<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
</TABLE>
ACT NETWORKS, INC
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Board of Directors of Registrant
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transaction applies:
N/A
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
N/A
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
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(5) Total fee paid:
N/A
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
N/A
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
N/A
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(3) Filing Party:
N/A
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(4) Date Filed:
N/A
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<PAGE> 2
[ACT NETWORKS, INC. LOGO]
TO THE STOCKHOLDERS OF ACT NETWORKS, INC.
You are cordially invited to attend the Annual Meeting of Stockholders
of Act Networks, Inc. ("ACT" or the "Company") on Thursday, November 13, 1997 at
2:00 p.m. local time. The Annual Meeting will be held at the Warner Center
Marriott, 21850 Oxnard Street, Woodland Hills, California 91367.
At the meeting, you will be asked to consider and vote upon the
following proposals: (i) the approval of the implementation of the Company's
1997 Stock Incentive Plan; (ii) election of two (2) individuals to serve as
directors of the Company until the 2000 Annual Meeting; and (iii) the
ratification of Ernst & Young LLP as the Company's independent auditors for the
fiscal year ending June 30, 1998.
You are cordially invited to attend the Annual Meeting in person. Even
if you plan to attend the Annual Meeting, PLEASE PROMPTLY MARK, SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD in the accompanying postage-prepaid reply
envelope. By returning the proxy, you can help ACT avoid the expense of
duplicate proxy solicitations and possibly having to reschedule the Annual
Meeting if a quorum of the outstanding shares is not present or represented by
proxy. If you decide to attend the Annual Meeting and wish to change your proxy
vote, you may do so simply by voting in person at the Annual Meeting.
YOUR VOTE IS IMPORTANT.
October 14, 1997 /s/ MARTIN SHUM
-------------------------------------
MARTIN SHUM
President and Chief Executive Officer
<PAGE> 3
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF
ACT NETWORKS, INC.
November 13, 1997
-------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Act Networks, Inc., a Delaware corporation ("ACT" or the
"Company"), will be held at the Warner Center Marriott, 21850 Oxnard Street,
Woodland Hills, California 91367, on Thursday, November 13, 1997 at 2:00 p.m.
local time for the purpose of considering and voting on the following matters:
1. To approve the implementation of the Company's 1997 Stock Incentive
Plan;
2. To elect two (2) members to the Company's Board of Directors to
serve as directors until the 2000 Annual Meeting from the following nominees:
Mr. Archie J. McGill and William Ambrose;
3. To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending June 30, 1998; and
4. To transact such other business as may properly come before the
Annual Meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on September 26,
1996 as the record date for the determination of stockholders entitled to notice
of, and to vote at, this Annual Meeting and at any continuation or adjournment
thereof.
By Order of the Board of Directors
MARTIN SHUM
President and Chief Executive Officer
Camarillo, California
October 14, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. WHETHER OR
NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE ANNUAL MEETING. A POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR
THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF
YOU ATTEND THE ANNUAL MEETING.
<PAGE> 4
PROXY STATEMENT
------------
ACT NETWORKS, INC.
188 Camino Ruiz
Camarillo, California 93012
------------
INFORMATION CONCERNING SOLICITATION AND VOTING
General
This Proxy Statement and the enclosed proxy are furnished to
stockholders of ACT Networks, Inc. ("ACT" or the "Company") in connection with
the solicitation of proxies by the Board of Directors for use at the Annual
Meeting of Stockholders (the "Annual Meeting") to be held on Thursday November
13, 1997 at 2:00 p.m. local time, and at any and all adjournments or
postponements thereof for the purposes set forth in the Notice of Annual Meeting
accompanying this Proxy Statement.
ACT intends to mail this Proxy Statement and the accompanying proxy
card on or about October 16, 1997 to all stockholders entitled to vote at the
Annual Meeting. ACT's principal executive offices are located at 188 Camino
Ruiz, Camarillo, California 93012. The telephone number at that address is (805)
388-2474.
Voting
Only stockholders of record at the close of business on September 26,
1997 are entitled to notice of, and to vote, at the Annual Meeting. As of
September 26, 1997, 9,303,986 shares of the Company's Common Stock were issued
and outstanding. On each matter to be considered at the Annual Meeting, each
holder of Common Stock will be entitled to cast one vote for each share of the
Company's Common Stock held of record by such stockholder on September 26, 1997.
Pursuant to Delaware law, directors are elected by plurality vote of the
stockholders. All other matters submitted for stockholder approval at the Annual
Meeting will be decided by the affirmative vote of a majority of shares present
in person or represented by proxy at the Annual Meeting and entitled to vote on
each matter. With regard to the election of directors, votes may be cast in
favor of or withheld for each nominee; votes that are withheld will be excluded
entirely from the vote and will have no effect.
A majority of the Company's Common Stock entitled to vote will
constitute a quorum for the transaction of business at the Annual Meeting.
Abstentions may be specified on all proposals except the election of directors.
Abstentions and broker non-votes are counted as being present for purposes of
determining a quorum. If shares are not voted by the broker who is the record
holder of the shares, or if shares are not voted in other circumstances in which
proxy authority is defective or has been withheld with respect to any matter,
these non-voted shares are not deemed to be present or represented for purposes
of determining whether stockholder approval of that matter has been obtained.
Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by the holder of
record by filing with the Secretary of ACT, at ACT's principal executive office,
a written notice of revocation or a new duly executed proxy bearing a date later
than the date indicated on the previous proxy, or it may be revoked by the
holder of record attending the meeting and voting in person. Attendance at the
meeting will not, by itself, revoke a proxy.
<PAGE> 5
Solicitation
ACT will bear the entire cost of proxy solicitation, including costs of
preparing, assembling, printing and mailing this Proxy Statement, the proxy card
and any additional material furnished to stockholders. The Company has engaged
the firm of Georgeson & Company Inc. in furtherance of the solicitation of
proxies for the Annual Meeting. The fee for this service is estimated at $7,000
plus reasonable out-of-pocket expenses, which costs and expenses will be borne
by the Company. Copies of the solicitation materials will be furnished to
brokerage houses, fiduciaries and custodians holding in their names shares of
Common Stock beneficially owned by others, to forward to such beneficial owners.
ACT may reimburse persons representing beneficial owners of shares for their
expenses in forwarding solicitation materials to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
telegram or personal solicitation by directors, officers or other regular
employees of ACT. No additional compensation will be paid to directors, officers
or other regular employees for such services.
PROPOSAL NO. 1
APPROVAL OF THE IMPLEMENTATION OF THE 1997 STOCK INCENTIVE PLAN
The Company's stockholders are being asked to approve the
implementation of the Company's 1997 Stock Incentive Plan (the "1997 Plan"),
under which 460,000 shares of the Company's common stock ("Common Stock") will
be reserved for issuance to officers and other employees of the Company or any
parent or subsidiary corporation, the non-employee Board members and independent
consultants and advisors in the Company's service. The 1997 Plan is necessary
for the Company to attract and retain the services of key individuals essential
to the Company's long-term growth and success.
The share reserve under the 1997 Plan will supplement the 2,280,844
shares authorized for issuance under the Company's 1995 Stock Option/Stock
Issuance Plan (the "1995 Plan"), and the 500,000 shares authorized for issuance
under the Company's 1997 Non-Executive Officer Stock Option/Stock Issuance Plan
(the "Non-Executive Officer Plan") which was implemented in January, 1997. Share
issuances under the 1997 Plan will not reduce or otherwise affect the number of
shares of the Company's common stock available for issuance under the 1995 Plan
or the Non-Executive Officer Plan.
The 1997 Plan was adopted by the Board of Directors on September 23,
1997 and, subject to stockholder approval at the Annual Meeting, will become
effective immediately upon such approval.
The following is a summary of the principal features of the 1997 Plan.
The summary, however, does not purport to be a complete description of all the
provisions of the 1997 Plan. Any stockholder of the Company who wishes to obtain
a copy of the actual plan document may do so upon written request to the Chief
Financial Officer at the Company's principal executive offices in Camarillo,
California.
Equity Incentive Programs
The 1997 Plan is comprised of three separate equity incentive programs:
(i) a Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock, (ii) a Stock Issuance
Program under which such individuals may, in the Plan Administrator's
discretion, be issued stock directly through the purchase of such shares or as a
bonus tied to the performance of services or the attainment of financial
milestones and (iii) an Automatic Option Grant Program under which eligible
non-employee Board members will automatically receive option grants to purchase
shares of Common Stock at designated intervals over their period of Board
service.
2
<PAGE> 6
Administration
The Compensation Committee of the Board (the "Committee") will
administer the Discretionary Option Grant and Stock Issuance Programs. However,
one or more additional Board committees may be appointed to administer those
programs with respect to certain designated classes of individuals in the
Company's service. The term "Plan Administrator" as used in this summary will
mean the Compensation Committee and any other appointed committee acting within
the scope of its administrative authority under the 1997 Plan. Administration of
the Automatic Option Grant Program will be self-executing in accordance with the
express provisions of that program, and no Plan Administrator will exercise any
discretion with respect to such program.
Share Reserve
A total of 460,000 shares of Common Stock has been reserved for
issuance over the term of the 1997 Plan. Such share reserve will be in addition
to the shares of Common Stock reserved for issuance under the 1995 Plan, and
share issuances under the 1995 Plan will have no effect upon the number of
shares of Common Stock which remain available for issuance under the 1997 Plan.
In no event, however, may any one participant in the 1997 Plan be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 200,000 shares in the aggregate per calendar year.
Should an option expire or terminate prior to exercise in full, the
shares subject to the portion of the option not so exercised will be available
for subsequent issuance under the 1997 Plan. Unvested shares issued under the
1997 Plan and subsequently repurchased by the Company at the original option or
issue price paid per share will be added back to the share reserve and will
accordingly be available for subsequent issuance under the Plan. However, shares
subject to any options surrendered in connection with outstanding stock
appreciation rights under the 1997 Plan will not be available for subsequent
issuance.
Eligibility
Officers and other employees of the Company and its parent or
subsidiaries (whether now existing or subsequently established), non-employee
members of the Board or the board of directors of any parent or subsidiary
corporation and consultants and independent advisor in the service of the
Company or any parent and subsidiary corporation will be eligible to participate
in the Discretionary Option Grant and Stock Issuance Programs. Non-employee
members of the Board will also be eligible to participate in the Automatic
Option Grant Program.
As of August 31, 1997, approximately 8 executive officers and 280 other
employees were eligible to participate in the Discretionary Option Grant and
Stock Issuance Programs, together with 4 non-employee Board members who were
also eligible to participate in the Automatic Option Grant Program.
Valuation
The fair market value per share of Common Stock on any relevant date
under the 1997 Plan will be deemed equal to the closing selling price per share
on that date, as reported on the Nasdaq National Market. On September 26, 1997,
the closing selling price per share was $12.94.
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at
an exercise price per share not less than eighty-five percent (85%) of the fair
market value per share of Common Stock on the grant date. No granted option will
have a term in excess of ten years.
