SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. __)
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[ ] Definitive Additional Materials permitted by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PREMISYS COMMUNICATIONS, INC.
(Name of Registrant as Specified in Its Charter)
----------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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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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Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
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<PAGE>
[PREMISYS LETTERHEAD]
November 2, 1998
To Our Stockholders:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Premisys Communications, Inc. to be held at 48664 Milmont Drive, Fremont,
California 94538 on Wednesday, December 9, 1998 at 1:00 p.m. P.S.T.
The matters expected to be acted upon at the meeting are described in
detail in the following Notice of Annual Meeting of Stockholders and Proxy
Statement.
It is important that you use this opportunity to take part in the
affairs of your Company by voting on the business to come before this meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING. Returning the Proxy does not
deprive you of your right to attend the meeting and to vote your shares in
person.
We look forward to seeing you at the meeting.
Sincerely,
/s/ John J. Hagedorn
John J. Hagedorn
Senior Vice President, Finance and Administration,
Chief Financial Officer and Secretary
<PAGE>
Premisys Communications, Inc.
48664 Milmont Drive
Fremont, California 94538
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Premisys
Communications, Inc. (the "Company") will be held at 48664 Milmont Drive,
Fremont, California 94538, on Wednesday, December 9, 1998, at 1:00 p.m. P.S.T.
for the following purposes:
1. To elect directors of the Company, each to serve until the next Annual
Meeting of Stockholders and until his successor has been elected and
qualified or until his earlier resignation or removal. The Company's
Board of Directors intends to present the following nominees for
election as directors:
Boris J. Auerbuch Marino R. Polestra
Edward A. Keible, Jr. Lip-Bu Tan
Raymond C. Lin Nicholas J. Williams
2. To consider and vote upon a proposal to amend the Company's 1994 Stock
Option Plan to increase the number of shares of Common Stock reserved
for issuance thereunder from 5,200,000 to 6,460,000.
3. To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants for the Company for the current fiscal year.
4. To transact such other business 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 stockholders of record at the close of business on October 12, 1998
are entitled to notice of and to vote at the meeting or any adjournment thereof.
By Order of the Board of Directors
/s/ John J. Hagedorn
John J. Hagedorn
Senior Vice President, Finance and Administration,
Chief Financial Officer and Secretary
Fremont, California
November 2, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
<PAGE>
PREMISYS COMMUNICATIONS, INC.
48664 Milmont Drive
Fremont, California 94538
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PROXY STATEMENT
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November 2, 1998
The accompanying proxy is solicited on behalf of the Board of Directors of
Premisys Communications, Inc., a Delaware corporation (the "Company"), for use
at the Annual Meeting of Stockholders of the Company to be held at 48664 Milmont
Drive, Fremont, California 94538, on December 9, 1998 at 1:00 p.m. P.S.T. (the
"Meeting"). All proxies will be voted in accordance with the instructions
contained therein and, if no choice is specified, the proxies will be voted in
favor of the nominees and the proposals set forth in the accompanying Notice of
Meeting and this Proxy Statement. This Proxy Statement and the accompanying form
of proxy were first mailed to stockholders on or about November 2, 1998. An
annual report for the fiscal year ended June 30, 1998 is enclosed with this
Proxy Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Only holders of record of the Company's Common Stock at the close of
business on October 12, 1998 will be entitled to vote at the Meeting. At the
close of business on October 12, 1998, the Company had 25,289,324 shares of
Common Stock outstanding and entitled to vote. A majority of the shares
outstanding on the record date will constitute a quorum for the transaction of
business. Holders of the Company's Common Stock are entitled to one vote for
each share held as of the foregoing record date. Shares of Common Stock may not
be voted cumulatively.
Directors will be elected by a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Meeting and
entitled to vote on the election of directors. Proposals No. 2 and 3 require for
approval the affirmative vote of a majority of the shares of Common Stock
present in person or represented by proxy at the Meeting and entitled to vote on
the proposal. All votes will be tabulated by the inspector of elections
appointed for the Meeting who will separately tabulate, for each proposal,
affirmative and negative votes, abstentions and broker non-votes. Abstentions
will be counted toward the tabulation of votes cast on proposals presented to
the stockholders and will have the same effect as negative votes. Broker
non-votes will be counted for purposes of determining the presence or absence of
a quorum for the transaction of business but are not considered present and
entitled to vote with respect to that matter.
In the event that sufficient votes in favor of the proposals are not
received by the date of the Meeting, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitations of
proxies. Any such adjournment would require the affirmative vote of the majority
of the outstanding shares present in person or represented by proxy at the
Meeting.
The expenses of soliciting proxies to be voted at the Meeting will be paid
by the Company. Following the original mailing of the proxies and other
soliciting materials, the Company and/or its agents may also solicit proxies by
mail, telephone, telegraph or in person. The Company has retained a proxy
solicitation firm, Corporate Investor Communications, Inc., to aid it in the
solicitation process and will pay a fee of approximately $8,000 to such firm for
such services. Following the original mailing of the proxies and other
soliciting materials, the Company will request that brokers, custodians,
nominees and other record holders of the Company's Common Stock forward copies
of the proxy and other soliciting materials to persons for whom they hold shares
of Common Stock and request authority for the exercise of proxies. In such
cases, the Company, upon the request of the record holders, will reimburse such
holders for their reasonable expenses.
If your shares are registered in the name of a bank or brokerage firm, you
may be eligible to vote your shares by telephone. A large number of banks and
brokerage firms are participating in the ADP Investor Communication Services
telephone voting program. This program provides eligible shareholders the
opportunity to vote by telephone. If your bank or brokerage firm is
participating in ADP's program, your voting form will provide instructions. If
your voting form does not reference telephone information, please complete and
return the paper proxy card in the self-addressed, postage paid envelope
provided.
REVOCABILITY OF PROXIES
Any person signing a proxy in the form accompanying this Proxy Statement
has the power to revoke it prior to the Meeting or at the Meeting prior to the
vote pursuant to the proxy. A proxy may be revoked by a written instrument
delivered to the Company stating that the proxy is revoked, by a subsequent
proxy that is signed by the person who signed the earlier proxy and is presented
at the Meeting or by attendance at the Meeting and voting in person. Please
note, however, that if a stockholder's shares are held of record by a broker,
bank or other nominee and that stockholder wishes to vote at the Meeting, the
stockholder must bring to the Meeting a letter from the broker, bank or other
nominee confirming that stockholder's beneficial ownership of the shares.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
At the Meeting, stockholders will elect directors to hold office until the
next Annual Meeting of Stockholders and until their respective successors have
been elected and qualified or until such directors' earlier resignation or
removal. Immediately prior to the Meeting, the size of the Company's Board of
Directors (the "Board")will be set at six members. Accordingly, six nominees
will be elected at the Meeting to be the six directors of the Company. In the
election of directors, each stockholder is entitled to one vote for each share
of Common Stock held. Each share represented by the accompanying proxy will be
voted for the election of the six nominees recommended by the Board unless the
proxy is marked in such a manner as to withhold authority so to vote. Shares of
Common Stock may not be voted cumulatively. If any nominee for any reason is
unable to serve, or for good cause, will not serve as a director, the proxies
may be voted for such substitute nominee as the proxy holder may determine. The
Company is not aware of any nominee who will be unable to or, for good cause,
will not serve as a director.
<PAGE>
Directors/Nominees
The names of the nominees, and certain information about them, are set
forth below:
Director
Name of Nominee Age Principal Occupation Since
Boris J. Auerbuch 51 Senior Vice President and Chief Technical 1990
Officer of the Company
Edward A. Keible, Jr. 55 President, Chief Executive Officer and 1994
Director of Endgate Technology Corporation
Raymond C. Lin 43 Chairman of the Board of the Company 1990
Marino R. Polestra (1) 40 General Partner of Alta Partners 1992
Lip-Bu Tan (2) 38 General Partner of Walden Group 1990
Nicholas J. Williams 51 President and Chief Executive Officer 1998
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Mr. Auerbuch has been Senior Vice President and Chief Technical Officer and
a Director of the Company since co-founding the Company in July 1990 and was
Senior Vice President, Engineering of the Company between September 1993 and
October 1996. Mr. Auerbuch holds Bachelor of Science and Master of Science
degrees in electrical engineering from the Moscow Institute of Information and
Technology, Russia.
Mr. Keible has been a director of the Company since November 1994. Since
January 1994, he has been President, Chief Executive Officer and a director of
Endgate Technology Corporation, a telecommunications equipment manufacturer.
From 1973 to June 1993, Mr. Keible held various positions at Raychem
Corporation, an electronics manufacturer, most recently as Senior Vice President
and General Manager, International Sector. Mr. Keible holds a Bachelor of Arts
degree in engineering science, a Bachelor of Engineering degree in materials
science and a Master of Engineering degree in materials science, all from
Dartmouth College, and a Master in Business Administration degree from Harvard
University. Mr. Keible is also a director of the American Electronics
Association, an industry trade association.
Mr. Lin has been a director of the Company since co-founding the Company in
July 1990 and has served as a full-time employee and as Chairman of the Board of
the Company since July 1998. Mr. Lin was Chief Executive Officer of the Company
between July 1990 and July 1998. Mr. Lin holds a Bachelor of Science degree in
civil engineering and a Master of Science degree in geotechnical engineering
from the University of California, Berkeley.
Mr. Polestra has been a director of the Company since March 1992. Since
February 1996, Mr. Polestra has been a General Partner of Alta Partners, a
venture capital firm. From February 1989 to February 1996, he was a Vice
President of Burr, Egan, Deleage & Co., a venture capital firm. Mr. Polestra
holds a Bachelor of Science degree in mechanical engineering from Cornell
University and a Master in Business Administration degree from Indiana
University.
Mr. Tan has been a director of the Company since its inception in July
1990. Since 1984, he has been a General Partner of Walden Group, a venture
capital firm. Mr. Tan holds a Bachelor of Science degree in physics from Nanyang
University, Singapore, a Master of Science degree in nuclear engineering from
the Massachusetts Institute of Technology and a Master in Business
Administration degree from the University of San Francisco.
Mr. Williams has been Chief Executive Officer and a member of the Board of
Directors of the Company since July 1998 and President of the Company since
April 1997. Mr. Williams also served as Chief Operating Officer of the Company
between April 1997 and July 1998. From 1993 until his move to Premisys, Mr.
Williams was Vice President and General Manager, International of Tellabs, Inc.,
a telecommunications company, where he contributed to the growth of multiple
product lines, including the DXX and wireless products. Prior to joining Tellabs
in 1993, he held positions of Vice President and General Manager of Advanced
Technology Division and Vice President of North American Sales at AT&T Paradyne,
a telecommunications equipment company, and his earlier experience included
management positions at IBM. Mr. Williams holds a Bachelor of Science degree in
operations analysis and math from the U.S. Naval Academy.
