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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 [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COM21, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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
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(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
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(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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LOGO
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1999
TO THE STOCKHOLDERS OF COM21:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders of
Com21, Inc. (the "Company") will be held on May 12, 1999 at 11:00 a.m. at 750
Tasman Drive, Milpitas, California 95035, for the following purposes, as more
fully described in the Proxy Statement accompanying this Notice:
1. To elect eight directors to serve for a one-year term and until their
successors are elected and qualified;
2. To approve an amendment to the 1998 Stock Option/Stock Issuance Plan
(the "1998 Plan") to increase the number of shares of common stock
authorized for issuance over the term of the 1998 Plan by 1,000,000
shares from 3,483,446 to 4,483,446;
3. To ratify the appointment of Deloitte & Touche LLP as Com21's
independent public accountants for the fiscal year ending December 31,
1999;
4. To transact such other business as may properly come before the meeting,
or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on March 18, 1999 are
entitled to notice of, and to vote at, the Annual Meeting. The stock transfer
books of Com21 will remain open between the record date and the date of the
meeting. A list of stockholders entitled to vote at the Annual Meeting will be
available for inspection at the executive offices of Com21.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the proxy in the
envelope enclosed for your convenience. Should you receive more than one proxy
because your shares are registered in different names and addresses, each proxy
should be signed and returned to assure that all of your shares will be voted.
You may revoke your proxy at any time prior to the Annual Meeting and vote. If
you attend the Annual Meeting and vote by ballot, your proxy will be revoked
automatically and only your vote at the Annual Meeting will be counted.
Sincerely,
LOGO
David L. Robertson
Vice President, Finance and
Administration,
Chief Financial Officer and Corporate
Secretary
Milpitas, California
April 1, 1999
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
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COM21, INC.
750 TASMAN DRIVE
MILPITAS, CALIFORNIA 95035
------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 12, 1999
GENERAL
The enclosed proxy ("Proxy") is solicited on behalf of the board of
directors of Com21, Inc., a Delaware corporation, for use at the 1999 Annual
Meeting of Stockholders (the "Annual Meeting") to be held at 11:00 a.m. local
time, on Wednesday, May 12, 1999, or any adjournment thereof, at 750 Tasman
Drive, Milpitas, California 95035 for the purposes set forth in this Proxy
Statement and the accompanying Notice of Annual Meeting. These proxy
solicitation materials were mailed on or about April 1, 1999 to all stockholders
entitled to vote at the Annual Meeting.
PROXIES
If the enclosed form of proxy is properly signed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If the proxy does not specify how the shares
represented thereby are to be voted, the proxy will be voted FOR the election of
the directors proposed by the board unless the authority to vote for the
election of such directors is withheld and, if no contrary instructions are
given, the proxy will be voted FOR the approval of Proposals 2, 3 and 4
described in the accompanying Notice and Proxy Statement. You may revoke or
change your Proxy at any time before the Annual Meeting by filing with the Chief
Financial Officer of Com21 at Com21's principal executive offices at 750 Tasman
Drive, Milpitas, California 95035, a notice of revocation or another signed
Proxy with a later date. You may also revoke your Proxy by attending the Annual
Meeting and voting in person.
SOLICITATION
Com21 will bear the entire cost of solicitation, including the preparation,
assembly, printing and mailing of this Proxy Statement, the Proxy and any
additional solicitation materials furnished to the stockholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, Com21 may reimburse such persons for their costs in forwarding the
solicitation materials to such beneficial owners. The original solicitation of
proxies by mail may be supplemented by a solicitation by telephone, telegram or
other means by directors, officers or employees of Com21. No additional
compensation will be paid to these individuals for any such services. Except as
described above, Com21 does not presently intend to solicit proxies other than
by mail.
VOTING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice and are described in more
detail in this Proxy Statement. On March 18, 1999, the record date for
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, 21,286,597 shares of Com21's common stock, par value $0.001, were
issued and outstanding. No shares of Com21's preferred stock, par value $0.001,
were outstanding. Each stockholder is entitled to one vote for each share of
common stock held by such stockholder on March 18, 1999. Stockholders may not
cumulate votes in the election of directors.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes
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are counted as present for purposes of determining the presence or absence of a
quorum for the transaction of business. Abstentions will be counted towards the
tabulations of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes, whereas broker non-votes will not be
counted for purposes of determining whether a proposal has been approved.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of Com21 that are intended to be presented by
such stockholders at Com21's 2000 Annual Meeting must be received no later than
December 2, 1999, in order that they may be included in the proxy statement and
form of proxy relating to that meeting. Such stockholder proposals should be
submitted to Com21, Inc. at 750 Tasman Drive, Milpitas, California 95035,
Attention: Corporate Secretary.
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MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE
ELECTION OF DIRECTORS
GENERAL
Com21's bylaws have authorized eight directors. Each director is elected
for a period of one year at Com21's annual meeting of stockholders and serves
until the next annual meeting or until his successor is duly elected and
qualified. The executive officers serve at the discretion of the board of
directors. There are no family relationships among any of Com21's directors or
executive officers. Com21's Amended and Restated Certificate of Incorporation
provides for a board of directors. The board currently consists of eight
persons. The directors nominated will have a term of one year, expiring at the
2000 annual meeting of stockholders or until each successor has been duly
elected and qualified. The nominees listed below, except for Mr. Kent, are
currently directors of Com21. If this proposal is approved, the board will
consist of eight persons.