Upon cessation of service, the optionee will have a limited period of
time in which to exercise any of his or her outstanding options to the extent
those options are exercisable for vested shares. The Plan Administrator will
have complete discretion to extend the period following the optionee's cessation
of service during which his or her outstanding options may be exercised and/or
to accelerate the exercisability or vesting of such options in whole
3
<PAGE> 7
or in part. Such discretion may be exercised at any time while the options
remain outstanding, whether before or after the optionee's actual cessation of
service.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
Tandem stock appreciation rights will provide the holders with
the right to surrender their options for an appreciation distribution
from the Company equal in amount to the excess of (a) the fair market
value of the vested shares of Common Stock subject to the surrendered
option over (b) the aggregate exercise price payable for those shares.
Such appreciation distribution may, at the discretion of the Plan
Administrator, be made in cash or in shares of Common Stock.
Limited stock appreciation rights may be granted to officers
of the Company as part of their option grants. Any option with such a
limited stock appreciation right may be surrendered to the Company upon
the successful completion of a hostile take-over of the Company. In
return for the surrendered option, the officer will be entitled to a
cash distribution from the Company in an amount per surrendered option
share equal to the excess of (a) the take-over price per share over (b)
the exercise price payable for such share.
The Plan Administrator will have the authority to effect the
cancellation of outstanding options under the Discretionary Option Grant Program
which have exercise prices in excess of the then current market price of Common
Stock and to issue replacement options with an exercise price based on the
market price of Common Stock at the time of the new grant.
AUTOMATIC OPTION GRANT PROGRAM
The Automatic Option Grant Program under the 1997 Plan will, upon
stockholder approval of the 1997 Plan at the Annual Meeting, replace the
automatic option grant program for non-employee Board members currently in
effect under the 1995 Plan, and no further option grants will be made pursuant
to that program. All outstanding options under the automatic option grant
program in effect under the 1995 Plan will continue to be governed by the terms
of the agreements evidencing those grants, and nothing in the 1997 Plan will
affect those outstanding options.
Under the Automatic Option Grant Program to be in effect under the 1997
Plan, each individual who first becomes a non-employee Board member at any time
after the Annual Meeting, whether through appointment by the Board or election
by the stockholders, will automatically be granted at the time of such initial
appointment or election an option grant for 21,000 shares of Common Stock,
provided such individual has not previously been in the Company's employ. In
addition, on the date of each Annual Stockholders Meeting, beginning with the
Annual Meeting, each individual who is to continue to serve as a non-employee
Board member will automatically be granted an option to purchase 7,000 shares of
Common Stock, provided such individual has served as a non-employee Board member
for at least six (6) months. There will be no limit on the number of such 7,000
share options which any one non-employee Board member may receive over the
period of Board service, and non-employee Board members who have previously been
in the Company's employ will be eligible for one or more 7,000 share option
grants. In no event, however, will any non-employee Board member receive any
option grants under the Automatic Option Grant Program if such individual owns
(directly or indirectly) securities possessing more than five percent (5%) of
the total combined voting power of all classes of stock of the Company (or any
parent or subsidiary) or such person is otherwise affiliated with, or a
representative of, a person or entity that is such a five percent (5%)
stockholder.
Stockholder approval of the 1997 Plan will constitute approval of each
option grant made pursuant to the provisions of the Automatic Option Grant
Program on or after the date of the Annual Meeting. Each option will have an
exercise price per share equal to 100% of the fair market value per share of
Common Stock on the option grant date and a maximum term of ten years measured
from the option grant date.
4
<PAGE> 8
Each option will be immediately exercisable for all the option shares,
but any purchased shares will be subject to repurchase by the Company, at the
exercise price paid per share, upon the optionee's cessation of Board service
prior to vesting in those shares. The shares subject to each initial option
grant will vest (and the Company's repurchase rights will lapse) in thirty-six
(36) successive equal monthly installments over the optionee's period of Board
service, with the first such installment to vest upon the completion of one
month of Board service measured from the grant date. Each annual option grant
will vest (and the Company's repurchase rights will lapse) on the day
immediately preceding the date of the Annual Stockholders Meeting held in the
year immediately following the year of the option grant, provided the optionee
continues in Board service through such date.
The shares subject to each automatic option grant will immediately vest
should the optionee die or become permanently disabled while a Board member or
should any of the following events occur while the optionee continues in Board
service: an acquisition of the Company by merger or asset sale or a change in
control of the Company effected through a successful tender or exchange offer
for more than 50% of the outstanding voting stock or through a change in a
majority of the Board members by reason of one or more contested elections for
Board membership. In addition, upon the successful completion of a hostile
tender offer for more than 50% of the Company's outstanding voting stock, each
automatic option grant may be surrendered to the Company for a cash distribution
per surrendered option share in an amount equal to the excess of (a) the
take-over price per share over (b) the exercise price payable for such share.
Stockholder approval of the 1997 Plan will constitute pre-approval of the
exercise of such surrender right in accordance with the provisions of the
Automatic Option Grant Program, and no approval of the Board or the Plan
Administrator will be required at the time of the actual option surrender and
cash distribution.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per
share not less than eighty-five percent (85%) of fair market value, payable in
cash or through a promissory note payable to the Company. Shares may also be
issued solely as a bonus for past services.
The issued shares may either be immediately vested upon issuance or
subject to a vesting schedule tied to the performance of service or the
attainment of performance goals. The Plan Administrator will, however, have the
discretionary authority at any time to accelerate the vesting of any outstanding
shares under the Stock Issuance Program.
GENERAL PROVISIONS
Acceleration
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation will automatically accelerate and vest
in full, and all unvested shares under the Stock Issuance Program will
immediately vest, except to the extent the Company's repurchase rights with
respect to those shares are to be assigned to the successor corporation. Any
options assumed in connection with such acquisition will immediately accelerate,
and any unvested shares which do not vest at the time of such acquisition will
vest in full, in the event the individual's service is subsequently terminated
within 18 months following the acquisition. The Plan Administrator will have the
discretionary authority to provide for automatic acceleration of outstanding
options under the Discretionary Grant Program and the automatic vesting of
outstanding shares under the Stock Issuance Program upon the subsequent
termination of an individual's service within 18 months following a change in
control or ownership of the Company effected through a successful tender or
exchange offer for more than 50% of the outstanding voting stock or through a
change in the majority of the Board by reason of one or more contested elections
for Board membership.
The acceleration of vesting in the event of a change in ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other effort
to gain control of the Company.
5
<PAGE> 9
Financial Assistance
The Plan Administrator may permit one or more participants to pay the
exercise price of outstanding options or the purchase price of issued shares
under the 1997 Plan by delivering a full-recourse, interest-bearing promissory
note payable in installments. The maximum amount of financing provided any
participant may not exceed the cash consideration payable for the issued shares
plus all applicable taxes incurred in connection with the acquisition of the
shares. Any such promissory note may be subject to forgiveness in whole or in
part, at the discretion of the Plan Administrator, over the participant's period
of service.
Special Tax Election
The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred in connection with the exercise of those options or the
vesting of those shares. Alternatively, the Plan Administrator may allow such
individuals to deliver previously acquired shares of Common Stock in payment of
such tax liability.
Changes in Capitalization
In the event any change is made to the outstanding shares of Common
Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to (i) the maximum number and/or class of securities issuable under
the 1997 Plan, (ii) the number and/or class of securities for which any one
person may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances under the 1997 Plan per calendar year, (iii)
the number and/or class of securities for which grants are subsequently to be
made under the Automatic Option Grant Program to new and continuing non-employee
Board members and (iv) the number and/or class of securities and the exercise
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder.
Amendment and Termination
The Board may amend or modify the 1997 Plan at any time, subject to any
required stockholder approval. The 1997 Plan will terminate on the earliest of
(i) September 22, 2007, (ii) the date on which all shares available for issuance
under the 1997 Plan have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with certain changes in
control or ownership of the Company.
Stock Awards
No stock options or stock issuances have been made to date under the
1997 Plan. The table below shows, as to each of the Company's executive officers
named in the Summary Compensation Table and the various indicated individuals
and groups, the number of shares of Common Stock subject to options granted
between July 1, 1996 and September 30, 1997 under the 1995 Plan, together with
the weighted average exercise price payable per share.
<TABLE>
<CAPTION>
Weighted
Number of Average
Name Option Shares Exercise Price
---- ------------- --------------
<S> <C> <C>
EXECUTIVE OFFICERS
Martin Shum.................................... 0 0
President and Chief Executive Officer
Michael S. Gardner............................. 150,000 16.63
Chief Operating Officer
Melvin L. Flowers.............................. 0 0
Vice President, Finance and Administration,
and Chief Financial Officer
</TABLE>
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<PAGE> 10
<TABLE>
<CAPTION>
Weighted
Number of Average
Name Option Shares Exercise Price
---- ------------- --------------
<S> <C> <C>
Andre de Fusco.......................... 0 0
Vice President, Strategic Planning
and Business Development
Peter Staab............................. 0 0
Vice President, Corporate Research
and Development
Linda Carlson........................... 0 0
Vice President, Worldwide Sales
John W. Tucker.......................... 0 0
Vice President and General Manager,
Wireless Network Systems
Jean-Guy Lacombe........................ 0 0
Vice President and General Manager,
Enterprise Network Systems
All current executive officers
as a group (10 persons)................... 150,000 16.63
DIRECTORS
Frederick Gluck......................... 42,000 19.69
Director
Arch J. McGill.......................... 7,000 27.50
Director
Brig. Gen. Harold R. Johnson............ 7,000 27.50
Director
William Ambrose......................... 7,000 27.50
Director
All non-employee directors as a group
(4 persons)............................... 63,000 22.29
All employees, including current officers
who are not executive officers as a group
(217 persons)............................. 657,350 17.48
</TABLE>
NEW PLAN BENEFITS
If the 1997 Plan is approved by the stockholders at the Annual Meeting,
then the following individuals re-elected as non-employee Board members at such
Annual Meeting will each receive an option grant for 7,000 shares of Common
Stock with an exercise price per share equal to the closing selling price per
share of Common Stock on the date of the Annual Meeting: Messrs. Ambrose, Gluck,
Johnson and McGill.
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<PAGE> 11
FEDERAL INCOME TAX CONSEQUENCES
Option Grants
Options granted under the 1997 Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Internal Revenue
Code or non-statutory options which are not intended to meet such requirements.
The Federal income tax treatment for the two types of options differs as
follows:
Incentive Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of disposition. For Federal tax purposes, dispositions are divided into
two categories: (i) qualifying and (ii) disqualifying. A qualifying disposition
occurs if the sale or other disposition is made after the optionee has held the
shares for more than two years after the option grant date and more than one
year after the exercise date. If either of these two holding periods is not
satisfied, then a disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the excess of (i) the
fair market value of such shares on the option exercise date over (ii) the
exercise price paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares.
Non-Statutory Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date share
vest over (ii) the exercise price paid for those shares. The optionee may,
however, elect under Section 83(b) of the Internal Revenue Code to include as
ordinary income in the year of exercise of the option an amount equal to the
excess of (i) the fair market value of the purchased shares on the exercise date
over (ii) the exercise price paid for such shares. If the Section 83(b) election
is made, the optionee will not recognize any additional income as and when the
repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
Stock Appreciation Rights
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution for the taxable year in which the ordinary income
is recognized by the optionee.