Board of Directors' Meetings and Committees
The Board met seven times, including telephone conference meetings, during
fiscal 1998. No director attended fewer than 75% of the aggregate of the total
number of meetings of the Board (held during the period for which he was a
director) and the total number of meetings held by all committees of the Board
on which such director served (during the period that such director served).
Standing committees of the Board include an Audit Committee and a
Compensation Committee. The Board does not have a nominating committee or a
committee performing similar functions.
Messrs. Morgenthaler and Polestra are the current members of the Audit
Committee and served on the Audit Committee throughout fiscal 1998. A
replacement for Mr. Morgenthaler will be named by the Board on or about the time
of the Meeting to the Audit Committee effective as of the date of the Meeting.
The Audit Committee met four times during fiscal 1998. The Audit Committee meets
with the Company's independent accountants: to review the adequacy of the
Company's internal control systems and financial reporting procedures; to review
the general scope of the Company's annual audit and the fees charged by the
independent accountants; to review and monitor the performance of non-audit
services by the Company's auditors; to review the fairness of any proposed
transaction between any officer, director or other affiliate of the Company and
the Company, and after such review, make recommendations to the full Board; and
to perform such further functions as may be required by any stock exchange or
over-the-counter market upon which the Company's Common Stock may be listed.
Messrs. Morgenthaler and Tan are the current members of the Compensation
Committee and served on the Compensation Committee throughout fiscal 1998. A
replacement for Mr. Morgenthaler will be named by the Board on or about the time
of the Meeting to the Compensation Committee effective as of the date of the
Meeting. The Compensation Committee met six times during fiscal 1998. The
Compensation Committee recommends compensation for officers and certain other
employees of the Company, grants options and stock awards under the Company's
employee benefit plans (other than grants to non-officers of options to purchase
no more than 20,000 shares in a fiscal year, pursuant to guidelines established
by the Compensation Committee, which may be made by Mr. Williams, the Company's
President and Chief Executive Officer) and reviews and recommends adoption of
and amendments to stock option and employee benefit plans.
Director Compensation
Directors of the Company do not receive cash compensation for their
services but are reimbursed for their reasonable expenses in attending meetings
of the Board of Directors. All members of the Board of Directors who are not
also employees of the Company, or of a parent, subsidiary or affiliate of the
Company, are eligible to receive options under the 1995 Directors Stock Option
Plan (the "Directors Plan"). Each non-employee director who was a member of the
Board on the effective date (the "Effective Date") of the Company's initial
public offering of its Common Stock was automatically granted an option to
purchase 24,000 shares of Common Stock under the Directors Plan (the "Initial
Grant"), provided that such directors had not previously received options by
virtue of being a member of the Board of Directors. Non-employee directors who
become members of the Board after the Effective Date and do not otherwise
receive options in connection with their service on the Board also receive
Initial Grants. On each anniversary of a director's Initial Grant (or the
anniversary of the director's election to the Board in the case of directors who
did not receive Initial Grants), each non-employee director will be
automatically granted an option to purchase 6,000 shares of Common Stock under
the Directors Plan. During fiscal 1998, the following stock options to purchase
shares of the Company's Common Stock were granted under the Directors Plan:
Option Grants during Fiscal 1998
Optionee No. of Options Option Exercise Price Date of Grant
Edward Keible . . . 6,000 $26.75 Nov.24, 1997
Robert Hawk . . . . 6,000 $27.125 March 16, 1998
Gary Morgenthaler . 6,000 $27.9375 April 7, 1998
Marino Polestra . . 6,000 $27.9375 April 7, 1998
Lip-Bu Tan . . . . 6,000 $27.9375 April 7, 1998
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF
EACH OF THE NOMINATED DIRECTORS
PROPOSAL NO. 2 - APPROVAL OF AMENDMENT TO THE
1994 STOCK OPTION PLAN
Stockholders are being asked to approve an amendment to the Company's 1994
Stock Option Plan (the "1994 Plan") to increase the number of shares of Common
Stock reserved for issuance thereunder from 5,200,000 shares to 6,460,000 shares
(an increase of 1,260,000 shares).
The Board of Directors of the Company (the "Board") approved the proposed
amendment described above on September 17, 1998 to be effective upon stockholder
approval thereof. Stockholder approval of the amendment requires the affirmative
vote of a majority of the Company's voting shares that are present in person or
represented by proxy and entitled to vote at the Meeting.
Below is a summary of the principal provisions of the 1994 Plan, assuming
approval of the above amendment. This summary is not necessarily complete, and
reference is made to the full text of the Stock Option Plan.
<PAGE>
1994 Stock Option Plan
Stock Option Plan History
The Board adopted the 1994 Plan in November 1994, and it was approved by
stockholders in February 1995. The purpose of the 1994 Plan is to attract,
retain and provide equity incentives to selected persons to promote the
financial success of the Company through awards of stock options. The 1994 Plan
was amended by the Board in September 1995 to increase the number of shares
reserved for issuance thereunder from 2,000,000 to 4,000,000 shares (as adjusted
for the Company's 100% stock dividend effected in December 1995.) The Company's
stockholders approved this amendment in December 1995. The Plan was further
amended by the Board in September 1997 to increase the number of shares reserved
for issuance thereunder to 5,200,000 shares. Stockholders approved this
amendment in December 1997. The Board also approved certain amendments to the
1994 Plan on October 13, 1997 to reflect certain amendments adopted to Section
16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") since
the initial adoption of the 1994 Plan. As indicated above, the Board approved a
proposed amendment to increase the shares reserved for issuance under the 1994
Plan from 5,200,000 to 6,460,000 in September 1998.
Shares Subject to the 1994 Plan
An aggregate of 6,460,000 shares (assuming approval of the proposed
amendment) of the Common Stock of the Company have been reserved by the Board
for issuance under the 1994 Plan. If any option granted pursuant to the 1994
Plan expires or terminates for any reason without being exercised in whole or in
part, the shares released from such option will again become available for grant
and purchase under the 1994 Plan. As of October 12, 1998, 1,549,783 options to
purchase shares under the 1994 Plan have been canceled or become unexercisable
(excluding options that were amended to effect repricing). Pursuant to the terms
of the 1994 Plan, such options upon cancellation were returned to the shares
reserved for issuance under the 1994 Plan.
Administration
The 1994 Plan is administered by the Compensation Committee (the
"Committee"), the members of which are appointed by the Board. The Committee
currently consists of Gary J. Morgenthaler and Lip-Bu Tan, both of whom are
"non-employee directors", as that term is defined in the Exchange Act, and
"outside directors", as that term is defined pursuant to Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"). As indicated above, a
replacement for Mr. Morgenthaler will be named by the Board on or about the time
of the Meeting to the Compensation Committee effective as of the date of the
Meeting.
Subject to the terms of the 1994 Plan, the Committee determines the persons
who are to receive options, the number of shares subject to each such option and
the terms and conditions of each such option. However, Nicholas J. Williams, a
director and President and Chief Executive Officer of the Company, is also
authorized to make grants of options to non-officer employees to purchase no
more than 20,000 shares in any one fiscal year pursuant to guidelines
established by the Committee. The Committee has the authority to construe and
interpret any of the provisions of the 1994 Plan or any options granted
thereunder, which interpretation is final and conclusive.
<PAGE>
Eligibility
Options may be granted under the 1994 Plan to employees, officers,
directors, consultants and advisors of the Company, or any parent, subsidiary or
affiliate of the Company. The Compensation Committee (the "Committee") in its
sole discretion selects the recipients of stock options (the "Optionees"),
subject to the authority of Nicholas Williams to make certain grants as
described above. The maximum number of shares that may be issued to any one
Optionee under the 1994 Plan is 1,000,000 shares. As of October 12, 1998,
approximately 330 persons were eligible to receive options under the 1994 Plan,
682,998 shares of common stock had been issued upon exercise of options and
4,370,766 shares were subject to outstanding options. As of that date, 1,406,236
shares were available for future option grants, including the proposed increase.
The closing price of the Company's Common Stock on the Nasdaq National Market as
of that date was $7.00 per share. Over the term of the 1994 Plan through June
30, 1998, the Chief Executive Officer of the Company and the four other most
highly compensated executive officers of the Company during fiscal 1998 (the
"Named Executive Officers") have been granted options under the 1994 Plan to
purchase shares of Common Stock as follows: Raymond C. Lin - 550,000 shares,
Riley R. Willcox - 185,000 shares, Nicholas J. Williams- 300,000 shares, Boris
J. Auerbuch - 359,000 shares and Andrew Aczel - 290,000 shares. During that same
time period, the Company's current executive officers as a group have been
granted options to purchase an aggregate of 2,116,693 shares, and all employees
as a group, other than current executive officers, have been granted options to
purchase an aggregate of 3,408,604 shares under the 1994 Plan. During that same
time period, the Company's current directors as a group, other than executive
officers, have been granted 62,500 options under the 1994 Plan. These shares
represent a grant made to Robert Hawk, one of the Company's directors, prior to
its initial public offering. As the Company's executive officers and directors
are eligible to participate in the 1994 Plan, they may have an interest in the
proposed amendment to increase the number of shares authorized for issuance
thereunder.
Stock Options
Options granted under the 1994 Plan may be incentive stock options ("ISOs")
within the meaning of Section 422 of the Code, or nonqualified stock options
("NQSOs"); however, only employees of the Company, or of a parent or subsidiary
of the Company, may be granted ISOs. Options under the 1994 Plan have a maximum
term of ten (10) years after the date of grant for holders of 10% or less of the
outstanding capital stock of the Company, or any parent or subsidiary of the
Company. The option term is limited to five (5) years for holders of more than
10% of such stock.
The option exercise price of an ISO granted under the 1994 Plan may not be
less than the fair market value (as defined in the 1994 Plan) of the Common
Stock of the Company on the date of grant, except that for an option granted to
a person holding more than 10% of the total combined voting power of all classes
of capital stock of the Company or any parent or subsidiary of the Company, the
exercise price must be not less than 110% of such fair market value. The
exercise price of an NQSO granted under the 1994 Plan may not be less than 85%
of the fair market value of the Common Stock of the Company on the date of
grant. To date, the Company has not granted options under the 1994 Plan at less
than fair market value.
The exercise of options granted under the 1994 Plan, plus any applicable
income tax withholding, may be paid (1) in cash (by check); or where permitted
by law and approved by the Committee, in its sole discretion, at the time of
grant (2) by cancellation of indebtedness of the Company to the Optionee; (3) by
surrender of shares of the Company's Common Stock owned by the Optionee for more
than six months and having a fair market value on the date of surrender equal to
the aggregate exercise price of the option; (4) by tender of a full recourse
promissory note; (5) by waiver of compensation due to or accrued by the Optionee
for services rendered; (6) by a "same-day sale" commitment from the Optionee and
a broker-dealer that is a member of the National Association of Securities
Dealers (a "NASD Dealer"); (8) by a "margin" commitment from the Optionee and a
NASD Dealer; or (9) by any combination of the foregoing.
