the
Proxy Statement and appoints Lewis Solomon and Anthony J.A. Bryan and each of
them, the Proxy of the undersigned, with full power of substitution, to vote
all shares of Common Stock of Microelectronic Packaging, Inc. (the "Company")
which the undersigned is entitled to vote, either on his or her own behalf or
on behalf of any entity or entities, at the Annual Meeting of Shareholders of
the Company to be held at 9350 Trade Place, San Diego, California 92126 on
June 12, 1997 at 10:00 a.m. (the "Annual Meeting"), and at any adjournment or
postponement thereof, with the same force and effect as the undersigned might
or could do if personally present thereat. The shares represented by this
Proxy shall be voted in the manner set forth on the reverse side.
<TABLE>
<C> <S>
1. FOR WITHHOLD AUTHORITY EXCEPTIONS [_] TO ELECT FOUR DIRECTORS TO SERVE FOR THE NEXT YEAR UNTIL THE
[_] TO VOTE FOR EXPIRATION OF THEIR TERMS IN 1998 OR UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED.
NOMINEES [_]
INSTRUCTION: To withhold authority to vote for any individual nominee, mark the "EXCEPTIONS" box, and strike a line
through the nominee's name in the list below:
Lewis Solomon, Frank Howland, William Thompson and Anthony J.A. Bryan.
2. FOR AGAINST ABSTAIN To approve various amendments to the Company's 1993 Stock Option/Stock Issuance Plan including the [_] [_]
[_] following: (i) increase the number of shares of Common Stock authorized for issuance over the term of such plan by an
additional 4,000,000 shares; (ii) amend the eligibility provisions of the Discretionary Option Grant and Stock Issuance
Programs to make non-employee Board members eligible to receive option grants and direct stock issuances pursuant to such
programs; and (iii) amend the Automatic Option Grant Program to (a) provide for special one-time options grants to be made to
those individuals then serving or newly-appointed as non-employee Board members as of November 21, 1996, including those
individuals appointed as non-employee Board members as of such date, and (b) increase the number of shares of Common Stock
subject to automatic option grants to be made to new and continuing non-employee Board members on and after November 21, 1996.
3. FOR AGAINST ABSTAIN To approve an increase in the Company's authorized but unissued shares of capital stock from
[_] [_] [_] 15,000,000 to 50,000,000 shares of Common Stock and 10,000,000 shares of undesignated Preferred Stock.
4. FOR AGAINST ABSTAIN To ratify the appointment of BDO Seidman, LLP ("BDO") as independent accountants of the Company for
[_] [_] [_] the fiscal year ended December 31, 1997.
5. FOR AGAINST ABSTAIN In their discretion, the Proxies are authorized to vote upon such other matters as may properly come
[_] [_] [_] before the meeting.
</TABLE>
The Board of Directors recommends a vote FOR the proposals. This Proxy, when
properly executed, will be voted as specified above. This Proxy will be voted
FOR the proposals if no specification is made. This proxy will also be voted
at the discretion of the proxy holder on such matters other than the two
specific proposals as may come before the meeting.
Please print the name(s) appearing on each share certificate(s) over which
you have voting authority:
---------------------------------------------------
(Print name(s) on certificate)
Please sign your name: Date:
----------------------------------------- -------
(Authorized Signature(s))