Direct Stock Issuance
The tax principles applicable to direct stock issuances under the 1997
Plan will be substantially the same as those summarized above for the exercise
of non-statutory option grants.
8
<PAGE> 12
Deductibility of Executive Compensation
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options granted with exercise prices equal to the
fair market value of the option shares on the grant date will qualify as
performance-based compensation for purposes of Code Section 162(m) and will not
have to be taken into account for purposes of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain
executive officers of the Company. Accordingly, all compensation deemed paid
with respect to those options will remain deductible by the Company without
limitation under Code Section 162(m).
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less
than the fair market value of the shares on the grant or issue date will
generally result in a compensation expense to the Company's earnings equal to
the difference between the exercise or issue price and the fair market value of
the shares on the grant or issue date. Such expense will be accruable by the
Company over the period that the shares are to vest. Option grants or stock
issuances with an exercise price or issue price equal to 100% of the fair market
value of the shares on the grant or issue date will generally not result in any
charge to the Company's earnings, but the Company must disclose, in pro-forma
statements to the Company's financial statements, the impact those options would
have upon the Company's reported earnings were the value of those options at the
time of grant treated as compensation expense. Whether or not granted at a
discount, the number of outstanding options is a factor used in determining the
Company's earnings per share.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in compensation expense to the
Company's earnings.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the implementation of the 1997 Plan. Should such
stockholder approval not be obtained, then the 1997 Plan will not become
effective, and no option grants or stock issuances under the 1997 Plan will be
made.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
approval of the implementation of the 1997 Plan. The Board believes that it is
in the best interests of the Company to maintain an additional equity incentive
program for the Company which will provide a meaningful opportunity for
officers, employees and non-employee Board members to acquire a substantial
proprietary interest in the enterprise and thereby encourage such individuals to
remain in the Company's service and more closely align their interests with
those of the stockholders.
9
<PAGE> 13
PROPOSAL NO. 2
ELECTION OF DIRECTORS - NOMINEES
The Certificate of Incorporation of the Company provides for the
division of the Board of Directors into three classes, each class serving for a
period of three years. The foregoing notwithstanding, directors serve until
their successors have been duly elected and qualified or until they resign,
become disqualified or disabled, or are otherwise removed. The class of
directors whose term expires as of the Annual Meeting includes incumbent
directors William Ambrose and Archie J. McGill.
Proxyholders will vote all proxies received by them FOR THE NOMINEES
LISTED BELOW UNLESS OTHERWISE INSTRUCTED IN WRITING ON SUCH PROXY. The two (2)
candidates receiving the highest number of affirmative votes of shares entitled
to vote at the Annual Meeting will be elected directors of ACT. Stockholders of
ACT are not entitled to cumulative voting rights. In the event any nominee is
unable or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for an additional nominee who shall be designated by the
current Board of Directors to fill the vacancy. As of the date of this Proxy
Statement, the Board of Directors is not aware of any nominee who is unable or
will decline to serve as director.
DIRECTORS AND NOMINEES
Information with Respect to Nominees
The following table sets forth certain information concerning the
nominees for director of ACT as of September 30, 1997.
NOMINEES FOR ELECTION
Name Age Position
- ---- --- --------
William Ambrose(2) 39 Director
Archie J. McGill(1)(2) 66 Director
- -----------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
William W. Ambrose has served as a member of the Board of Directors
since 1993. Mr. Ambrose is the President of Pyramid Research, Inc., a
telecommunications market research organization which he founded in 1986. Mr.
Ambrose was initially elected as a director of the Company pursuant to a voting
agreement entered into in connection with investment in the Company by a
subsidiary of a former stockholder.
Archie J. McGill has served as a member of the Board of Directors since
1994. Mr. McGill is the President and Chief Executive Officer of Chardonnay
Inc., an investment management company, and has served in such position since
1986. Mr. McGill served as President of Rothschild, Inc., a venture capital
investment firm, from 1983 to 1986. Mr. McGill was previously President of the
AIS/American Bell division of AT&T and a Vice President of Marketing for
International Business Machines.
Recommendation of the Board of Directors
The Board of Directors recommends a vote FOR each of the two nominees
named above.
10
<PAGE> 14
CONTINUING DIRECTORS
DIRECTORS CONTINUING TO SERVE UNTIL 1998
Name Age Position
- ---- --- --------
Frederick Gluck 62 Director
Frederick Gluck has served as a member of the Board of Directors since
March 1997. Mr.Gluck recently retired as Vice Chairman of Bechtel Group, Inc.,
and continues as a Director and senior counselor and a member of the Board of
Directors of Bechtel Enterprises, Inc. Prior to joining Bechtel, Mr. Gluck spent
27 years with McKinsey & Company , a global management consulting firm, serving
as a Partner, Director and Managing Director. Mr. Gluck also spent ten years
with Bell Telephone, working in program management, systems analysis and
engineering and guidance systems designs.
DIRECTORS CONTINUING TO SERVE UNTIL 1999
Name Age Position
- ---- --- --------
Martin Shum 49 Chairman of the Board, President
and Chief Executive Officer
Brig. Gen. Harold R. Johnson(1) 74 Director
- -----------
(1)Member of the Compensation Committee
Martin Shum founded the Company in May 1987 and has served as Chairman
of the Board of Directors, President and Chief Executive Officer since that
time. Prior to founding ACT, Mr. Shum was employed in various capacities by
several telecommunications companies, including Vice President of Marketing and
Development at Micom Communications Corp., Director of Business Planning and
Director of Engineering at General DataComm, and senior member of the technical
staff at Plessey Telecommunications Research. Mr. Shum became a director of
Netspeak Corporation in June 1997.
Brig. Gen. (retired) Harold R. Johnson has served as a member of the
Board of Directors of the Company since 1988. Brig. Gen. Johnson is currently
the Senior Vice President of Business Development at The Fairchild Corporation,
an aerospace and communications company, and has been with Fairchild in various
capacities since 1988. From 1980 to 1988, Brig. Gen. Johnson was founder,
President and Chief Executive Officer of Telebit Corporation, a manufacturer of
modems.
Board Meetings
The Board of Directors met 11 times during the fiscal year ending June
30, 1997. Each director attended at least 85% of the aggregate of (i) the total
number of meetings of the Board of Directors and (ii) the total number of
meetings held by all committees of the Board on which such director served.
The Board of Directors has an Audit Committee which supervises and
makes recommendations and decisions with respect to the periodic audits of the
Company's financial results. Archie J. McGill is a member of the Audit
Committee. The Audit Committee held one meeting during the fiscal year ended
June 30, 1997.
The Board of Directors has a Compensation Committee, which administers
the Company's stock option plans. The members of the Compensation Committee are
Messrs. William Ambrose, Archie J. McGill and Brig. Gen. (ret.) Harold R.
Johnson. The Compensation Committee held 4 meetings during the fiscal year
ending June 30, 1997.
11
<PAGE> 15
The Company's stock option plans also provide that the Board may
delegate the administration of such stock option plans, with respect to the
Company's non-executive officers and employees, to a Secondary Compensation
Committee. Martin Shum is currently the only member of the Secondary
Compensation Committee. The Secondary Compensation Committee held 11 meetings
during the fiscal year ended June 30, 1997.
Director Compensation
Each non-employee director (other than a director who serves as
representative of a stockholder owning more than 5% of the Company's voting
securities) receives $6,000 annually for services as a member of the Board of
Directors. Non-employee directors are reimbursed for their out-of-pocket
expenses in serving on the Board of Directors. There are no family relationships
among any of the executive officers or directors of the Company except for John
Tucker and Linda Carlson who are married to each other.
During the 1997 fiscal year, certain non-employee directors were
eligible to receive option grants under the Automatic Option Grant Program in
effect under the Company's 1995 Stock Option/Stock Issuance Plan. Accordingly,
at the 1996 Annual Stockholders Meeting held on November 4, 1996, each of the
following non-employee directors received an option grant under the Automatic
Option Grant Program for 7,000 shares of Common Stock with an exercise price of
$27.50 per share: Messrs. Ambrose, McGill and Brig. Gen. (ret.) Johnson. In
addition, Frederick Gluck was granted options for 42,000 shares of Common Stock
with an exercise price of $19.69 per share upon joining the Board of Directors
in March 1997. The exercise price in effect for each option is equal to the fair
market value per share of Common Stock on the grant date. Each option has a
maximum term of ten (10) years measured from the grant date, subject to earlier
termination following the optionee's cessation of Board service. Each option is
immediately exercisable for all of the option shares; however, any shares
purchased under the option will be subject to repurchase by the Company, at the
option exercise price paid per share, upon the optionee's cessation of Board
service prior to vesting in those shares. The shares subject to each 7,000-share
grant will vest on the day immediately preceding the date of the 1997 Annual
Meeting, provided the optionee continues in Board service through that date. The
shares subject to the 42,000-share grant made to Mr. Gluck will vest in
thirty-six (36) successive equal monthly installments upon his completion of
each month of Board service over the thirty-six (36)- month period measured from
the grant date.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee of the Company's Board of
Directors are Messrs. William Ambrose, Archie J. McGill and Brig. Gen. (ret.)
Harold R. Johnson. No member of the Committee was at any time during the 1997
fiscal year or at any other time an officer or employee of the Company.
No executive officer of the Company served on the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
Indemnification of Directors and Officers
Under Section 145 of the Delaware General Corporation Law, the Company
can indemnify its directors and officers against liabilities they may incur in
such capacities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). The Company's Bylaws provide that the Company
will indemnify its directors and officers to the fullest extent permitted by law
and require the Company to advance litigation expenses upon receipt by the
Company of an undertaking by the director or officer to repay such advances if
it is ultimately determined that the director or officer is not entitled to
indemnification. The Bylaws further provide that rights conferred under such
Bylaws do not exclude any other right such persons may have or acquire under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
The Company's Certificate of Incorporation provides that, pursuant to
Delaware Law, its directors shall not be liable for monetary damages for breach
of the directors' fiduciary duty of care to the Company and its
12
<PAGE> 16
stockholders. This provision in the Certificate of Incorporation does not
eliminate the duty of care, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware Law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company or its
stockholders, for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
The Company has entered into agreements to indemnify its directors and
certain of its officers in addition to the indemnification provided for in the
Certificate of Incorporation and Bylaws. These agreements, among other things,
indemnify the Company's directors and certain of its officers for certain
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by such person in any action or proceeding, including any action by or
in the right of the Company, on account of services as a director or officer of
the Company, or as a director or officer of any other company or enterprise to
which the person provides services at the request of the Company.