Mergers, Consolidations, Change of Control
In the event of a merger, consolidation, dissolution or liquidation of the
Company, the sale of substantially all the assets of the Company or any other
similar corporate transaction, the successor corporation may assume, replace or
substitute equivalent options in exchange for those granted under the 1994 Plan
or provide substantially similar consideration, shares or other property subject
to repurchase restrictions no less favorable to Optionees under the 1994 Plan.
In the event that the successor corporation, if any, does not assume or
substitute the options, the options shall expire on such transaction at the time
and upon the conditions as the Committee determines.
Amendment of the 1994 Plan
The Committee may at any time amend or terminate the 1994 Plan, including
amendment of any form of grant, exercise agreement or instrument to be executed
pursuant to the 1994 Plan. However, the Committee may not amend the 1994 Plan in
any manner that requires shareholder approval pursuant to the Code or the
regulations promulgated thereunder.
Term of the 1994 Plan
The 1994 Plan will terminate in November 2004, ten (10) years from the date
the 1994 Plan was adopted by the Board.
Federal Income Tax Information
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT
OF THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND OPTIONEES ASSOCIATED
WITH STOCK OPTIONS GRANTED UNDER THE 1994 PLAN. THE FEDERAL TAX LAWS MAY CHANGE
AND THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES FOR ANY OPTIONEE WILL DEPEND
UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH OPTIONEE HAS BEEN, AND IS,
ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR REGARDING THE TAX
CONSEQUENCES OF PARTICIPATION IN THE 1994 PLAN.
Incentive Stock Options. The Optionee will not recognize income upon grant
of an ISO and will not incur tax on its exercise (unless the Optionee is subject
to the alternative minimum tax described below). If the Optionee holds the stock
acquired upon exercise of an ISO (the "ISO Shares") for more than one year after
the date the option was exercised and for more than two years after the date the
option was granted, the Optionee generally will realize long-term capital gain
or loss (rather than ordinary income or loss) upon disposition of the ISO
Shares. This gain or loss will be equal to the difference between the amount
realized upon such disposition and the amount paid for the ISO shares.
If the Optionee disposes of ISO Shares prior to the expiration of either
required holding period described above (a "disqualifying disposition"), then
gain realized upon such disqualifying disposition, up to the difference between
the fair market value of the ISO Shares on the date of exercise (or, if less,
the amount realized on a sale of such shares) and the option exercise price,
will be treated as ordinary income to the Optionee. Any additional gain will be
capital gain, taxed at a rate dependent upon the amount of time the ISO Shares
were held by the Optionee.
Alternative Minimum Tax. The difference between the fair market value of
the ISO shares on the date of exercise and the exercise price is an adjustment
to income for purposes of the alternative minimum tax (the "AMT"). The AMT
(imposed to the extent it exceeds the taxpayer's regular income tax) is 26% of
an individual taxpayer's alternative minimum taxable income (28% in the case of
alternative minimum taxable income in excess of $175,000). A maximum 20% AMT
rate applies to the portion of alternative minimum taxable income that would
normally be taxed as net capital gain. Alternative minimum taxable income is
determined by adjusting regular taxable income for certain items, increasing
that income by certain tax preference items (including the difference between
the fair market value of the ISO shares on the date of exercise and the exercise
price) and reducing this amount by the applicable exemption amount ($45,000 in
the case of a joint return, subject to reduction under certain circumstances).
If a disqualifying disposition of the ISO Shares occurs in the same calendar
year as exercise of the ISO, there is no AMT adjustment with respect to those
ISO shares. Also, upon a sale of ISO shares that is not a disqualifying
disposition, alternative minimum taxable income is reduced in the year of sale
by the excess of fair market value of the ISO shares at exercise over the amount
paid for the ISO shares.
Nonqualified Stock Options. An Optionee will not recognize any taxable
income at the time a NQSO is granted. However, upon exercise of a NQSO the
Optionee generally must include in income as compensation an amount equal to the
difference between the fair market value of the shares purchased on the date of
exercise and the Optionee's exercise price. The included amount will be treated
as ordinary income by the Optionee and may be subject to income tax and FICA
withholding by the Company (either by payment in cash or withholding out of the
Optionee's salary). Upon resale of the NQSO shares by the Optionee, any
subsequent appreciation or depreciation in the value of the shares will be
treated as capital gain or loss.
Maximum Tax Rates. The maximum tax rate applicable to ordinary income is
39.6%. Long-term capital gain will be taxed at a maximum of 20%. For this
purpose, in order to receive long-term capital gain treatment, the shares must
be held for more than twelve months. Capital gains may be offset by capital
losses and up to $3,000 of capital losses may be annually against ordinary
income.
Tax Treatment of the Company The Company will be entitled to a deduction in
connection with the exercise of a NQSO by a domestic employee or director to the
extent that the Optionee recognizes ordinary income and the Company withholds
tax. The Company will be entitled to a deduction in connection with the
disposition of ISO Shares only to the extent that the Optionee recognizes
ordinary income on a disqualifying disposition of the ISO Shares.
ERISA. The 1994 Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA").
THE BOARD RECOMMENDS A VOTE FOR APPROVAL
OF THE AMENDMENT TO THE 1994 STOCK OPTION PLAN
<PAGE>
PROPOSAL NO. 3 - RATIFICATION OF
INDEPENDENT ACCOUNTANTS
The Company has selected PricewaterhouseCoopers LLP as its independent
accountants to perform the audit of the Company's financial statements for
fiscal 1998, and the stockholders are being asked to ratify such selection.
Representatives of PricewaterhouseCoopers LLP are expected to be present at the
Meeting, will have the opportunity to make a statement at the Meeting if they
desire to do so and are expected to be available to respond to appropriate
questions.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of October 12,
1998, with respect to the beneficial ownership of the Company's Common Stock by
(i) each stockholder known by the Company to be the beneficial owner of more
than 5% of the Company's Common Stock, (ii) each director and nominee, (iii) the
Chief Executive Officer of the Company and each of the Company's four most
highly compensated executive officers (other than the Chief Executive Officer)
who were serving as executive officers at the end of fiscal 1998 (together, the
"Named Executive Officers") and (iv) all directors and executive officers as a
group.
Percent of
Amount and Nature of Outstanding
Name and Address of Beneficial Owner Beneficial Ownership (1) Common Stock(1)
T. Rowe Price Associates, Inc.(2)
T. Rowe Price New Horizons Fund Inc...... 2,805,300 11.1
Zweig-DiMenna Partners, L.P.(3)
Zweig-DiMenna International, Limited
Zweig-DiMenna International Managers, Inc.
Zweig-DiMenna Special Opportunities, L.P.
Zweig-DiMenna Gotham Advisors, Inc....... 2,050,900 8.1
Columbus Circle Investors (4)............ 1,393,400 5.5
Putnam Investments, Inc. (5)
Marsh & McLennan Companies, Inc.
Putnam Investment Management, Inc.
The Putnam Advisory Company, Inc........ 1,376,100 5.4
Barclays Global Investors, N.A.. (6).... 1,350,483 5.3
Pilgrim Baxter and Associates, Ltd (7).. 1,309,300 5.2
Raymond C. Lin (8)...................... 684,518 2.7
Boris J. Auerbuch (9)................... 296,836 1.2
Nicholas J. Williams (10)............... 110,027 *
Lip-Bu Tan (11)
Seed Ventures Limited................... 99,614 *
Gary J. Morgenthaler (12)............... 83,815 *
Andrew Aczel (13)....................... 56,417 *
Robert C. Hawk (14)..................... 45,195 *
Riley R. Willcox (15)................... 31,810 *
Edward A. Keible, Jr. (16).............. 26,430 *
Marino R. Polestra (17)................. 4,000 *
All current executive officers and directors
as a group (14 persons) (18)........... 1,676,829 6.6
- ---------------------
* Less than 1%
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable. Shares of Common Stock subject to options that are currently
exercisable or exercisable within 60 days of October 12, 1998, are deemed
to be outstanding and to be beneficially owned by the person holding such
option for the purpose of computing the percentage ownership of such
person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.
(2) Represents 1,405,300 shares held of record by T. Rowe Price Associates,
Inc. and 1,400,000 shares held of record by T. Rowe Price New Horizons
Fund, Inc. The address of T. Rowe Price Associates, Inc. and T. Rowe Price
New Horizons Fund is 100 East Pratt Street, Baltimore, MD 21202. The
aforementioned entities filed a Form 13G with the Securities and Exchange
Commission on August 10, 1998 with respect to the shares set forth herein
and upon which the information included herein is based.
(3) Represents 1,051,100 shares held of record by Zweig-DiMenna International,
Limited, 430,700 shares held of record by Zweig-DiMenna Partners, L.P.,
278,000 shares held of record by Zweig-DiMenna Special Opportunities,
L.P., 193,700 shares held of record by Zweig-DiMenna International
Managers, Inc., and 97,400 shares held of record by Zweig-DiMenna Gotham
Advisors, Inc. The address of all such entities is 900 Third Avenue, 30th
Floor, New York, NY 10022. The aforementioned entities filed a Form 13G
with the Securities and Exchange Commission on April 9, 1998 with respect
to the shares set forth herein and upon which the information included
herein is based.
(4) Columbus Circle Investors filed a Form 13F with the Securities and
Exchange Commission on June 30, 1998 with respect to the shares set forth
herein and upon which the information included herein is based.
(5) Represents 1,296,400 shares held of record by Putnam Investment
Management, Inc. (PIM) and 79,700 shares held of record by The Putnam
Advisory Company, Inc. (PAC). PIM and PAC are registered investment
advisers under the Investment Advisers Act of 1940 and are both
wholly-owned subsidiaries of Putnam Investments, Inc. ("PI") which is a
wholly owned subsidiary of Marsh and McLennan Companies, Inc. ("MMC"). PI
shares voting and dispositive power over shares held by PIM and PAC. The
address of each of PI, PIM and PAC is One Post Office Square, Boston, MA
02109. The address of MMC is 1166 Avenue of the Americas, New York, NY
10036. The aforementioned entities filed a Form 13G/A with the Securities
and Exchange Commission on October 9, 1998 with respect to the shares set
forth herein and upon which the information included herein is based. MMC
disclaims beneficial ownership of the shares held by PIM and PAC.
(6) Barclays Global Investors, N.A. filed a Form 13F with the Securities and
Exchange Commission on June 30, 1998 with respect to the shares set forth
herein and upon which the information included herein is based. The
address of Barclays Global Investors, N.A. is 45 Fremont Street, 17th
Floor, San Francisco, CA 94105.
(7) Pilgrim Baxter and Associates, Ltd. filed a Form 13F with the Securities
and Exchange Commission on June 30, 1998 with respect to the shares set
forth herein and upon which the information included herein is based. The
address of Pilgrim Baxter and Associates, Ltd. Is 825 Duportail Road,
Wayne, PA 19087.