PROPOSAL NO. 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The accounting firm of Ernst & Young LLP served as independent auditors
for ACT for the fiscal year ended June 30, 1997. The Board of Directors, on the
recommendation of ACT's management, has selected that firm to continue in this
capacity for the current fiscal year. ACT is asking the stockholders to ratify
the selection by the Board of Directors of Ernst & Young LLP as independent
auditors to audit the consolidated financial statements of ACT for the fiscal
year ending June 30, 1998 and to perform other appropriate services. A
representative of Ernst & Young LLP is expected to be present at the Annual
Meeting to respond to stockholders' questions, and that representative will be
given an opportunity to make a brief presentation to the stockholders if he or
she so desires and will be available to respond to appropriate questions. ACT
has been advised by Ernst & Young LLP that neither that firm nor any of its
associates has any material relationship with ACT nor any affiliate of ACT.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for ratification of the selection of Ernst & Young LLP to serve as the
Company's independent auditors for the fiscal year ended June 30, 1998. Should
such stockholder approval not be obtained, then the Board of Directors will
reconsider such selection. Under all circumstances, the Board retains the
corporate authority to change the auditors at a later date.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
proposal to ratify the selection of Ernst & Young LLP as independent auditors
for the year ending June 30, 1998.
13
<PAGE> 17
GENERAL
Stock Ownership of Management and Principal Stockholders
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of August 31, 1997 by (i)
each person known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) each of the Company's directors, (iii)
each of the Named Executive Officers and (iv) all directors and executive
officers of the Company as a group:
<TABLE>
<CAPTION>
Shares Beneficially
Owned(1)
Directors, Five Percent Stockholders, Named Executive -------------------------
Officers and Directors and Officers as a Group Number Percent
- ----------------------------------------------------- ------ -------
<S> <C> <C>
Lutheran Brotherhood(2).............................................. 886,000 9.5%
Martin Shum(3)....................................................... 434,417 4.5
William W. Ambrose(4)................................................ 39,155 *
Brig. Gen. H. R. Johnson(5) ......................................... 19,714 *
Archie J McGill(6)................................................... 46,857 *
Frederick W. Gluck(7)................................................ 42,000 *
Melvin L. Flowers(8)................................................. 80,656 *
John Tucker(9)....................................................... 85,695 *
Andre de Fusco(10)................................................... 82,816 *
Peter Staab(11)...................................................... 75,175 *
Linda Carlson(12).................................................... 40,070 *
Jean-Guy Lacombe(13)................................................. 125,272 1.3
Michael S. Gardner(14)............................................... 150,000 1.6
All directors and executive officers as a
group (12 persons)(15)............................................. 221,827 11.8
</TABLE>
- -----------
* Less than 1%.
(1) Unless otherwise indicated, the persons 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.
(2) Based upon information contained in unofficial databases as of June 30,
1997.
(3) Includes 38,571 shares held by members of Mr. Shum's family and 14,083
shares held by Helen Shum and Martin Shum as Trustees of the Shum
Trust, dated April 15, 1994. Also includes 381,763 shares issuable upon
exercise of immediately exercisable options (including 3,000 shares
issuable upon exercise of options held by Mr. Shum's spouse) of which
261,608 shares will be vested within 60 days from August 31, 1997.
(4) Includes 25,155 shares owned by Pyramid Research, Inc. Mr. Ambrose, as
President of Pyramid Research, Inc., may be deemed to have beneficial
ownership of these shares. Also includes 14,000 shares issuable upon
exercise of immediately exercisable options, of which 12,833 will be
vested within 60 days from August 31, 1997.
(5) Includes 14,000 shares issuable upon exercise of immediately
exercisable options, of which 12,833 will be vested within 60 days from
August 31, 1997.
(6) Includes 46,857 shares issuable upon exercise of immediately
exercisable options, of which 36,262 will be vested within 60 days from
August 31, 1997.
(7) Includes 42,000 shares issuable upon exercise of immediately
exercisable options, of which 5,880 will be vested within 60 days from
August 31, 1997.
(8) Includes 61,029 shares issuable upon exercise of immediately
exercisable options, of which 27,775 will be vested within 60 days from
August 31, 1997.
14
<PAGE> 18
(9) Includes 79,500 shares issuable upon exercise of immediately
exercisable options of which 46,497 shares will be vested within 60
days from August 31, 1997.Excludes shares beneficially owned by Mr.
Tucker's spouse, Ms. Linda Carlson, an executive officer of the
Company.
(10) Includes 81,000 shares issuable upon exercise of immediately
exercisable options of which 42,841 shares will be vested within 60
days from August 31, 1997.
(11) Includes 74,000 shares issuable upon exercise of immediately
exercisable options of which 34,600 shares will be vested within 60
days from August 31, 1997.
(12) Includes 39,643 shares issuable upon exercise of immediately
exercisable options of which 19,029 shares will be vested within 60
days from August 31, 1997. Excludes shares beneficially owned by Ms.
Carlson's spouse, Mr. John Tucker, an executive officer of the Company.
(13) Includes 46,900 shares issuable upon exercise of immediately
exercisable options of which 13,300 shares will be vested within 60
days from August 31, 1997.
(14) Includes 150,000 shares issuable upon exercise of immediately
exercisable options of which no shares will be vested within 60 days
from August 31, 1997.
(15) Includes 25,155 shares owned by Pyramid Research, Inc. Also includes an
aggregate of 1,030,692 shares issuable to the Company's directors and
executive officers upon the exercise of immediately exercisable options
held by such directors and executive officers of which 500,158 shares
will be vested within 60 days from August 31, 1997.
15
<PAGE> 19
Directors and Executive Officers of Registrant
The following table sets forth certain information concerning the
executive officers and directors of the Company as of August 31, 1997.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Martin Shum 49 Chairman of the Board of Directors, President and
Chief Executive Officer
Michael S. Gardner 51 Chief Operating Officer
Melvin L. Flowers 44 Chief Financial Officer and Vice President,
Finance and Administration
Andre de Fusco 39 Vice President, Strategic Planning and
Business Development
H. Peter Staab 50 Vice President, Corporate Research and Development
Linda F. Carlson 52 Vice President, Worldwide Sales
John W. Tucker 52 Vice President and General Manager,
Wireless Network Systems
Jean-Guy Lacombe 40 Vice President and General Manager,
Enterprise Network Systems
Brig. Gen. Harold R. Johnson(1) 74 Director
William Ambrose(1) 39 Director
Archie J. McGill(1)(2) 66 Director
Frederick Gluck 62 Director
</TABLE>
- ----------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Martin Shum founded the Company in May 1987 and has served as Chairman
of the Board of Directors, President and Chief Executive Officer since that
time. Prior to founding ACT, Mr. Shum was employed in various capacities by
several telecommunications companies, including Vice President of Marketing and
Development at MICOM, Director of Business Planning and Director of Engineering
at General DataComm, and senior member of the technical staff at Plessey
Telecommunications Research. Mr. Shum became a director of Netspeak Corporation
in June 1997.
Michael S. Gardner has served as Chief Operating Officer since joining
the Company in November 1996. Mr. Gardner served as President of
Whittaker/Xyplex, an internetworking and remote access division of Whittaker
Corporation prior to joining the Company. From 1992 to 1994, Mr. Gardner was
Chief Operating Officer of Advanced Computer Communications. Mr. Gardner also
held numerous positions at Ungermann-Bass and Hewlett-Packard.
Melvin L. Flowers has served as Chief Financial Officer and Vice
President of Finance since July 1993 and as Vice President, Finance and
Administration since December 1995. Prior to joining the Company, Mr. Flowers
served as President and Chief Financial Officer of Pacific Earth Resources, an
ornamental horticultural company, from 1991 to 1993 and from 1989 to 1991,
respectively, and as Vice President and Chief Financial Officer of Spectramed
Incorporated, a medical device manufacturing company, from 1986 to 1989.
Andre de Fusco has served as Vice President, Strategic Planning and
Business Development since December 1995. Mr. de Fusco joined the Company in
December 1994 and served as its Vice President of Marketing until December 1995.
Mr. de Fusco was employed as Director of International Accounts and Director of
Business Development for Northern Telecom from 1991 to 1994 and as Vice
President of Marketing and President of MaxCom, a developer of electronic mail
systems, from 1984 to 1991.
16
<PAGE> 20
H. Peter Staab was appointed Vice President, Corporate Research and
Development in July 1997 and served as Vice President of Engineering since
joining the Company in June 1995. Before joining the Company, Mr. Staab was
employed at General DataComm as Director of Network Management and Systems from
1992 to 1995 and Director of Transmission Products from 1985 to 1992.
Linda Carlson has served as Vice President, Worldwide Sales since
December 1995. Ms. Carlson served as the Company's Assistant Vice President of
Sales--Americas from January 1991 to December 1995. Prior to January 1991, Ms.
Carlson was employed at various telecommunication companies, including RED-SAC
and MICOM. Ms. Carlson is married to John W. Tucker.
John W. Tucker has served as Vice President and General Manager,
Wireless Network Systems since March 1997, as Vice President, Sales and
Marketing since December 1995, and as the Company's Vice President of Sales from
June 1990 until December 1995. Mr. Tucker was employed as a marketing consultant
from 1988 to 1990, as Assistant Vice President of North American Sales at MICOM
from 1985 to 1988 and as Director of Sales at Interlan, a local area network
component manufacturer, from 1984 to 1985.
Jean-Guy Lacombe has served as Vice President and General Manager,
Enterprise Network Systems since July 1997, Vice President, Operations of the
Company and the General Manager of Presticom since December 1995. Mr. Lacombe
was the Chairman of the Board and Chief Executive Officer of Presticom from
February 1988 until November 1995.
Brig. Gen. (retired) Harold R. Johnson has served as a member of the
Board of Directors of the Company since 1988. Brig. Gen. Johnson is currently
the Senior Vice President of Business Development at The Fairchild Corporation,
an aerospace and communications company, and has been with Fairchild in various
capacities since 1988. From 1980 to 1988, Brig. Gen. Johnson was founder,
President and Chief Executive Officer of Telebit Corporation, a manufacturer of
modems.
William W. Ambrose has served as a member of the Board of Directors
since 1993. Mr. Ambrose is the President of Pyramid Research, Inc. a
telecommunications market research organization which he founded in 1986. Mr.
Ambrose was initially as a director of the Company pursuant to a voting
agreement entered into in connection with investment in the Company by a
subsidiary of a former stockholder.
Archie J. McGill has served as a member of the Board of Directors since
1994. Mr. McGill is the President and Chief Executive Officer of Chardonnay
Inc., an investment management company, and has served in such position since
1986. Mr. McGill served as President of Rothschild, Inc., a venture capital
investment firm, from 1983 to 1986. Mr. McGill was previously President of the
AIS/American Bell division of AT&T and a Vice President of Marketing for
International Business Machines.
Frederick Gluck has served as a member of the Board of Directors since
March 1997. Mr. Gluck recently retired as Vice Chairman of Bechtel Group,
Inc.,and continues as a Director and senior counselor and a member of the Board
of Directors of Bechtel Enterprises, Inc. Prior to joining Bechtel, Mr. Gluck
spent 27 years with McKinsey & Company, a global management consulting firm,
serving as a Partner, Director and Managing Director. Mr. Gluck also spent ten
years with Bell Telephone, working in program management, systems analysis and
engineering and guidance systems designs.
The Board of Directors of the Company is divided into three classes,
designated "Class I," "Class II" and "Class III," respectively. Each director
serves for a term ending on the date of the third annual meeting of stockholders
following the annual meeting at which such director was elected. Each initial
director in Class I (Mr. Gluck) serves for a term ending on the date of the
annual meeting of stockholders held in 1998; each initial director in Class II
(Mr. Ambrose and Mr. McGill) serves for a term ending on the date of the annual
meeting of stockholders held in 1997 and each initial director in Class III (Mr.
Shum and Brig. Gen. Johnson) serves for a term ending on the date of the annual
meeting of stockholders held in 1999.
17
<PAGE> 21
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission
("SEC"). Such persons are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms filed by such person.
Based solely on the Company's review of such forms furnished to the
Company and written representations from certain reporting persons, the Company
believes that there has been compliance with all filing requirements applicable
to the Company's executive officers, directors and more than 10% stockholders.
STOCK PERFORMANCE GRAPH
The graph depicted below shows ACT's stock price as an index for the
period commencing May 3, 1995 to June 30, 1997, assuming $100 invested on May 3,
1995 (the date of ACT's initial public offering) and reinvestment of dividends,
along with the composite prices of companies listed on the National Association
of Securities Dealers Automated Quotation ("Nasdaq") Telecommunication Index
("NTI") and the Standard and Poor's 500 Stock Index ("S&P 500"). The Company
believes that the NTI and the S&P 500 provide an appropriate measure of the
Company's stock price performance as the NTI and the S&P 500 listed companies
are comparable to the Company in size and/or industry focus.
PERFORMANCE GRAPH FOR ACT NETWORKS, INC.
COMPARISON OF 26 MONTH CUMULATIVE TOTAL RETURN
AMONG ACT NETWORKS, INC., THE S&P 500 INDEX AND
THE NASDAQ TELECOMMUNICATIONS INDEX*
05/03/95 06/30/95 06/30/96 06/30/97
-------- -------- -------- --------
ACT NETWORKS, INC. 100 133 250 98
S&P 500 100 105 132 178
NASDAQ TELECOMMUNICATIONS 100 109 135 136
* $100 invested on 05/30/95 in stock
or index - including reinvestment
of dividends.
18
<PAGE> 22
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Compensation Committee Report(1)
It is the responsibility of the Compensation Committee (the
"Committee") of the ACT Board of Directors to make recommendations to the Board
of Directors regarding the salary and bonuses to be paid to the Company's
executive officers each fiscal year. The Committee also administers the 1995
Stock Option/Stock Issuance Plan (the "1995 Plan"). Equity incentives may be
granted under the 1995 Plan to executive officers as part of their long-term
compensation package. The following is a summary of the policies of the
Committee which affect the compensation paid to executive officers, as reflected
in the tables and text set forth elsewhere in this Proxy Statement.
General Compensation Policy. Under the supervision of the Committee,
ACT has developed a compensation policy which is designed to attract, retain and
reward qualified key executives critical to the Company's success and to provide
such executives with performance-based incentives tied to the financial
performance of ACT. One of the Committee's primary objectives is to have a
substantial portion of each officer's compensation contingent upon the Company's
performance as well as upon the individual's contribution to the success of ACT
as measured by his or her personal performance. Accordingly, each executive
officer's compensation package is fundamentally comprised of three elements: (i)
base salary which reflects individual experience, expertise and responsibility
and is designed to be competitive with salary levels in the industry; (ii)
annual incentive compensation which reflects individual and Company performance
for the year; and (iii) long-term stock-based incentive awards which strengthen
the mutuality of interests between the executive officers and the ACT
stockholders.
Factors. The principal factors which were considered in establishing
the components of each executive officer's compensation package for the year
ended June 30, 1997 are summarized below. However, the Committee may in its
discretion apply entirely different factors, particularly different measures of
financial performance, in setting executive compensation for future fiscal
years.
o Base Salary. For the 1997 fiscal year, the Committee has set the base
salary of the executive officers within the range of salaries of executive
officers with comparable qualifications, experience and responsibilities at
other companies comparable in size, which provide telecommunication services or
which compete with the Company for executive talent. However, in setting the
base salary for each officer, several additional factors were taken into
account: the experience and personal performance of the officer, the ability to
develop and maintain the skills necessary to work in a high-growth company, the
ability to initiate strategies to enhance the Company's growth, profitability
and business opportunities and internal comparability considerations. The weight
given to each of these factors differs from individual to individual, as the
Committee deems appropriate.
o Annual Incentive Compensation. Annual bonuses are earned by each
executive officer primarily on the basis of the Company's achievement of certain
corporate financial performance targets established for each fiscal year. For
fiscal year 1997, no bonuses, other than commissions, were earned by the
Company's executive officers as the criteria the Board determined for awarding
cash bonuses were not met. The performance criteria for fiscal 1997 were based
on targets tied to the Company's revenues and earnings per share.
- --------
(1) The material in this report is not "soliciting material," is not deemed
filed with the Securities and Exchange Commission (the "SEC") and is not
to be incorporated by reference in any filing of the Company under the
Securities Act of 1933 as amended (the "1933 Act") or the Securities
Exchange Act of 1934, as amended (the "1934 Act").
19
<PAGE> 23
o Long-Term Incentive Compensation. Each option grant under the 1995
Plan is designed to align the interests of the executive officers with those of
the stockholders and provide each individual with a significant incentive to
manage the Company from the perspective of an owner with an equity stake in the
business and to remain in the service of the Company. The number of shares
subject to each option grant takes into account an officer's existing equity
holdings (including the number of unvested shares), the officer's tenure, level
of responsibility and relative position in the Company. However, the Committee
will vary the size of the option grant made to each executive officer as it
feels the circumstances warrant. Each grant allows the officer to acquire shares
of the Company's Common Stock at a fixed price per share over a specified period
of time (up to 10 years).
In fiscal 1997, the Committee reviewed the equity incentives in place
for each of the Company's executive officers. The Committee did not grant
additional options in fiscal 1997. In reaching this decision, the Committee
reviewed numerous relevant factors including, without limitation, the cash
compensation for ACT's executives, the equity and cash incentives in place for
executives at comparable companies and the number and value of vested options
and shares held by ACT's executive officers.
o CEO Compensation. The base salary established for the Company's Chief
Executive Officer, Mr. Martin Shum, for the year ended June 30, 1997 reflects
the Committee's decision to maintain a level of stability and certainty with
respect to this component of his compensation from year to year, and there was
no intent to have this particular component of compensation affected to any
significant degree by the Company's performance. The Committee's intent in
setting Mr. Shum's compensation for the 1997 fiscal year was to have a
significant portion of Mr. Shum's cash compensation based on the Company's
performance. Mr. Shum was eligible for a $50,000 performance bonus which was
tied to targets based on the Company's revenues and earnings. As discussed
above, the targets were not met and Mr. Shum did not receive a bonus for fiscal
year 1997.
Option cancellation/regrant program. On June 10, 1997, the Company's
Board of Directors implemented a cancellation/regrant program for options issued
under the 1993 and 1995 plans, whereby certain individuals (other than the
Company's directors) were offered the opportunity to cancel their existing
options with exercise prices above the then current market price of the Common
Stock and receive a grant of a new option to purchase the same number of
unexercised shares at an exercise price equal to the closing selling price of
ACT stock on June 10, 1997, or 16 5/8 per share. The new options granted were
subject to the same vesting schedule as the previous options (i.e. the employee
did not lose any vesting by getting the new options). However, to assure that
the new options will provide a significant incentive for the optionees to remain
in the Company's employ, the new options have been structured so that any
vesting under the cancelled higher-priced options and under the new options will
be forfeited unless the optionee remains in the Company's employ through June 9,
1998.
Tax Limitation. As a result of federal tax legislation enacted in 1993,
a publicly-held company such as ACT will not be allowed a federal income tax
deduction for compensation paid to certain executive officers, to the extent
that compensation exceeds $1 million per officer in any year. This limitation
will apply to all compensation paid to the covered executive officers which is
not considered to be performance-based. However, compensation which does qualify
as performance-based compensation will not have to be taken into account for
purposes of this limitation. The compensation paid to the Company's executive
officers for the year ended June 30, 1997 did not, and the compensation to be
paid for the year ending June 30, 1998 is not expected to, exceed the $1 million
limit per officer. In addition, the 1995 and 1997 Plans have been structured so
that any compensation deemed paid to
20
<PAGE> 24
an executive officer in connection with the exercise of options granted under
those plans with an exercise price equal to the fair market value of the option
shares on the grant date will qualify as performance-based compensation which
will not be subject to the $1 million limitation. Because it is very unlikely
that the cash compensation payable to any of the Company's executive officers in
the foreseeable future will approach the $1 million limitation, the Committee
has decided not to take any other action to limit or restructure the elements of
cash compensation payable to the Company's executive officers. The Committee
will reconsider this decision should the individual compensation of any
executive officer ever approach the $1 million level.
Compensation Committee
Brig. Gen. Harold R. Johnson, USAF (Ret.)
Archie J. McGill
William Ambrose
21
<PAGE> 25
Executive Compensation
The following table sets forth the compensation earned, by the
Company's Chief Executive Officer and the Company's four most highly compensated
executive officers in the 1997 fiscal year, for services rendered in all
capacities to the Company and its subsidiaries for each of the last three fiscal
years. No executive officer who would have otherwise been includable in such
table on the basis of salary and bonus earned for the 1997 fiscal year has been
excluded by reason of his or her termination of employment or change in
executive status during that fiscal year. The individuals included in the table
will be collectively referred to as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation ------------
--------------------------------------- Securities
Fiscal Bonus / Underlying
Name and Principal Positions(1) Year Salary ($) Commission ($) Options(#)
- ------------------------------- ----- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Martin Shum..................... 1997 225,000 -0- -0-
1996 190,000 -0- 251,500
1995 175,000 -0- 58,570
Linda Carlson................... 1997 100,000 101,092 -0-
1996 117,553 87,200 38,429
1995 92,000 55,000 2,857
John W. Tucker.................. 1997 100,000 121,576 -0-
1996 102,510 65,714 67,286
1995 115,000 -0- 4,571
Melvin L. Flowers............... 1997 140,000 -0- -0-
1996 120,000 -0- 68,429
1995 115,000 -0- 10,857
Andre de Fusco.................. 1997 140,000 -0- -0-
1996 123,335 7,677 54,286
1995 100,000 -0- 6,857
</TABLE>
- ----------
(1) See "Directors and Executive Officers of Registrant" for the complete title
of the position held by each Named Executive Officer.
22
<PAGE> 26
Option Grants
No options to purchase shares of Common Stock were granted under the
Company's 1995 Plan to the Named Executive Officers during the 1997 fiscal year,
and no stock appreciation rights were granted to any of those individual
Officers during such fiscal year.
Option Repricing
The Company implemented an option cancellation/regrant program for one
executive officer and other employees holding stock options with an exercise
price per share in excess of the market price of the Company's Common Stock at
the time the cancellation/regrant occurred. The cancellation/regrant was
effected on June 10, 1997, and a number of outstanding options with an exercise
price in excess of $16 5/8 per share were canceled and new options for the same
aggregate number of shares were granted with an exercise price of $16 5/8 per
share. No Named Executive Officer participated in the option
cancellation/regrant program; however Michael Gardner elected to have all
150,000 of his stock options repriced. Optionees who accepted the repricing will
forfeit all vesting under their options unless they remain in the Company's
employ through June 9, 1998.