(8) Includes 285,521 shares subject to options exercisable within 60 days
of October 12, 1998. Mr. Lin is Chairman of the Board of the Company.
(9) Includes 28,792 shares subject to options exercisable within 60 days of
October 12, 1998. Mr. Boris Auerbuch is the Senior Vice President and
Chief Technical Officer and a director of the Company.
(10) Represents 110,027 shares subject to options exercisable within 60 days of
October 12, 1998. Mr. Williams is President and Chief Executive Officer of
the Company.
(11) Includes 54,404 shares held of record by Seed Ventures Limited ("Seed"),
21,210 shares held by the Lip-bu Tan and Ysa Loo Trust (the "Trust"),
1,000 shares held by a managed retirement account for the benefit of Mr.
Tan, 500 shares held directly by Mr. Tan and 22,500 shares subject to
options held by Mr. Tan which are exercisable within 60 days of October
12, 1998. Mr. Tan is Chairman of Seed and a trustee and beneficiary of the
Trust. Mr. Tan disclaims beneficial ownership of all shares held by Seed,
except to the extent of his pecuniary interest therein.
(12) Represents 43,023 shares held by Gary M. Morgenthaler, 15,800 shares held
by the Morgenthaler Management Corporations 401(k) Retirement Plan for the
account of Mr. Morgenthaler, 2,492 shares representing Mr. Morgenthaler's
proportionate interest in the Morgenthaler family partnership and 22,500
shares subject to options held by Mr. Morgenthaler exercisable with 60
days of October 12, 1998. Mr. Morgenthaler is currently a director of the
Company but is not standing for re-election as a director at the meeting.
(13) Represents 56,417 shares subject to options exercisable within 60 days of
October 12, 1998. Mr. Aczel is Senior Vice President, Engineering of the
Company.
(14) Represents 44,195 shares subject to options exercisable within 60 days of
October 12, 1998 and 1,000 shares held of record. Mr. Hawk is currently a
director of the Company but is not standing for re-election as a director
at the Meeting.
(15) Represents 17,353 shares subject to options exercisable within 60 days of
October 12, 1998 and 14,477 shares held of record. Mr. Willcox was Senior
Vice President, Finance and Administration, Chief Financial Officer and
Secretary of the Company until his retirement on August 3, 1998 and
currently serves as a part-time employee of the Company.
(16) Represents 26,300 shares subject to options exercisable within 60 days of
October 12, 1998and 130 shares held of record. Mr. Keible is a director of
the Company.
(17) Represents 3,000 shares subject to options exercisable within 60 days of
October 12, 1998 and 1,000 shares held of record. Mr. Polestra is a
director of the Company.
(18) Includes the shares referenced in footnotes (8) through (14), (16) and
(17), 20,487 additional shares and 226,970 additional shares subject to
options exercisable within 60 days of October 12, 1998.
EXECUTIVE OFFICERS
The executive officers of the Company, and their ages as of October 12,
1998, are as follows:
Name Age Position
Raymond C. Lin 44 Chairman of the Board
Nicholas J. Williams 51 President and Chief Executive Officer
Andrew Aczel 47 Senior Vice President, Engineering
Boris J. Auerbuch 52 Senior Vice President, Chief Technical
Officer and Director
Robert A. Fyffe 44 Senior Vice President, Sales and Marketing
John J. Hagedorn 57 Senior Vice President, Finance and Administration,
Chief Financial Officer and Secretary
Robert W. Dilfer 54 Vice President and Controller
Antonio Flores 38 Senior Vice President, Operations
Peter Hauser 45 Vice President, International
........For information regarding the positions and offices with the Company
held by Messrs. Lin, Williams and Auerbuch, please refer to the discussion
regarding nominees for election as directors in "Directors/Nominees" under
Proposal No. 1 above.
........Mr. Aczel became the Company's Senior Vice President, Engineering on
October 21, 1996. Prior to joining the Company, Mr. Aczel was the Chief Engineer
of the Signaling Server Group of Northern Telecom, Inc. ("Nortel"), a
telecommunications company, from October 1995, was Technology Prime of another
business unit of Nortel, from June 1994 through September 1995, and was Director
of Product Management of the Transmission Division of Nortel from August 1991
through May 1994. Mr. Aczel holds a Bachelor of Arts degree from the University
of Toronto and a Bachelor of Engineering Sciences degree from the University of
Western Ontario.
........Mr. Fyffe has been the Company's Senior Vice President, Sales and
Marketing since July 1998 and was the Company's Vice President North America
Sales from October 1997 to July 1998. He was the Company's Vice President, U.S.
Sales from July 1996 until September 1997. From September 1990 to July 1993, he
was Area Vice President of Sales of Telco Systems, Inc., a telecommunications
equipment manufacturing company. Mr. Fyffe holds a Bachelor of Computer Science
degree from ITT Technical Institute.
........Mr. Hagedorn became Senior Vice President, Finance and Administration
and Chief Financial Officer and Secretary of the Company in August 1998. Prior
to joining the Company, he was most recently the Chief Financial Officer of
C-Cube Microsystems Inc. ("C-Cube"), a manufacturer of digital video
semiconductors, from April 1997 to July 1998. Prior to joining C-Cube, he held
CFO positions at IC WORKS, a semiconductor manufacturing company, from April
1994 to March 1997 and at Data I/O, a manufacturer of electronic programming
systems, from 1987 to 1993. Mr. Hagedorn began his high tech career at Intel in
1984. Mr. Hagedorn served as Chief Financial Officer for Intel Europe from 1986
to 1987. Mr. Hagedorn holds a Bachelor of Science degree in Industrial
Administration from Yale University and a Master of Business Administration
degree from Harvard University.
........Mr. Dilfer has been Vice President and Controller of the Company since
July 1992. From July 1980 to June 1992, he held various controller positions at
Signetics Corporation, a semiconductor company. Mr. Dilfer holds a Bachelor of
Science degree in industrial engineering, a Master of Science degree in
industrial engineering and a Master of Business Administration degree, all from
Stanford University.
........Mr. Flores became Senior Vice President, Operations in July 1998. He
served as Vice President, Operations of the Company from July 1991 to July 1998.
From April 1989 to June 1991, he was Director of Manufacturing of Telco, where
he directed both domestic and offshore production. Mr. Flores holds a
certificate of management from Mission College and an Associate of Science
degree in electronics from Monterey Peninsula College.
........Mr. Hauser joined the Company in January 1998 as Vice President,
International Sales. Prior to joining the Company, Mr. Hauser held positions as
Area Vice President with General Datacomm International, a telecommunications
company, from 1993 to 1997 focusing on Europe, Africa and the Middle East,
General Manager at Ascom Enterprise Networks/Ascom Timeplex, a Swiss
telecommunications and service automation company, from 1988 to 1992 and earlier
management positions with Texas Instruments, a manufacturer of digital signal
processing solutions, from 1980 to 1987. Mr. Hauser holds a degree in Computer
Sciences from the University of Zurich and a Master of Business Administration
degree from the University of Boston.
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to or earned or
paid for services rendered in all capacities to the Company by the Company's
Named Executive Officers during fiscal 1996, 1997 and 1998. This information
includes the dollar values of base salaries and bonus awards, the number of
shares subject to stock options granted and certain other compensation, whether
paid or deferred.
<TABLE>
Summary Compensation Table
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------
Other Annual Securities All Other
Name and Principal Position Compensation Underlying Compensation
during Fiscal 1998 Year Salary ($) Bonus (1)($) (2) Options (3) ($)
- --------------------------- ---- ---------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Raymond C. Lin (4)........... 1998 $275,000 $160,000 -- 220,000 $800
Chief Executive Officer 1997 275,000 110,213 -- 230,000 800
1996 200,000 200,000 -- -- 1,200
Nicholas J. Williams ........ 1998 225,000 105,000 325,000 -- --
President and Chief 1997 34,615 -- 81,250 300,000 --
Operating Officer 1996 -- -- -- -- --
Riley R. Willcox (5)......... 1998 185,000 75,272 -- 25,000 800
Senior Vice President, 1997 185,000 37,072 -- 120,000 800
Finance and 1996 154,000 107,800 -- -- 1,200
Administration and Chief
Financial Officer
Andrew Aczel................. 1998 180,000 66,268 32,506 60,000 800
Senior Vice President, 1997 24,645 25,000 18,960 230,000 800
Engineering 1996 -- -- -- -- --
Boris J. Auerbuch............ 1998 180,000 70,166 -- 105,000 800
Senior Vice President and 1997 180,000 35,082 -- 110,000 800
Chief Technology Officer 1996 150,000 89,782 -- -- 1,200
- -----------
</TABLE>
(1) Bonus amounts in respect of the fiscal years indicated are paid in two
installments in the month of January of the relevant fiscal year and the
month of July following the end of such fiscal year. The Company did not pay
a bonus in July 1997 for the second half of fiscal 1997.
(2) The amounts paid to Mr. Williams in both fiscal 1997 and 1998 represent
compensation provided under Mr. Williams' employment contract for
relinquishment by Mr. Williams of certain unvested options in another
entity when Mr. Williams joined the Company, and the amounts paid to Mr.
Aczel in fiscal 1997 and 1998 represent housing assistance paid to Mr.
Aczel pursuant to his employment contract. See "Employment Agreements.".
(3) Represents the Company's 401(k) Plan matching contribution of $800 per
employee per plan year except that the amount for fiscal 1996 includes an
additional $400 paid for the 1995 plan year.
(4) Mr. Lin resigned as Chief Executive Officer in July 1998 and at such time
time became the Company's full-time Chairman of the Board. Mr. Williams was
appointed as Chief Executive Officer of the Company at that time. Mr.
Williams joined the Company in April 1997.
(5) Mr. Willcox resigned his position as Senior Vice President, Finance and
Administration and Chief Financial Officer of the Company effective August
3, 1998 and is currently a part-time employee of the Company. John J.
Hagedorn was hired as of that date to fill such position. See "Employment
Agreements."
<PAGE>
Option Grants in Fiscal 1998
The following table sets forth information regarding option grants to
Named Executive Officers in fiscal 1998. In accordance with the rules of the
Securities and Exchange Commission, the table sets forth the hypothetical gains
or "option spreads" that would exist for the options at the end of their
ten-year term. These gains are based on assumed rates of annual compound stock
price appreciation of 5% and 10% from the date the options were granted to the
end of the option terms.