Option Exercises and Holdings
The following table sets forth information concerning the number and
value of shares acquired on exercise of options held by each of the Named
Executive Officers during the fiscal year ended June 30, 1997 and the number and
value of unexercised options held by each of the Named Executive Officers as of
June 30, 1997. No stock appreciation rights were exercised during fiscal year
1997, and no such appreciation rights were outstanding as of June 30, 1997.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997
AND OPTION VALUES FOR FISCAL YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money Options at
Shares Options at June 30, 1997(1) June 30, 1997(2)
Acquired on Value ----------------------------- ---------------------------
Name Exercise (#) Realized($)(3) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin Shum.................... 15,900 $207,987 385,763 -- $1,632,633 --
Linda Carlson.................. 3,000 54,945 39,643 -- 14,209 --
John W. Tucker................. 7,000 116,533 79,500 -- 159,183 --
Melvin L. Flowers.............. 6,000 93,454 66,715 -- 62,546 --
Andre de Fusco................. -- -- 81,000 -- 209,705 --
</TABLE>
- -----------
(1) Each option is immediately exercisable for all the option shares, but
any unvested shares acquired under such option will be subject to
repurchase by the Company, at the exercise price paid per share, upon
termination of the optionee's service with the Company. The option
shares will vest according to the following schedule: twenty-four
percent (24%) of the shares will vest upon completion of one year of
service following the vesting commencement date or grant date, as
applicable, and the balance will vest at a rate of two percent (2%) per
full month of employment thereafter. The number of option shares which
were vested on June 30 1997 was as follows: Mr. Shum, 242,327 shares;
Ms. Carlson, 15,783 shares; Mr. Tucker, 40,840 shares; Mr. Flowers,
27,335 shares; and Mr. de Fusco, 35,641 shares.
(2) Calculated based on the closing sale price on June 30, 1997 of $12.75
per share, less the applicable exercise price. Each option is
immediately exercisable for all the option shares, with any unvested
shares
23
<PAGE> 27
acquired under such option subject to repurchase by the Company, at the
exercise price paid per share, upon termination of the optionee's
service with the Company. The value of the vested shares subject to the
"in-the-money" options on June 30, 1997 for each of the Named Executive
Officers was as follows: Mr. Shum, $1,593,968; Ms. Carlson, $12,328;
Mr. Tucker, $156,169; Mr. Flowers, $55,385; and Mr. de Fusco, $97,568.
(3) Calculated based on the excess of the fair market value of the
purchased shares on the exercise date over the exercise price paid for
those shares.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Under the present rules of the SEC, the deadline for stockholders to
submit proposals to be considered for inclusion in ACT's Proxy Statement for
next year's Annual Meeting of Stockholders is May 31, 1998. Such proposals may
be included in next year's Proxy Statement if they comply with certain rules and
regulations promulgated by the Commission.
OTHER BUSINESS
The Board of Directors is not aware of any other matter which may be
presented for action at the Annual Meeting. Should any other matter requiring a
vote of the stockholders arise, it is intended that the proxy holders will vote
on such matters in accordance with their best judgment.
The Company's Annual Report for the fiscal year ended June 30, 1997,
including audited financial statements, is being sent with this Proxy Statement
to all stockholders of record as of September 26, 1997. The Annual Report is not
incorporated into this Proxy Statement and is not considered proxy soliciting
material.
Copies of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997 as filed with the SEC will be provided to stockholders
without charge upon written request to the Chief Financial Officer, ACT
Networks, Inc., 188 Camino Ruiz, Camarillo, California 93012.
24
<PAGE> 28
ACT NETWORKS, INC.
1997 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Stock Incentive Plan is intended to promote the
interests of ACT Networks, Inc., a Delaware corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for
them to remain in the service of the Corporation.
This Plan shall supplement the authorized share reserve under
the Corporation's 1995 Stock Option/Stock Issuance Plan (the "1995 Plan"), and
share issuances under this 1997 Plan shall not reduce or otherwise affect the
number of shares of the Corporation's common stock available for issuance under
the 1995 Plan. In addition, share issuances under the 1995 Stock Plan shall
not reduce or otherwise affect the number of shares of the Corporation's common
stock available for issuance under this Plan.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity
programs:
(i) the Discretionary Option Grant
Program under which eligible persons may, at the discretion of the
Plan Administrator, be granted options to purchase shares of Common
Stock,
(ii) the Stock Issuance Program under
which eligible persons may, at the discretion of the Plan
Administrator, be issued shares of Common Stock directly, either
through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary), and
(iii) the Automatic Option Grant Program
under which Eligible Directors shall automatically receive option
grants at periodic intervals to purchase shares of Common Stock.
<PAGE> 29
B. The provisions of Articles One and Five shall apply
to all equity programs under the Plan and shall accordingly govern the
interests of all persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive
authority to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to all Section 16 Insiders. Administration of the
Discretionary Option Grant and Stock Issuance Programs with respect to all
other persons eligible to participate in those programs may, at the Board's
discretion, be vested in the Primary Committee or a Secondary Committee, or the
Board may retain the power to administer those programs with respect to all
such persons.
B. Members of the Primary Committee or any Secondary
Committee shall serve for such period of time as the Board may determine and
may be removed by the Board at any time. The Board may also at any time
terminate the functions of any Secondary Committee and reassume all powers and
authority previously delegated to such committee.
C. Each Plan Administrator shall, within the scope of
its administrative functions under the Plan, have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Discretionary
Option Grant and Stock Issuance Programs and to make such determinations under,
and issue such interpretations of, the provisions of such programs and any
outstanding options or stock issuances thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator within the scope of its
administrative functions under the Plan shall be final and binding on all
parties who have an interest in the Discretionary Option Grant or Stock
Issuance Program under its jurisdiction or any option or stock issuance
thereunder.
D. Service on the Primary Committee or the Secondary
Committee shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No member
of the Primary Committee or the Secondary Committee shall be liable for any act
or omission made in good faith with respect to the Plan or any option grants or
stock issuances under the Plan.
E. Administration of the Automatic Option Grant Program
shall be self-executing in accordance with the terms of that program, and no
Plan Administrator shall exercise any discretionary functions with respect to
option grants made thereunder.
2.
<PAGE> 30
IV. ELIGIBILITY
A. The persons eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or
the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent
advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Each Plan Administrator shall, within the scope of
its administrative jurisdiction under the Plan, have full authority (subject to
the provisions of the Plan) to determine, (i) with respect to the option grants
under the Discretionary Option Grant Program, which eligible persons are to
receive option grants, the time or times when such option grants are to be
made, the number of shares to be covered by each such grant, the status of the
granted option as either an Incentive Option or a Non-Statutory Option, the
time or times when each option is to become exercisable, the vesting schedule
(if any) applicable to the option shares and the maximum term for which the
option is to remain outstanding and (ii) with respect to stock issuances under
the Stock Issuance Program, which eligible persons are to receive stock
issuances, the time or times when such issuances are to be made, the number of
shares to be issued to each Participant, the vesting schedule (if any)
applicable to the issued shares and the consideration to be paid for such
shares.
C. The Plan Administrator shall have the absolute
discretion either to grant options in accordance with the Discretionary Option
Grant Program or to effect stock issuances in accordance with the Stock
Issuance Program.
D. The individuals eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
are first elected or appointed as non-employee Board members after the
Effective Date, whether through appointment by the Board or election by the
Corporation's stockholders, and (ii) those individuals who continue to serve as
non-employee Board members after one or more Annual Stockholders Meetings,
beginning with the 1997 Annual Meeting. A non-employee Board member who has
previously been in the employ of the Corporation (or any Parent or Subsidiary)
shall not be eligible to receive an option grant under the Automatic Option
Grant Program at the time he or she first becomes a non-employee Board member,
but shall be eligible to receive periodic option grants under the
3.
<PAGE> 31
Automatic Option Grant Program while he or she continues to serve as a
non-employee Board member. In no event, however, shall any non-employee Board
member who is, directly or indirectly, a 5% Stockholder or who is otherwise
affiliated with, or a representative of, a 5% Stockholder be eligible to
receive any option grants under the Automatic Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock reserved for issuance over the term of the Plan shall
not exceed 460,000 shares. Such share reserve shall be in addition to the
shares of Common Stock reserved for issuance under the 1995 Plan, and share
issuances under the 1995 Plan shall have no effect upon the number of shares of
Common Stock which remain available issuance under this Plan.
B. No one person participating in the Plan may receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 200,000 shares of Common Stock in the aggregate per
calendar year, beginning with the 1997 calendar year.
C. Shares of Common Stock subject to outstanding options
under this Plan shall be available for subsequent issuance under the Plan to
the extent those options expire or terminate for any reason prior to exercise
in full. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation, at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan, shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes
incurred in connection with the exercise of an option or the vesting of a stock
issuance under the Plan, then the number of shares of Common Stock available
for issuance under the Plan shall be reduced by the gross number of shares for
which the option is exercised or which vest under the stock issuance, and not
by the net number of shares of Common Stock issued to the holder of such option
or stock issuance.
D. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration,
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
for which any one person may be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances under this Plan per
calendar year, (iii) the number and/or class of securities for
4.
<PAGE> 32
which automatic option grants are to be subsequently made per Eligible Director
under the Automatic Option Grant Program and (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option (including any option incorporated from the Predecessor Plans) in order
to prevent the dilution or enlargement of benefits thereunder. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive.
5.
<PAGE> 33
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the
Plan applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed
by the Plan Administrator but shall not be less than eighty-five percent (85%)
of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section
I of Article Five and the documents evidencing the option, be payable in one or
more of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(iii) to the extent the option is
exercised for vested shares, through a special sale and remittance
procedure pursuant to which the Optionee shall concurrently provide
irrevocable instructions to (a) a Corporation- designated brokerage
firm to effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale transaction.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
6.
<PAGE> 34
B. Exercise and Term of Options. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in
excess of ten (10) years measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the
exercise of any options held by the Optionee at the time of cessation of
Service or death:
(i) Any option outstanding at the time
of the Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the
expiration of the option term.
(ii) Any option exercisable in whole or
in part by the Optionee at the time of death may be subsequently
exercised by the personal representative of the Optionee's estate or
by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and
distribution.
(iii) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding
with respect to any shares in which the Optionee is not vested on the
date of such cessation of Service.
(iv) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options held by the
Optionee shall terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have the
discretion, exercisable either at the time an option is granted or at any time
while the option remains outstanding, to:
(i) extend the period of time for which
the option is to remain exercisable following the Optionee's cessation
of Service from the period otherwise in effect for that option to such
greater period of time as the Plan
7.
<PAGE> 35
Administrator shall deem appropriate, but in no event beyond the
expiration of the option term, and/or
(ii) permit the option to be exercised,
during the applicable post-Service exercise period, not only with
respect to the number of vested shares of Common Stock for which such
option is exercisable at the time of the Optionee's cessation of
Service but also with respect to one or more additional installments
in which the Optionee would have vested under the option had the
Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall
have no stockholder rights with respect to the shares subject to the option
until such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have
the discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. Limited Transferability of Options. During the
lifetime of the Optionee, Incentive Options shall be exercisable only by the
Optionee and shall not be assignable or transferable other than by will or by
the laws of descent and distribution following the Optionee's death.