<TABLE>
Option Grants in Fiscal 1998
Individual Grants
--------------------------------------------------------
<CAPTION>
Number of Percent of Potential Realizable Value at
Securities Total Options Assumed Annual Rates of Stock
Underlying Granted to Price Appreciation for Option
Options Employees in Exercise Price Expiration Term (2)
Name Granted (1) Fiscal 1998 Per Share Date 5% 10%
- ---------------------- ----------- ------------- ---------------- --------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Raymond C. Lin.... 60,000 3.5 $25.4375 9/30/2007 $959,850 $2,432,450
160,000 9.2 24.9063 5/31/2008 2,506,145 6,351,064
Nicholas J. Williams -- -- -- -- -- --
Riley R. Wilcox... 25,000 1.4 25.4375 9/30/2007 399,938 171,772
Boris J. Auerbuch. 25,000 1.4 25.4375 9/30/2007 399,938 1,013,521
80,000 4.6 24.9063 5/31/2008 1,253,073 391,463
Andrew Aczel...... 60,000 3.5 24.9063 5/31/2008 939,804 2,381,649
</TABLE>
(1) The options shown in the table were granted at fair market value and
become exercisable with respect to 2.083% of the shares for each full
month that the optionee renders services to the Company after the date
of grant. The options shown in the table will expire ten years from the
date of grant, subject to earlier termination upon termination of
employment.
(2) The assumed annual compound rates of stock price appreciation included
in the table are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
future stock prices.
On July 28, 1998, options to purchase 125,000 shares of Common Stock
were granted to Mr. Williams at an exercise price of $18.9375 per share. Mr.
Williams voluntarily surrendered, for no value or exchange of options, options
to purchase 100,000 of these shares on September 1, 1998. In addition, on such
date, Mr. Lin voluntarily surrendered, for no value or exchange of options,
options to purchase 160,000 shares, Mr. Willcox voluntarily surrendered, for no
value or exchange of options, options to purchase 80,000 shares and Mr. Auerbuch
voluntarily surrendered, for no value or exchange of options, options to
purchase 80,000 shares granted on August 21, 1996, all of which had exercise
prices of $32.00 per share. Mr. Aczel also voluntarily surrendered, on such
date, for no value or exchange of options, options to purchase 50,000 shares
granted on October 21, 1996 at a price of $51.00 per share. All surrendered
shares were returned to the share reserve under the 1994 Plan and became
available for future grants.
Aggregate Option Exercises in Fiscal 1998 and Fiscal Year-End Values
The following table sets forth certain information concerning the
exercise of options by each of the Named Executive Officers during fiscal 1998,
including the aggregate amount of gains realized on the date of exercise. In
addition, the table includes the number of shares covered by both exercisable
and unexercisable stock options as of June 26, 1998. Also reported are values of
"in-the-money" options that represent the positive spread between the respective
exercise prices of outstanding stock options and $25.875 per share, which was
the closing price of the Company's Common Stock as reported on the Nasdaq
National Market on June 26, 1998.
<PAGE>
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired on Value Options at Fiscal Year-End at Fiscal Year-End
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Raymond C. Lin.... -- $ -- 311,565 367,081 5,138,634 1,525,329
Riley R. Willcox.. 108,540 2,757,845 39,053 100,207 90,450 677,017
Nicholas J. Williams 10,000 211,313 77,500 212,500 1,327,188 3,639,063
Boris J. Auerbuch. -- -- 145,461 193,249 2,188,253 1,057,976
Andrew Aczel 14,000 278,875 63,025 212,975 535,500 1,978,125
</TABLE>
(1) "Value Realized" represents the fair market value of the shares of
Common Stock underlying the option on the date of exercise less the
aggregate exercise price of the option.
EMPLOYMENT AGREEMENTS
On March 12, 1992, Premisys Holdings Communications Inc. ("Premisys
Holdings") entered into a Founders Agreement with Raymond C. Lin and Boris J.
Auerbuch, which replaced earlier agreements dated September 10, 1990 between
Messrs. Lin and Auerbuch and Premisys Communications, Inc., a California
corporation. This Founders Agreement established salaries for Messrs. Lin and
Auerbuch as officers of the Company and provided for a bonus pool for those
founders and other key employees through fiscal 1995. In connection with this
Founders Agreement, Premisys Holdings granted options to each of Messrs. Lin and
Boris Auerbuch to purchase 525,000 shares, each with an exercise price of $.10
per share. Vesting for the options commenced on the officers' initial dates of
employment with the Company. Such options are fully vested and have been
exercised in full. Finally, the Founders Agreement provides for three months'
severance pay at full salary except in limited instances and prohibits them for
three years following termination of employment from interfering with any of the
Company's supply relationships and from soliciting any employees of the Company
to leave.
In September 1996, the Company hired Andrew Aczel as Senior Vice President,
Engineering of the Company, commencing on October 21, 1996. Mr. Aczel's
employment agreement provided for the payment of an annual base salary of
$160,000 through fiscal 1997, payment of a signing bonus of $25,000,
participation in the management incentive bonus program commencing in fiscal
1997 at 40% of his salary contingent upon the Company meeting its fiscal 1997
objectives and Mr. Aczel meeting his individual goals. With respect to this
bonus program participation, $32,000 of the bonus was guaranteed and paid in
January 1997. Mr. Aczel's employment agreement also included payment of various
expenses associated with his relocation to California, including $75,000 in
mortgage assistance to Mr. Aczel over three years. Mr. Aczel is also entitled to
participate in the other employee benefit program offered by the Company. The
Company has agreed to provide Mr. Aczel with a nine month salary extension in
the event his employment with the Company is terminated without cause. In
connection with his initial employment, Mr. Aczel was granted certain stock
options, as contemplated by the agreement.
In April 1997, the Company hired Nicholas J. Williams as President and
Chief Operating Officer of the Company, commencing on April 21, 1997. Mr.
Williams' employment agreement provided for the payment of an annual base salary
of $225,000 through fiscal 1997, and participation in the management incentive
bonus program commencing in fiscal 1998 at 40% of his base salary contingent
upon the Company achieving its goals for fiscal 1998. Mr. Williams' employment
agreement also included payment of various expenses associated with his
relocation to California, including $162,500 of mortgage assistance over four
years. Mr. Williams is also entitled to participate in the other employee
benefit programs offered by the Company. In addition, the Company agreed to pay
Mr. Williams a total of $1,300,000 on a quarterly basis over four years ($81,250
per quarter) as compensation for relinquishing certain unvested stock options
granted to Mr. Williams by his prior employer so long as he remains employed
with the Company. In connection with his initial employment, Mr. Williams was
also granted certain stock options, as contemplated by the agreement.
In July 1998, the Company hired John J. Hagedorn as Senior Vice President,
Finance and Administration, Chief Financial Officer and Secretary of the Company
commencing on August 3, 1998. Mr. Hagedorn's employment agreement provided for
the payment of an annual base salary of $200,000 through fiscal 1999,
participation in the management incentive bonus program for 1999 at 45% of his
salary and participation in the Company's other employee benefits program. In
addition, the employment agreement provided for the grant of certain stock
options that vest 25% after his first year of service and monthly thereafter
until fully vested after four years. The Company has agreed to provide Mr.
Hagedorn with a twelve month salary extension and to accelerate vesting of his
stock options in the event his employment with the Company is terminated due to
an acquisition in which he is not named Chief Financial Officer of the resulting
entity.
In July 1998, the Company entered into a part-time employment agreement
with Riley R. Willcox in connection with his resignation as the Company's Senior
Vice President, Finance and Administration and Chief Financial Officer. The
agreement provides that effective September 1, 1998 through March 30, 1999, Mr.
Willcox will work part-time for an annual salary of $50,000. The agreement also
provides that Mr. Willcox will be entitled to receive a pro rated portion of the
bonus that would have been due to him for his work as the Company's Chief
Financial Officer through August 31, 1998 under the Company's Incentive Program.
The agreement provides that Mr. Willcox remains entitled to certain employee
benefits during his part-time employment, including the continued vesting of his
outstanding stock options. The agreement restricts Mr. Willcox from accepting
full-time employment with any other company during the term of his part-time
employment with Premisys and from taking consulting arrangements with or serving
on the Board of Directors of competitors of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, the Compensation Committee consisted of Messrs.
Morgenthaler and Tan. Neither of such directors have ever been an officer of the
Company. No executive officer of the Company served on the Compensation
Committee of another entity or on any other committee of the board of directors
of another entity performing similar functions during fiscal 1998.
REPORT ON EXECUTIVE COMPENSATION
This Report of the Compensation Committee is required by the Securities and
Exchange Commission and shall not be deemed to be incorporated by reference by
any general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933, as amended, or under the Securities
Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed soliciting material or filed under such Acts.
Final decisions regarding executive compensation and stock option
grants to executives are made by the Compensation Committee of the Board of
Directors (the "Committee"). The Committee is composed of two independent
non-employee directors, neither of whom have any interlocking relationships as
defined by the Securities and Exchange Commission. Although Mr. Lin and Mr.
Willcox attended the meetings of the Committee during fiscal 1998, they did not
participate in deliberations that related to their own compensation. Mr.
Williams and Mr. Hagedorn currently attend the meetings of the Committee. They
do not participate in deliberations that relate to their own compensation.
General Compensation Policy
The Committee acts on behalf of the Board to establish the general
compensation policy of the Company for all employees of the Company. The
Committee typically reviews base salary levels and target bonuses for the Chief
Executive Officer ("CEO"), other executive officers and certain other employees
of the Company at or about the beginning of each fiscal year. The Committee
administers the Company's incentive and equity plans, including the 1992 Stock
Option Plan, the 1994 Stock Option Plan, the Management Incentive Plan (the
"Incentive Plan"), the Profit Sharing Plan and the 1995 Employee Stock Purchase
Plan. The Company no longer grants options under the 1992 Stock Option Plan.
The Committee's philosophy in compensating executive officers, including
the CEO, is to relate compensation directly to corporate performance. Thus, the
Company's compensation policy, which applies to executive officers and other key
employees of the Company, relates a portion of each individual's total
compensation to the Company profit objectives and individual objectives set
forth at the beginning of the Company's fiscal year. Consistent with this
policy, a designated portion of the compensation of the executive officers of
the Company is contingent on corporate performance and, in the case of certain
executive officers, is also based on the individual officer's performance as
measured against individual objectives established under the Incentive Plan, as
determined by the Committee in its discretion. Long-term equity incentives for
executive officers are effected through the granting of stock options under the
1994 Stock Option Plan. Stock options have value for the executive only if the
price of the Company's stock increases above the fair market value on the grant
date and the executive remains in the Company's employ for the period required
for the shares to vest.
The base salaries, incentive compensation and stock option grants of the
executive officers are determined in part by the Committee reviewing data on
prevailing compensation practices in technology companies with whom the Company
competes for executive talent and by their evaluating such information in
connection with the Company's corporate goals. To this end, the Committee
attempts to compare the compensation of the Company's executive officers with
the compensation practices of comparable companies to determine base salary,
target bonuses and target total cash compensation. In addition to their base
salaries, the Company's executive officers, including the CEO, are each eligible
to receive cash bonuses under the Incentive Plan and to participate in the 1994
Stock Option Plan.
In preparing the performance graph for this Proxy Statement, the Company
used the H&Q Technology Index ("H&Q Index") as its published line of business
index as the Company believes that the H&Q Index is a good indicator of stock
price performance with respect to the Company's industry. The Company further
believes that the data reviewed on prevailing compensation practices of
comparable companies, which include certain companies on the H&Q Index, is a
good benchmark with respect to executive compensation practices in the Company's
industry.
Fiscal 1998 Executive Compensation
Base Compensation. The Committee reviewed the recommendations and
performance and market data outlined above and established a base salary level
to be effective July 1, 1997 for each executive officer, including the CEO.
Incentive Compensation. Under the Incentive Plan, cash bonuses are awarded
to the extent that an executive officer achieved predetermined individual
objectives and the Company met predetermined profit objectives set by the Board
at the beginning of the year. The CEO's subjective judgment of executives'
performance (other than his own) is taken into account in determining whether
those objectives have been satisfied. Cash bonuses to individuals are limited to
twice the amount of the relevant individual's target cash bonus. Performance is
measured at the end of the first half and the second half of the fiscal year.
For fiscal 1998, the bases of incentive compensation were Company operating
profits, which represented between 30% to 100% of an individual's target
incentive compensation, with the balance, if any, based on individual
objectives, depending on the individual executive. The targets and actual bonus
payments are determined by the Committee, in its discretion. Bonuses were paid
to the Company's officers for both halves of fiscal 1998 as corporate operating
profit objectives were attained.
Stock Options. Stock options typically have been granted to executive
officers when the executive first joins the Company, in connection with a
significant change in responsibilities, to provide greater incentives to
continue their employment with the Company, to strive to increase the value of
the Company's Common Stock and, occasionally, to achieve equity within a peer
group. The Committee may, however, grant additional stock options to executives
for other reasons. The number of shares subject to each stock option granted is
within the discretion of the Committee and is based on anticipated future
contribution and ability to impact corporate and/or business unit results, past
performance or consistency within the executive's peer group and the total
number of other options, and estimated value of such options, that remain
unvested at the time of the grant. The stock options generally become
exercisable over a four-year period with initial grants vesting 25% after the
first year and monthly thereafter. Subsequent grants generally vest monthly over
a 48 month period beginning one month from the date of the grant. Stock options
are generally granted at a price that is equal to the fair market value of the
Company's Common Stock on the date of grant. All options granted to date have
been granted pursuant to the above guidelines.
In early fiscal 1998, the Company granted stock options to certain
executive officers largely as a reward to such officers for successfully
establishing a recovery program for the Company after its disappointing results
in the third quarter of fiscal 1997. The Committee considered the factors
described above, as well as the number of options then held by such executive
officers that remained unvested, in determining the number of options granted.
In late fiscal 1998, the Company granted stock options to certain executive
officers based largely upon targeted stock option grants for the satisfaction of
fiscal 1998 objectives and concerns associated with the need to provide adequate
stock incentives to its executive officers given the increasing competitive
employment market in the telecommunications industry, particularly in Silicon
Valley. The Committee considered the factors described above, as well as the
number of options and the estimated value of such options, that remained
unvested at that time, in determining the targeted number of options to grant,
and the actual number of options granted, to executive officers upon achievement
of corporate and individual performance objectives for fiscal 1998. In addition,
the Company granted options during fiscal 1998 to Peter Hauser in connection
with his commencement of employment with the Company and to Tony Flores and Al
Fyffe in connection with changes in responsibilities and promotions that
occurred during the year
Company Performance and CEO Compensation. Mr. Lin's base salary was not
increased for fiscal 1998. The decision not to increase Mr. Lin's salary for
fiscal 1998 was due largely to the fact that the Company's revenues for fiscal
1997 had not grown to the full extent expected at the beginnng of fiscal 1997
and, therefore, his fiscal 1997 salary continued to be in line with market data
evaluated by the Company for salaries of chief executive officers of companies
with revenues of the size expected for the Company during fiscal 1998. Based
upon the criteria set forth for fiscal 1998 under the discussion of Incentive
Compensation above, the Committee awarded Mr. Lin incentive compensation of
$160,000 for fiscal 1998. Mr. Lin's incentive compensation was based upon
attaining corporate operating profit objectives for both the first and second
halves of the 1998 fiscal year. The Committee reviewed the compensation
practices of comparable companies as described above in making these awards to
Mr. Lin.
The Committee also granted Mr. Lin options to purchase 60,000 shares of
Common Stock in October largely as a reward for successfully establishing a
recovery program for the Company after its disappointing results in the third
quarter of fiscal 1997, as described above, and 160,000 shares of Common Stock
in June 1998 in connection in large part with the satisfaction of fiscal 1998
objectives and to ensure that there existed adequate stock incentives for Mr.
Lin given the increasing competitive employment market, as described above.
Compliance with Section 162(m) of the Internal Revenue Code of 1986. The
Company intends to comply with the requirements of Section 162(m) of the
Internal Revenue Code of 1986 for fiscal 1999. The 1994 Plan is already in
compliance with Section 162(m) by limiting stock awards to named executive
officers. The Company does not expect cash compensation for any individual
executive officer in fiscal 1999 to be in excess of $1,000,000 or consequently
affected by the requirements of Section 162(m).
/s/ Gary J. Morgenthaler
/s/ Lip-Bu Tan
COMPENSATION COMMITTEE
Gary J. Morgenthaler
Lip-Bu Tan
<PAGE>
COMPANY STOCK PRICE PERFORMANCE
The stock price performance graph below is required by the Securities and
Exchange Commission ("SEC") and shall not be deemed to be incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or under
the Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed soliciting material or filed under such Acts.
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company on the effective date of the Company's Registration
Statement with respect to the Company's initial public offering (April 5, 1995)
to June 30, 1995, June 28, 1996, June 27, 1997 and June 26, 1998 with the
cumulative total return on the Nasdaq Stock Market and the Hambrecht & Quist
Technology Index (assuming the investment of $100 in the Company's Common Stock
and in each of the indexes on the date of the Company's initial public offering,
reinvestment of all dividends and adjustment for the 100% stock dividend
effected by the Company in December 1995).
<TABLE>
[OBJECT OMITTED]
<CAPTION>
Premisys Communications, Inc. Nasdaq Stock Market - US Index H&Q Technology Index
Market Price Investment Value Index Investment Value Index Investment Value
------------ ---------------- -------- ---------------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C>
4/5/95 $ 8.00 $100.00 261.644 $100.00 569.95 $100.00
6/30/95 $32.28 $403.52 299.244 $114.37 696.94 $122.28
6/28/96 $61.00 $762.50 391.360 $149.58 826.80 $145.06
6/27/97 $15.75 $196.88 462.031 $182.00 1,141.24 $200.23
6/26/98 $26.00 $310.94 627.266 $239.74 1,151.43 $265.19
</TABLE>
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since July 1, 1995, there has not been, nor is there currently proposed,
any transaction or series of transactions to which the Company (or any of its
predecessor corporations) was or is to be a party in which the amount involved
exceeds $60,000 and in which any director, executive officer, or holder of more
than 5% of the Company's Common Stock had or will have a direct or indirect
material interest other than normal compensation arrangements, which are
described under "Executive Compensation" and "Director Compensation" above.
STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be presented
at the Company's 1999 Annual Meeting of Stockholders must be received by the
Company at its principal executive offices no later than July 4, 1999 in order
to be included in the Company's Proxy Statement and form of proxy relating to
the meeting. Stockholders wishing to bring a proposal before the 1999 Annual
Meeting (but not include it in the Company's proxy materials) must provide
written notice of such proposal to the Secretary of the Company at the principal
executive offices of the Company by October 10, 1999.
The Company's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission for the year ended June 26, 1998 is available without charge
by writing to or calling the Company's headquarters. Requests should be directed
to the Company's Investor Relations Department at 48664 Milmont Drive, Fremont,
California 94538.
COMPLIANCE UNDER SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and officers, and persons who own more than 10% of the
Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the SEC and the Nasdaq National Market. Such persons
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms that they file.
Based solely on its review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements were met.
OTHER BUSINESS
The Board does not presently intend to bring any other business before the
Meeting, and, so far as is known to the Board, no matters are to be brought
before the Meeting except as specified in the Notice of the Meeting. As to any
business that may properly come before the Meeting, however, it is intended that
proxies, in the form enclosed, will be voted in respect thereof in accordance
with the judgment of the persons voting such proxies.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE,
SIGN AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE
PAID ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
<PAGE>
PREMISYS COMMUNICATIONS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
December 9, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY.
The undersigned hereby appoints Nicholas J. Williams and John J. Hagedorn, or
either of them, as proxies, each with full power of substitution, and hereby
authorizes them to represent and to vote, as designated below, all shares of
Common Stock, no par value, of Premisys Communications, Inc. (the "Company"),
held of record by the undersigned on October 12, 1998, at the Annual Meeting of
Stockholders of the Company to be held at 48664 Milmont Drive, Fremont,
California 94538, on Wednesday, December 9, 1998, at 1:00 p.m. Pacific Standard
Time, and at any adjournments or postponements thereof.
1. ELECTION OF DIRECTORS.
[ ] FOR all nominees listed [ ] WITHHOLDING AUTHORITY
below (except as indicated to vote for all nominees
to the contrary below) listed below
Nominees: Boris J. Auerbuch, Edward A. Keible, Jr., Raymond C. Lin,
Marino R. Polestra, Lip-Bu Tan and Nicholas J. Williams.
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.
------------------------------------------------------------
2. To approve the amendment of the premisys communications, inc. 1994
stock option plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify the selection of PRICEWATERHOUSECOOPERS LLP as the Company's
independent accountants for the current fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends that you vote FOR the election of all
nominees listed in Proposal 1 and FOR Proposals 2 and 3.
(Continued and to be signed on reverse side)
<PAGE>
(Continued from other side)
THIS PROXY WILL BE VOTED AS DIRECTED ABOVE. WHEN NO CHOICE IS INDICATED,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES LISTED IN PROPOSAL 1
and FOR PROPOSALS 2 and 3. In their discretion, the proxy holders are authorized
to vote upon such other business as may properly come before the meeting or any
adjournments or postponements thereof to the extent authorized by Rule 14a-4(c)
promulgated under the Securities Exchange Act of 1934, as amended.
-------------------------------------------
(Print Stockholder(s) name)
-------------------------------------------
(Signature(s) of Stockholder or Authorized Signatory)
-------------------------------------------
Dated: __________, 1998
Please sign exactly as your name(s) appear(s) on your stock certificate. If
shares of stock stand of record in the names of two or more persons or in the
name of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the proxy. If shares of stock are held of record by a
corporation, the proxy should be executed by the president or vice president and
the secretary or assistant secretary. Executors, administrators or other
fiduciaries who execute the above proxy for a deceased stockholder should give
their full title. Please date the proxy.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
<PAGE>
PREMISYS COMMUNICATIONS, INC.