Non-Statutory Options shall be subject to the same transfer restrictions,
except that a Non-Statutory Option may, in connection with the Optionee's
estate plan, be assigned in whole or in part during the Optionee's lifetime to
one or more members of the Optionee's immediate family or to a trust
established exclusively for one or more such family members. The assigned
portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem
appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section
II.
A. Eligibility. Incentive Options may only be granted
to Employees.
8.
<PAGE> 36
B. Exercise Price. The exercise price per share shall
not be less than one hundred percent (100%) of the Fair Market Value per share
of Common Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value
of the shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan (or
any other option plan of the Corporation or any Parent or Subsidiary) may for
the first time become exercisable as Incentive Options during any one (1)
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as Incentive Options
shall be applied on the basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an
Incentive Option is granted is a 10% Stockholder, then the exercise price per
share shall not be less than one hundred ten percent (110%) of the Fair Market
Value per share of Common Stock on the option grant date, and the option term
shall not exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each
outstanding option shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable for all of the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. However, an outstanding option shall NOT
so accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation (or
parent thereof) or to be replaced with a comparable option to purchase shares
of the capital stock of the successor corporation (or parent thereof) or (ii)
such option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested option shares
at the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to those option shares or
(iii) the acceleration of such option is subject to other limitations imposed
by the Plan Administrator at the time of the option grant. The determination
of option comparability under clause (i) above shall be made by the Plan
Administrator, and its determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall terminate
automatically, and the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent: (i) those repurchase rights are to be
assigned to the successor corporation (or parent thereof) in connection with
such Corporate
9.
<PAGE> 37
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the
Corporate Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to (i) the number and
class of securities available for issuance under the Plan on both an aggregate
and per Optionee basis following the consummation of such Corporate Transaction
and (ii) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same.
E. Any options which are assumed or replaced in the
Corporate Transaction and do not otherwise accelerate at that time shall
automatically accelerate (and any of the Corporation's outstanding repurchase
rights which do not otherwise terminate at the time of the Corporate
Transaction shall automatically terminate and the shares of Common Stock
subject to those terminated rights shall immediately vest in full) in the event
the Optionee's Service should subsequently terminate by reason of an
Involuntary Termination within eighteen (18) months following the effective
date of such Corporate Transaction. Any options so accelerated shall remain
exercisable for fully-vested shares until the earlier of (i) the expiration of
the option term or (ii) the expiration of the one (1)-year period measured from
the effective date of the Involuntary Termination.
F. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to (i) provide for the automatic acceleration of
one or more outstanding options (and the automatic termination of one or more
outstanding repurchase rights with the immediate vesting of the shares of
Common Stock subject to those rights) upon the Involuntary Termination of the
Optionee's Service within a specified period (not to exceed eighteen (18)
months) following the effective date of a Change in Control. Any options so
accelerated shall remain fully exercisable until the expiration or sooner
termination of the option term.
G. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One
Hundred Thousand Dollar limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the Federal tax laws.
10.
<PAGE> 38
H. The grant of options under the Discretionary Option
Grant Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option
holders, the cancellation of any or all outstanding options under the
Discretionary Option Grant Program (including outstanding options incorporated
from the Predecessor Plans) and to grant in substitution new options covering
the same or different number of shares of Common Stock but with an exercise
price per share based on the Fair Market Value per share of Common Stock on the
new option grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and
authority to grant to selected Optionees tandem stock appreciation rights
and/or limited stock appreciation rights.
B. The following terms shall govern the grant and
exercise of tandem stock appreciation rights:
(i) One or more Optionees may be granted
the right, exercisable upon such terms as the Plan Administrator may
establish, to elect between the exercise of the underlying option for
shares of Common Stock and the surrender of that option in exchange
for a distribution from the Corporation in an amount equal to the
excess of (a) the Fair Market Value (on the option surrender date) of
the number of shares in which the Optionee is at the time vested under
the surrendered option (or surrendered portion thereof) over (b) the
aggregate exercise price payable for such shares.
(ii) No such option surrender shall be
effective unless it is approved by the Plan Administrator, either at
the time of the option surrender or at any earlier time. If the
surrender is so approved, then the distribution to which the Optionee
shall be entitled may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in
shares and partly in cash, as the Plan Administrator shall in its sole
discretion deem appropriate.
(iii) If the surrender of an option is
rejected by the Plan Administrator, then the Optionee shall retain
whatever rights the Optionee had under the surrendered option (or
surrendered portion thereof) on the option
11.
<PAGE> 39
surrender date and may exercise such rights at any time prior to the
later of (a) five (5) business days after the receipt of the rejection
notice or (b) the last day on which the option is otherwise
exercisable in accordance with the terms of the documents evidencing
such option, but in no event may such rights be exercised more than
ten (10) years after the option grant date.
C. The following terms shall govern the grant and
exercise of limited stock appreciation rights:
(i) One or more Section 16 Insiders may
be granted limited stock appreciation rights with respect to their
outstanding options.
(ii) Upon the occurrence of a Hostile
Take-Over, each such individual holding one or more options with such
a limited stock appreciation right shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile
Take-Over) to surrender each such option to the Corporation, to the
extent the option is at the time exercisable for vested shares of
Common Stock. In return for the surrendered option, the Optionee
shall receive a cash distribution from the Corporation in an amount
equal to the excess of (A) the Take-Over Price of the shares of Common
Stock which are at the time vested under each surrendered option (or
surrendered portion thereof) over (B) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within
five (5) days following the option surrender date.
(iii) The grant of such limited stock
appreciation right shall automatically constitute the pre- approval by
the Plan Administrator of the any subsequent exercise of that right in
accordance with the terms of this Paragraph C. Accordingly, no
further approval of the Plan Administrator or the Board shall be
required at the time of the actual surrender of such option and the
cash distribution to which the optionee shall thereupon become
entitled.
(iv) The balance of the option (if any)
shall continue in full force and effect in accordance with the
documents evidencing such option.
12.
<PAGE> 40
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed
by the Plan Administrator, but shall not be less than eighty five percent (85%)
of the Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of
Article Five, shares of Common Stock may be issued under the Stock Issuance
Program for any of the following items of consideration which the Plan
Administrator may deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the
Corporation (or any Parent or Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock
Issuance Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed
by the Participant or the performance objectives to be attained,
(ii) the number of installments in which
the shares are to vest,
13.
<PAGE> 41
(iii) the interval or intervals (if any)
which are to lapse between installments, and
(iv) the effect which death, Permanent
Disability or other event designated by the Plan Administrator is to
have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional securities
or other property (including money paid other than as a regular cash dividend)
which the Participant may have the right to receive with respect to the
Participant's unvested shares of Common Stock by reason of any stock dividend,
stock split, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder
rights with respect to any shares of Common Stock issued to the Participant
under the Stock Issuance Program, whether or not the Participant's interest in
those shares is vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock issued under
the Stock Issuance Program or should the performance objectives not be attained
with respect to one or more such unvested shares of Common Stock, then those
shares shall be immediately surrendered to the Corporation for cancellation,
and the Participant shall have no further stockholder rights with respect to
those shares. To the extent the surrendered shares were previously issued to
the Participant for consideration paid in cash or cash equivalent (including
the Participant's purchase-money indebtedness), the Corporation shall repay to
the Participant the cash consideration paid for the surrendered shares and
shall cancel the unpaid principal balance of any outstanding purchase- money
note of the Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion
waive the surrender and cancellation of one or more unvested shares of Common
Stock (or other assets attributable thereto) which would otherwise occur upon
the cessation of the Participant's Service or the non-completion of the vesting
schedule applicable to such shares. Such waiver shall result in the immediate
vesting of the Participant's interest in the shares of Common Stock as to which
the waiver applies. Such waiver may be effected at any time, whether before or
after the Participant's cessation of Service or the attainment or
non-attainment of the applicable performance objectives.
14.
<PAGE> 42
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are assigned to the successor corporation (or parent thereof)
in connection with such Corporate Transaction or (ii) such accelerated vesting
is precluded by other limitations imposed in the Stock Issuance Agreement.
B. Any repurchase rights that are assigned in the
Corporate Transaction shall automatically terminate, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event the Participant's Service should subsequently terminate by reason
of an Involuntary Termination within eighteen (18) months following the
effective date of such Corporate Transaction.
C. The Plan Administrator shall have the discretion,
exercisable either at the time the unvested shares are issued or at any time
while the Corporation's repurchase right remains outstanding, to provide for
the automatic termination of one or more outstanding repurchase rights and the
immediate vesting of the shares of Common Stock subject to those rights upon
the Involuntary Termination of the Participant's Service within a specified
period (not to exceed eighteen (18) months) following the effective date of any
Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
15.
<PAGE> 43
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. SUCCESSOR PROGRAM. The Automatic Option Grant
Program under this Plan shall, upon stockholder approval of the Plan at the
1997 Annual Stockholders Meeting, replace the automatic option grant program
for non-employee Board members currently in effect under the 1995 Plan, and no
further option grants shall be made pursuant to that program. All outstanding
options under the automatic option grant program in effect under the 1995 Plan
shall continue to be governed by the terms of the agreements evidencing those
grants, and nothing in this Plan shall affect those options.
B. GRANT DATES. Option grants shall be made under the
Plan on the dates specified below:
1. Each Eligible Director who is first elected
or appointed as a non-employee Board member after the Effective Date shall
automatically be granted, on the date of such initial election or appointment,
a Non-Statutory Option to purchase 21,000 shares of Common Stock.
2. On the date of each Annual Stockholders
Meeting, beginning with the 1997 Annual Meeting, each individual who is to
continue to serve as an Eligible Director after such meeting, shall
automatically be granted, whether or not such individual is standing for
re-election as a Board member at that Annual Meeting, a Non-Statutory Option to
purchase an additional 7,000 shares of Common Stock, provided such individual
has served as a non-employee Board member for at least six (6) months prior to
the date of such Annual Meeting. There shall be no limit on the number of such
7,000-share option grants any one Eligible Director may receive over his or her
period of Board service.
C. EXERCISE PRICE.
1. The exercise price per share shall be equal
to one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall be payable in one or
more of the alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.
16.
<PAGE> 44
D. OPTION TERM. Each option shall have a term of ten
(10) years measured from the option grant date.
E. EXERCISE AND VESTING OF OPTIONS. Each option shall
be immediately exercisable for any or all of the option shares. However, any
shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's
cessation of Board service prior to vesting in those shares. The shares
subject to each initial grant shall vest, and the Corporation's repurchase
right with respect to those shares shall lapse, in a series of thirty-six (36)
successive equal monthly installments over the Optionee's period of continued
service as a Board member, with the first such installment to vest upon the
Optionee's completion of one (1) month of Board service measured from the
option grant date. The shares subject to each annual grant shall vest, and the
Corporation's repurchase right with respect to those shares shall lapse, on the
day immediately preceding the date of the next Annual Stockholders Meeting
following the grant date, provided the Optionee continues in Board service
through such day.