1994 STOCK OPTION PLAN
As Adopted November 16, 1994
As Amended September 13, 1995
As Amended September 18, 1997
As Amended October 13, 1997
As Amended September 17, 1998 (subject to stockholder approval)
1. PURPOSE. This 1994 Stock Option Plan (this "Plan") is
established as a compensatory plan to attract, retain and provide equity
incentives to selected persons to promote the financial success of Premisys
Communications, Inc., a Delaware corporation, (the "Company"). Capitalized terms
not previously defined herein are defined in Section 21 of this Plan.
2. TYPES OF OPTIONS AND SHARES. Options granted under this Plan
(the "Options") may be either (a) incentive stock options ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Revenue Code"), or (b) nonqualified stock options ("NQSOs"), as designated at
the time of grant. The shares of stock that may be purchased upon exercise of
Options granted under this Plan (the "Shares") are shares of the common stock of
the Company $0.01 par value per share.
3. NUMBER OF SHARES. The aggregate number of Shares that may be
issued pursuant to Options granted under this Plan is 6,460,000.* Shares,
subject to adjustment as provided in this Plan. If any Option expires or is
terminated without being exercised in whole or in part, the unexercised or
released Shares from such Options shall be available for future grant and
purchase under this Plan. At all times during the term of this Plan, the Company
shall reserve and keep available such number of Shares as shall be required to
satisfy the requirements of outstanding Options under this Plan.
4. ELIGIBILITY. Options may be granted to employees, officers,
directors, consultants and advisers (provided such consultants and advisers
render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction) of the Company or any Parent,
Subsidiary or Affiliate of the Company. ISOs may be granted only to employees
(including officers and directors who are also employees) of the Company or a
Parent or Subsidiary of the Company. The Committee (as defined in Section 16) in
its sole discretion shall select the recipients of Options ("Optionees"). An
Optionee may be granted more than one Option under this Plan. No Optionee shall
be eligible to receive more than 1,000,000** Shares at any time during the term
of this Plan pursuant to the grant of Options hereunder. The Company may also,
from time to time, assume outstanding options granted by another company,
whether in connection with an acquisition of such other company or otherwise, by
either (i) granting an Option under this Plan in replacement of the option
assumed by the Company, or (ii) treating the assumed option as if it had been
granted under this Plan if the terms of such assumed option could be applied to
an Option granted under this Plan. Such assumption shall be permissible if the
holder of the assumed option would have been eligible to be granted an Option
hereunder if the other company had applied the rules of this Plan to such grant.
- ---------------------------
* On March 13, 1995 a one-for-four reverse split of the Company's
outstanding Common Stock (the "Reverse Split") was effected, reducing the
number of shares reserved for issuance under the Plan to 1,000,000. On
September 13, 1995, the Board approved an increase in the number of shares
reserved for issuance under the Plan to 2,000,000, which increase was later
approved by the Company's stockholders. On December 12, 1995, a two-for-one
stock split in the form of a 100% stock dividend was paid to the Company's
stockholders of record as of November 22, 1995, increasing the number of
shares reserved for issuance under the Plan to 4,000,000. On September 18,
1997, the Board approved an increase in the number of shares reserved for
issuance under the Plan to 5,200,000, which increase was later approved by
the Company's stockholders. On September 17, 1998, the Board approved an
increase in the number of shares reserved for issuance under the Plan to
6,460,000, subject to approval of the Company's stockholders.
** Due to the one-for-four Reverse Split and the 100% Stock Dividend, the
number of shares an Optionee shall be eligible to receive is no more than
1,000,000.
5. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine
whether each Option is to be an ISO or an NQSO, the number of Shares subject to
the Option, the exercise price of the Option, the period during which the Option
may be exercised, and all other terms and conditions of the Option, subject to
the following:
(a) Form of Option Grant. Each Option granted under this Plan shall be
evidenced by a written Stock Option Grant (the "Grant") in such form (which need
not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
(b) Date of Grant. The date of grant of an Option shall be the date on
which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee. The Grant representing the Option will be
delivered to each Optionee with a copy of this Plan within a reasonable time
after the granting of the Option.
(c) Exercise Price. The exercise price of an NQSO shall be not less
than 85% of the Fair Market Value of the Shares on the date the Option is
granted. The exercise price of an ISO shall be not less than 100% of the Fair
Market Value of the Shares on the date the Option is granted. The exercise price
of any Option granted to a person owning more than l0% of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary
of the Company ("Ten Percent Stockholder") shall not be less than 110% of the
Fair Market Value of the Shares on the date the Option is granted.
Notwithstanding any section of this Plan, the exercise price of an Option shall
not be less than the par value of the Shares.
(d) Exercise Period. Options shall be exercisable within the times or
upon the events determined by the Committee as set forth in the Grant; provided,
however, that no Option shall be exercisable after the expiration of ten (10)
years from the date the Option is granted, and provided further that no Option
granted to a Ten Percent Stockholder shall be exercisable after the expiration
of five (5) years from the date the Option is granted. The Committee also may
provide for the exercise of Options to become exercisable at one time or from
time to time, periodically or otherwise, in such number or percentage as the
Committee determines.
(e) Limitations on ISOs. The aggregate Fair Market Value (determined
as of the time an Option is granted) of stock with respect to which ISOs are
exercisable for the first time by an Optionee during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair
Market Value of Shares with respect to which ISOs are exercisable for the first
time by an Optionee during any calendar year exceeds $100,000, the Options for
the first $100,000 worth of Shares to become exercisable in such year shall be
ISOs and the Options for the amount in excess of $100,000 that becomes
exercisable in that year shall be NQSOs. In the event that the Revenue Code or
the regulations promulgated thereunder are amended after the effective date of
this Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISOs, such different limit shall be incorporated
herein and shall apply to any Options granted after the effective date of such
amendment.
(f) Options Non-Transferable. Options granted under this Plan, and any
interest therein, shall not be transferable or assignable by Optionee, and may
not be made subject to execution, attachment or similar process, otherwise than
by will or by the laws of descent and distribution, or as consistent with the
specific Plan and Grant provisions relating thereto. During the lifetime of the
Optionee an Option shall be exercisable only by Optionee and any elections with
respect to an Option, may be made only by the Optionee.
(g) Assumed Options. In the event the Company assumes an option
granted by another company, the terms and conditions of such option shall remain
unchanged (except the exercise price and the number and nature of shares
issuable upon exercise, which will be adjusted appropriately pursuant to Section
424(c) of the Revenue Code). In the event the Company elects to grant a new
option rather than assuming an existing option (as specified in Section 4), such
new option need not be granted at Fair Market Value on the date of grant and may
instead be granted with a similarly adjusted exercise price.
6. EXERCISE OF OPTIONS.
(a) Notice. Options may be exercised only by delivery to the Company
of a written stock option exercise agreement (the "Exercise Agreement") in a
form approved by the Committee (which need not be the same for each Optionee),
stating the number of Shares being purchased, the restrictions imposed on the
Shares, if any, and such representations and agreements regarding Optionee's
investment intent and access to information, if any, as may be required by the
Company to comply with applicable securities laws, together with payment in full
of the exercise price for the number of Shares being purchased.
(b) Payment. Payment for the Shares may be made in cash (by check) or,
where approved by the Committee in its sole discretion at the time of grant and
where permitted by law: (i) by cancellation of indebtedness of the Company to
the Optionee; (ii) by surrender of shares of common stock of the Company having
a Fair Market Value equal to the applicable exercise price of the Options, that
have been owned by Optionee for more than six (6) months (and which have been
paid for within the meaning of the Securities and Exchange Commission ("SEC")
Rule 144 and, if such shares were purchased from the Company by use of a
promissory note, such note has been fully paid with respect to such shares), or
were obtained by Optionee in the open public market; (iii) by tender of a full
recourse promissory note having such terms as may be approved by the Committee
and bearing interest at a rate sufficient to avoid imputation of income under
Sections 483 and 1274 of the Revenue Code; provided, however, that Optionees who
are not employees of the Company shall not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by collateral other than
the Shares; provided, further, that the portion of the Purchase Price equal to
the par value of the Shares must be paid in cash; (iv) by waiver of compensation
due or accrued to Optionee for services rendered; (v) provided that a public
market for the Company's stock exists, through a "same day sale" commitment from
Optionee and a broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD Dealer") whereby Optionee irrevocably elects to
exercise the Option and to sell a portion of the Shares so purchased to pay for
the exercise price and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the exercise price directly to the Company; (vi)
provided that a public market for the Company's stock exists, through a "margin"
commitment from Optionee and an NASD Dealer whereby Optionee irrevocably elects
to exercise the Option and to pledge the Shares so purchased to the NASD Dealer
in a margin account as security for a loan from the NASD Dealer in the amount of
the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the exercise price directly to the Company; or (vii)
by any combination of the foregoing. Optionees who are not employees or
directors of the Company shall not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by collateral other than
the Shares.
(c) Withholding Taxes. Prior to issuance of the Shares upon exercise
of an Option, Optionee shall pay or make adequate provision for any federal or
state withholding obligations of the Company, if applicable. Where approved by
the Committee in its sole discretion, Optionee may provide for payment of
withholding taxes upon exercise of the Option by requesting that the Company
retain Shares with a Fair Market Value equal to the minimum amount of taxes
required to be withheld. In such case, the Company shall issue the net number of
Shares to Optionee by deducting the Shares retained from the Shares exercised.
The Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined in accordance
with Section 83 of the Revenue Code (the "Tax Date"). All elections by Optionees
to have Shares withheld for this purpose shall be made in writing in a form
acceptable to the Committee.
(d) Limitations on Exercise. Notwithstanding the exercise periods
set forth in the Grant, exercise of an Option shall always be subject to the
following:
(i) If Optionee is Terminated for any reason except death or
permanent, partial or total disability, as determined by the Committee
("Disability"), Optionee may exercise such Optionee's Options to the extent (and
only to the extent) that such Options would have been exercisable upon the
Termination Date, within three (3) months after the Termination Date (or such
shorter time period as may be specified in the Grant), but in any event no later
than the expiration date of the Options.
(ii) If Optionee is Terminated because of the death of Optionee
or Disability of Optionee (or the Optionee dies within three (3) months of such
Termination), then Optionee's Options may be exercised to the extent (and only
to the extent) that such Options would have been exercisable by Optionee on the
Termination Date, by Optionee (or Optionee's legal representative) within twelve
(12) months after the Termination Date (or such shorter time period as may be
specified in the Grant), but in any event no later than the expiration date of
the Options; provided, however, that in the event of Termination due to
Disability other than as defined in Section 22(e)(3) of the Revenue Code, any
ISO, or portion thereof, that remains exercisable after three (3) months after
the Termination Date shall be deemed an NQSO.
(iii) The Committee shall have discretion to determine whether
Optionee has ceased to be employed by the Company or any Parent, Subsidiary or
Affiliate of the Company and the effective date on which such employment
terminated.
(iv) In the case of an Optionee who is a director, independent
consultant, contractor or adviser, the Committee will have the discretion to
determine whether Optionee is "employed by the Company or any Parent, Subsidiary
or Affiliate of the Company" pursuant to the foregoing Sections.
(v) The Committee may specify a reasonable minimum number of
Shares that may be purchased on any exercise of an Option, provided that such
minimum number will not prevent Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
(vi) An Option shall not be exercisable unless such exercise is
in compliance with the Securities Act of 1933, as amended (the "Securities
Act"), all applicable state securities laws and the requirements of any stock
exchange or national market system upon which the Shares may then be listed, as
they are in effect on the date of grant or on the date of exercise or other
issuance. Notwithstanding any other provision in the Plan, the Company shall
have no obligation to issue or deliver certificates for Shares under the Plan
prior to (a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable, and/or (b) completion of any registration
or other qualification of such shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company shall be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or national market
system, and the Company shall have no liability for any inability or failure to
do so.
7. CERTIFICATES. All certificates for Shares or other securities
delivered under the Plan shall be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed.
8. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Grant a right to
repurchase a portion of or all Shares that are not "vested" (as defined in the
Grant) held by an Optionee following such Optionee's Termination at any time
within ninety (90) days after the later of Optionee's Termination Date and the
date Optionee purchases Shares under the Plan, for cash or cancellation of
purchase money indebtedness, at the Optionee's original purchase price.
9. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on an
Optionee's Shares, the Committee may require the Optionee to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Optionee who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under the Plan shall be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Optionee's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company shall have full recourse
against the Optionee under the promissory note notwithstanding any pledge of the
Optionee's Shares or other collateral. In connection with any pledge of the
Shares, Optionee shall be required to execute and deliver a written pledge
agreement in such form as the Committee shall from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
prorata basis as the promissory note is paid.
10. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. The Committee
shall have the power to modify, extend or renew outstanding Options and to
authorize the grant of new Options in substitution therefor, provided that any
such action may not, without the written consent of Optionee, impair any rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered shall be treated in accordance with
Section 424(h) of the Revenue Code. The Committee shall have the power to reduce
the exercise price of outstanding Options without the consent of Optionees by a
written notice to the Optionees affected; provided, however, that the exercise
price per Share may not be reduced below the minimum exercise price that would
be permitted under Section 5(c) of this Plan for Options granted on the date the
action is taken to reduce the exercise price.
11. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of
the rights of a stockholder with respect to any Shares subject to an Option
until such Option is properly exercised. After Shares are issued to the
Optionee, the Optionee shall be a stockholder and have all the rights of a
stockholder with respect to such Shares, including the rights to vote and
receive all dividends made or paid with respect to such Shares; provided, that
the Optionee shall have no right to retain such stock dividends on stock
distributions with respect to Shares that are repurchased at the Optionee's
original Purchase Price pursuant to Section 8. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior to
such date of exercise, except as provided in this Plan. The Company shall
provide to each Optionee a copy of the annual financial statements of the
Company at such time after the close of each fiscal year of the Company as such
statements are released by the Company to its common stockholders generally.
12. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option
granted under this Plan shall confer on any Optionee any right to continue in
the employ of, or other relationship with, the Company or any Parent, Subsidiary
or Affiliate of the Company or limit in any way the right of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate Optionee's
employment or other relationship at any time, with or without cause.
13. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of common stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration, or
if a substantial portion of the assets of the Company are distributed, without
consideration in a spin-off or similar transaction, to the stockholders of the
Company, the number of Shares available under this Plan and the number of Shares
subject to outstanding Options and the exercise price per Share of such Options
shall be proportionately adjusted, subject to any required action by the Board
of Directors of the Company (the "Board") or stockholders of the Company and
compliance with applicable securities laws; provided, however, that a fractional
share shall not be issued upon exercise of any Option and any fractions of a
Share that would have resulted shall either be cashed out at Fair Market Value
or the number of Shares issuable under the Option shall be rounded up to the
nearest whole number, as determined by the Committee; and provided further that
the exercise price may not be decreased to below the par value for the Shares.
14. ASSUMPTION OF OPTIONS BY SUCCESSORS.
(a) In the event of (i) a merger or consolidation in which the
Company is not the surviving corporation (other than a merger or consolidation
with a wholly owned subsidiary, a reincorporation, or other transaction in which
there is no substantial change in the stockholders of the corporation and the
Options granted under this Plan are assumed by the successor corporation, which
assumption shall be binding on all Optionees), (ii) a dissolution or liquidation
of the Company, (iii) the sale of substantially all of the assets of the
Company, or (iv) any other transaction which qualifies as a "corporate
transaction" under Section 424(a) of the Revenue Code wherein the stockholders
of the Company give up all of their equity interest in the Company (except for
the acquisition of all or substantially all of the outstanding shares of the
Company), any or all outstanding Options may be assumed by the successor
corporation, which assumption shall be binding on all Optionees. In the
alternative, the successor corporation may substitute an equivalent option or
provide substantially similar consideration to Optionees as was provided to
stockholders (after taking into account the existing provisions of Optionee's
options, such as the exercise price and the vesting schedule). The successor
corporation may also issue, in place of outstanding shares of the Company held
by Optionee as a result of the exercise of an Option that is subject to
repurchase, substantially similar shares or other property subject to similar
repurchase restrictions no less favorable to Optionee.
(b) In the event such successor corporation, if any, refuses to
assume or substitute Options, as provided above, pursuant to a transaction
described in Subsections 14(a)(ii), (iii) or (iv) above, or there is no
successor corporation, and if the Company is ceasing to exist as a separate
corporate entity, the Options shall, notwithstanding any contrary terms in the
Grant, expire on a date at least twenty (20) days after the Board gives written
notice to Optionees specifying the terms and conditions of such termination.
(c) In the event such successor corporation refuses to assume or
substitute Options, as provided above, pursuant to a transaction described in
Subsection 14(a)(i) above, such Options shall expire on (and, if the Company has
reserved to itself a right to repurchase Shares issued on exercise of Options at
the original purchase price of such Shares, such right shall terminate on), the
consummation of such transaction at such time and on such conditions as the
Board shall determine.
(d) Subject the foregoing provisions of this Section 14, in the event
of the occurrence of any transaction described in Section 14(a), any outstanding
Option shall be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction," provided that under no circumstances shall unvested
options be accelerated.
15. ADOPTION AND STOCKHOLDER APPROVAL. This Plan shall become
effective on the date that it is adopted by the Board. This Plan shall be
approved by the stockholders of the Company, in any manner permitted by
applicable corporate law, within twelve (12) months before or after the date
this Plan is adopted by the Board. Upon the effective date of the Plan, the
Board may grant Options pursuant to this Plan; provided that, in the event that
stockholder approval is not obtained within the time period provided herein, all
Options granted hereunder shall terminate. No Option that is issued as a result
of any increase in the number of shares authorized to be issued under this Plan
shall be exercised prior to the time such increase has been approved by the
stockholders of the Company and all such Options granted pursuant to such
increase shall similarly terminate if such stockholder approval is not obtained.
16. ADMINISTRATION. This Plan may be administered by the Board or a
committee appointed by the Board (the "Committee"). As used in this Plan,
references to the "Committee" shall mean either the committee appointed by the
Board to administer this Plan or the Board if no committee has been established.
If, at the time the Company registers under the Securities Exchange Act of 1934,
as amended, two or more members of the Board are Outside Directors, the
Committee shall be comprised of at least two members of the Board, all of whom
are Outside Directors. The interpretation by the Committee of any of the
provisions of this Plan or any Option granted under this Plan shall be final and
binding upon the Company and all persons having an interest in any Option or any
Shares purchased pursuant to an Option. The Committee may delegate to officers
of the Company the authority to grant Options under this Plan to Optionees who
are not Insiders of the Company.
17. TERM OF PLAN. Options may be granted pursuant to this Plan from
time to time within a period of ten (10) years from the date on which this Plan
is adopted by the Board.
18. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan in any respect including (but not limited to)
amendment of any form of Grant, Exercise Agreement or instrument to be executed
pursuant to this Plan; provided, however, that the Committee shall not, without
the approval of the stockholders of the Company, amend this Plan in any manner
that requires such stockholder approval pursuant to the Revenue Code or the
regulations promulgated thereunder as such provisions apply to ISO plans.
19. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by
the Board, the submission of the Plan to the stockholders of the Company for
approval, nor any provision of the Plan shall be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under the Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
20. GOVERNING LAW. The Plan and all agreements, documents and
instruments entered into pursuant to the Plan shall be governed by and construed
in accordance with the internal laws of the State of California, excluding that
body of law pertaining to conflict of laws.
21. CERTAIN DEFINITIONS. As used in this Plan, the following terms
shall have the following meanings:
(a) "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
(b) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
(c) "Affiliate" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
(d) "Fair Market Value" shall mean the fair market value of the
Shares as determined by the Committee from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the last reported bid and asked prices for common stock of the Company on the
last trading day prior to the date of determination (or the average closing
price over the number of consecutive working days preceding the date of
determination as the Committee shall deem appropriate) or, in the event the
common stock of the Company is listed on a stock exchange or on the Nasdaq
National Market, the Fair Market Value shall be the closing price on such
exchange or quotation system on the last trading day prior to the date of
determination (or the average closing price over the number of consecutive
working days preceding the date of determination as the Committee shall deem
appropriate).
(e) "Outside Director" shall mean any director who is not
(i) a current employee of the Company or any Parent, Subsidiary or Affiliate of
the Company, (ii) a former employee of the Company or any Parent, Subsidiary or
Affiliate of the Company who is receiving compensation for prior services (other
than benefits under a tax-qualified pension plan), (iii) a current or former
officer of the Company or any Parent, Subsidiary or Affiliate of the Company or
(iv) currently receiving compensation for personal services in any capacity,
other than as a director, from the Company or any Parent, Subsidiary or
Affiliate of the Company; provided, however, that at such time as the term
"Outside Director", as used in Section 162(m) of the Revenue Code, is defined in
regulations promulgated under Section 162(m), "Outside Director" shall have the
meaning set forth in such regulations, as amended from time to time and as
interpreted by the Internal Revenue Service.
(f) "Termination" or "Terminated" shall mean, for purposes of
the Plan with respect to an Optionee, that the Optionee ceased to provide
services as an employee, officer, director, consultant, independent contractor
or adviser to the Company or a Parent, Subsidiary or Affiliate of the Company,
except in the case of sick leave, military leave, or any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than ninety (90) days, or reinstatement upon the expiration of such leave is
guaranteed by contract or statute. The Committee shall have the sole discretion
to determine whether an Optionee has ceased to provide services and the
effective date on which the Optionee ceased to provide services (the
"Termination Date").
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