F. EFFECT OF TERMINATION OF BOARD SERVICE. The
following provisions shall govern the exercise of any options held by the
Optionee at the time the Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of
Optionee's death, the personal representative of the Optionee's estate
or the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following the date
of such cessation of Board service in which to exercise each such
option.
(ii) During the twelve (12)-month
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares of Common Stock for which the
option is exercisable at the time of the Optionee's cessation of Board
service.
(iii) Should the Optionee cease to serve
as a Board member by reason of death or Permanent Disability, then all
shares at the time subject to the option shall immediately vest so
that such option may, during the twelve (12)-month exercise period
following such cessation of Board service, be exercised for all or any
portion of such shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain
exercisable after the expiration of the option term. Upon the
expiration of the twelve (12)-month exercise period or (if earlier)
upon the expiration of the option term, the option
17.
<PAGE> 45
shall terminate and cease to be outstanding for any vested shares for
which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Board service, terminate
and cease to be outstanding with respect to any shares in which the
Optionee is not vested on the date of such cessation of Board service.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares
of Common Stock at the time subject to each outstanding option under the
Automatic Option Grant Program but not otherwise vested shall automatically
vest in full so that each such option shall, immediately prior to the effective
date of the Corporate Transaction, become exercisable for all of the shares of
Common Stock at the time subject to such option and may be exercised for all or
any portion of such shares as fully-vested shares of Common Stock. Immediately
following the consummation of the Corporate Transaction, each automatic option
grant shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof).
B. In the event of any Change in Control, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Change in Control, become
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of such shares as
fully-vested shares of Common Stock. Each such option shall remain exercisable
for such fully-vested option shares until the expiration or sooner termination
of the option term or the surrender of the option in connection with a Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each option grant held by him or her under this Automatic Option
Grant Program. The Optionee shall in return be entitled to a cash distribution
from the Corporation in an amount equal to the excess of (i) the Take-Over
Price of the shares of Common Stock at the time subject to the surrendered
option (whether or not the Optionee is otherwise at the time vested in those
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation. Such surrender right shall form a part of each
option grant made under this Automatic Option Grant Program, and stockholder
approval of this Plan shall constitute pre-approval of the subsequent exercise
of that right in accordance with the provisions of this Paragraph C.
Accordingly, no approval of the Board or the Plan Administrator shall be
required at the time of the actual option surrender and the cash distribution
to which the optionee shall thereupon become entitled.
18.
<PAGE> 46
D. The grant of options under the Automatic Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
19.
<PAGE> 47
ARTICLE FIVE
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee or
Participant to pay the option exercise price under the Discretionary Option
Grant Program or the purchase price for shares issued under the Stock Issuance
Program by delivering a promissory note payable in one or more installments.
The terms of any such promissory note (including the interest rate and the
terms of repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In all events, the maximum credit available to the Optionee or
Participant may not exceed the sum of (i) the aggregate option exercise price
or purchase price payable for the purchased shares plus (ii) any Federal, state
and local income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise or share purchase.
B. The Plan Administrator may, in its discretion,
determine that one or more such promissory notes shall be subject to
forgiveness by the Corporation in whole or in part upon such terms as the Plan
Administrator may deem appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of options or stock appreciation rights or upon
the issuance or vesting of such shares under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements.
B. The Plan Administrator may, in its discretion,
provide any or all holders of Non-Statutory Options or unvested shares of
Common Stock under the Plan (other than the options granted or the shares
issued under the Automatic Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of their options or the vesting of
their shares. Such right may be provided to any such holder in either or both
of the following formats:
(i) Stock Withholding: The election to
have the Corporation withhold, from the shares of Common Stock
otherwise issuable upon the exercise of such Non-Statutory Option or
the vesting of such shares, a portion of those shares with an
aggregate Fair Market Value equal to the percentage of the Taxes (not
to exceed one hundred percent (100%)) designated by the holder.
20.
<PAGE> 48
(ii) Stock Delivery: The election to
deliver to the Corporation, at the time the Non-Statutory Option is
exercised or the shares vest, one or more shares of Common Stock
previously acquired by such holder (other than in connection with the
option exercise or share vesting triggering the Taxes) with an
aggregate Fair Market Value equal to the percentage of the Taxes (not
to exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective on the Effective Date.
However, no options granted under the Plan may be exercised, and no shares
shall be issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the Effective Date, then all options previously granted under this
Plan shall terminate and cease to be outstanding, and no further options shall
be granted and no shares shall be issued under the Plan.
B. The Plan shall terminate upon the earliest of (i)
September 22, 2007, (ii) the date on which all shares available for issuance
under the Plan shall have been issued as vested shares pursuant to the exercise
of options or the issuance of shares under the Plan or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Should
this Plan terminate on September 22, 2007, then all options and unvested stock
issuances outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the documents evidencing such
options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations
with respect to stock options, stock appreciation rights or unvested stock
issuances at the time outstanding under the Plan unless the Optionee or the
Participant consents to such amendment or modification. In addition, certain
amendments may require stockholder approval pursuant to applicable law or
regulations.
B. Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant Program and shares of Common Stock
may be issued under the Stock Issuance Program that are in each instance in
excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under those programs are held in
escrow until there is obtained stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock available for
issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made,
then (i) any unexercised options granted on the basis of such excess shares
shall terminate and cease to be outstanding and (ii) the Corporation shall
promptly refund to the
21.
<PAGE> 49
Optionees and the Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically cancelled and cease
to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any
option or stock appreciation right under the Plan and the issuance of any
shares of Common Stock (i) upon the exercise of any option or stock
appreciation right or (ii) under the Stock Issuance Program shall be subject to
the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the options and stock
appreciation rights granted under it and the shares of Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be
issued or delivered under the Plan unless and until there shall have been
compliance with all applicable requirements of Federal and state securities
laws, including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining such person) or
of the Optionee or the Participant, which rights are hereby expressly reserved
by each, to terminate such person's Service at any time for any reason, with or
without cause.
22.
<PAGE> 50
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by
any person or related group of persons (other than the Corporation or
a person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over
a period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction; or
A-1.
<PAGE> 51
(ii) the sale, transfer or other disposition of
all or substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
G. CORPORATION shall mean ACT Networks, Inc., a Delaware
corporation.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
I. EFFECTIVE DATE shall mean the date of the 1997 Annual
Stockholders Meeting, provided the Plan is approved by the stockholders at such
Annual Meeting.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member
eligible to participate in the Automatic Option Grant Program in accordance
with the eligibility provisions of Article One.
K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
A-2.
<PAGE> 52
N. 5% STOCKHOLDER shall mean the owner of securities (as
determined under Code Section 424(d)) possessing more than five percent (5%) of
the total combined voting power of the outstanding securities of the
Corporation (or any Parent or Subsidiary).
O. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept.
P. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
Q. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation
following (A) a change in his or her position with the Corporation
which materially reduces his or her level of responsibility, (B) a
reduction in his or her level of compensation (including base salary,
fringe benefits and target bonuses under any corporate-performance
based bonus or incentive programs) by more than fifteen percent (15%)
or (C) a relocation of such individual's place of employment by more
than fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without the individual's
consent.
R. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of
the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Corporation (or any Parent or Subsidiary) may consider as grounds for
the dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
S. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
A-3.
<PAGE> 53
T. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
U. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant or Automatic Option Grant Program.
V. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
W. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
X. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of
twelve (12) months or more. However, solely for the purposes of the Automatic
Option Grant Program, Permanent Disability or Permanently Disabled shall mean
the inability of the non-employee Board member to perform his or her usual
duties as a Board member by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration
of twelve (12) months or more.
Y. PLAN shall mean the Corporation's 1997 Stock Incentive Plan,
as set forth in this document.
Z. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Primary Committee, the Board or the Secondary Committee, which is
authorized to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to one or more classes of eligible persons, to the extent
such entity is carrying out its administrative functions under those programs
with respect to the persons under its jurisdiction.
AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
AB. SECONDARY COMMITTEE shall mean a committee of one (1) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
A-4.
<PAGE> 54
AC. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AD. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in
the documents evidencing the option grant or stock issuance.
AE. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
AF. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
AG. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.
AH. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. For purposes of the
grant of Non-Statutory Options and stock appreciation rights under the
Discretionary Option Grant Program and direct stock issuances under the Stock
Issuance Program, the term Subsidiary shall also include any corporation,
partnership, joint venture or other business entity in which the Corporation
owns, directly or indirectly, stock or a capital or profit interest.
AI. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
AJ. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those
options or the vesting of those shares.
AK. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
A-5.
<PAGE> 55
ACT NETWORKS, INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS, NOVEMBER 13, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of Annual Meeting of Stockholders to be held on November 13, 1997 and the
proxy statement and appoints Martin Shum and Melvin L. Flowers, or either of
them, the proxy of the undersigned, with full power of substitution, to vote all
shares of Common Stock of ACT Networks, Inc. ("ACT") which the undersigned is
entitled to vote, either on his or her own behalf or on behalf of an entity or
entities, at the Annual Meeting of Stockholders (the "Annual Meeting") of ACT to
be held on Thursday, November 13, 1997 at 2:00 p.m. local time, and at any
adjournment or postponement thereof, and to vote in their discretion on such
other business as may properly come before the Annual Meeting and any
postponement or adjournment thereof.
The following matters are proposed by ACT. Your vote on each matter is
neither conditioned on, or related to, your vote on any of the other matters.
1. Approve the ACT 1997 Stock Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Election of Directors.
[ ] FOR all Nominees [ ] WITHHOLD AUTHORITY to [ ] EXCEPTIONS
Listed Below vote for all Nominees
INSTRUCTION: To withhold authority to vote for any individual nominee, mark
the "EXCEPTIONS" box, and strike a line through the nominee's name in the
list below:
- William Ambrose - Archie J. McGill
3. Ratify Ernst & Young, LLP as independent auditors for the year ending June
30, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 56
The Board of Directors recommends a vote FOR the proposals set forth above.
This Proxy, when properly executed will be voted as specified above. This Proxy
will be voted FOR Proposals No. 1, 2 and 3 if no specification is made. THIS
PROXY WILL ALSO BE VOTED AT THE DISCRETION OF THE PROXY HOLDERS ON SUCH MATTERS
OTHER THAN THE THREE SPECIFIC MATTERS AS MAY COME BEFORE THE MEETING.
Please print the name(s) appearing on each share certificate(s) over which you
have voting authority:
Dated:
---------------------------
---------------------------
(Print name(s) as it (they)
appear on certificate
Please sign exactly as your
name(s) is (are) shown on
the share certificate to
which the Proxy applies.
When shares are held by
joint tenants, both should
sign. When signing as an
attorney, executor,
administrator, trustee or
guardian, please give full
title, as such. If a
corporation, please sign in
full corporate name by the
President or another
authorized officer. If a
partnership, please sign in
the partnership name by an
authorized person.
---------------------------
(Authorized Signature(s))
PLEASE RETURN YOUR EXECUTED PROXY TO ACT'S TRANSFER AGENT IN THE ENCLOSED
ENVELOPE, OR, IF NECESSARY, DELIVER IT TO ACT'S ATTENTION: CHIEF FINANCIAL
OFFICER.