The nominees for election have agreed to serve if elected, and management
has no reason to believe that such nominee will be unavailable to serve. In the
event the nominee is unable or declines to serve as a director at the time of
the Annual Meeting, the proxies will be voted for any nominee who may be
designated by the present board of directors to fill the vacancy. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
FOR the nominee named below.
NOMINEES FOR TERM ENDING UPON THE 2000 ANNUAL MEETING OF STOCKHOLDERS
PETER D. FENNER. Mr. Fenner has been President, Chief Executive Officer and
a Director of Com21 since February 1996. From January 1989 through April 1992,
he served as President of the Transmission Systems Business Unit of AT&T Network
Systems (Lucent) and Corporate Officer at AT&T. From April 1992 to February
1996, Mr. Fenner was an independent consultant. From February 1986 through
December 1988, Mr. Fenner was Vice President, Product Planning for AT&T's
Network Systems Division. Mr. Fenner is Director of CorNet Information Ltd. Mr.
Fenner received an S.M. from the Sloan School of Management at the Massachusetts
Institute of Technology, where he was a Sloan Fellow, and a B.S. in Industrial
Engineering from Lehigh University.
PAUL BARAN. Mr. Baran has been the Chairman of the Board of Directors since
Com21's inception in June 1992. He is presently retired. Mr. Baran was chosen by
Communications Week and Data Communications as one of the top 25 visionaries in
the data communications industry and was recipient of the Electronic Frontier
Foundation Pioneer Award (1993), the Marconi International Fellowship Award
(1991), the Institute of Electronics and Electrical Engineering, Inc. ("IEEE")
Alexander Graham Bell Medal (1990), the ACM SIG/Communications Award (1989) and
the IEEE Communications Society Edwin Armstrong Award (1987). He co-founded
Equatorial Communications, Packet Technologies, Telebit Corporation and
Metricom, Inc. Mr. Baran is a Fellow of the IEEE and a Fellow of the AAAS. Mr.
Baran received an M.S. in Computers from the University of California, Los
Angeles, a B.S. in Electrical Engineering and a Dr.Sci. in Engineering (Hon.)
from Drexel University.
C. RICHARD KRAMLICH. Mr. Kramlich has been a Director of Com21 since May
1994. Mr. Kramlich is the co-founder and has been General Partner of New
Enterprise Associates since 1978. He is a Director of Ascend Communications,
Inc., Chalone, Inc., Healtheon Corporation, Lumisys, Inc., and Silicon Graphics,
Inc. Mr. Kramlich received an M.B.A. from Harvard Business School and a B.S.
from Northwestern University.
JERALD L. KENT. Mr. Kent is standing for election to the board for a one
year term (or until his successor is duly elected) beginning in May 1999. Mr.
Kent co-founded Charter Communications, Inc. and, from 1992 to the present has
served in various executive capacities at Charter. He has served as President
since 1996 and as Chief Executive Officer since 1997. Previously, Mr. Kent
served in various executive capacities with Cencom Cable Associates, Inc. He
joined Cencom in 1983 as Senior Vice President of Corporate Development and
served as Executive Vice President and Chief Financial Officer from 1987 to
1992.
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Mr. Kent serves as a director of Charter Communications, Inc., High Speed Access
Corp. and Cable Television Laboratories, Inc. Mr. Kent received a B.A. and an
M.B.A. from Washington University and is a certified public accountant.
ROBERT C. HAWK. Mr. Hawk has been a Director of Com21 since January 1997.
Mr. Hawk has been an independent business consultant since April 1997. From
April 1996 through March 1997, he was President of U.S. West Multimedia, a cable
company. From April 1986 through March 1996, he was the President of Carrier
Division, U.S. West Communications, a telecommunications Company. He is a
Director of PairGain Technologies, COVAD Communications, Inc., Xylan Corp.,
Concord Corp., and RADCom Corp. Mr. Hawk received an M.B.A. from the University
of San Francisco and a B.B.A. from the University of Iowa.
WILLIAM R. HEARST III. Mr. Hearst has been a Director of Com21 since April
1998. Mr. Hearst has also been a Director of @Home Corporation since August 1995
and has served as Vice Chairman of the Board of Directors of @Home since July
1996. He has been a general partner of Kleiner Perkins Caulfield & Byers, a
venture capital firm, since January 1995. From May 1995 to July 1996, he was the
founding Chief Executive Officer of @Home. Before joining KPCB, Mr. Hearst was
editor and publisher of the San Francisco Examiner for ten years. He is a Fellow
of the AAAS and a Trustee of the Carnegie Institute of Washington and the
California Academy of Sciences. Mr. Hearst holds an A.B. in mathematics from
Harvard University.
ROBERT A. HOFF. Mr. Hoff has been a Director since May 1994. He has been a
general partner at CrossPoint Venture Partners since 1983. Mr. Hoff serves as a
Director of PairGain Inc., Onyx Acceptance Corp. and US Web Corporation. Mr.
Hoff received an M.B.A. from Harvard Business School and a B.S. in Business
Administration from Bucknell University.
ROBERT W. WILMOT. Dr. Wilmot has been a Director of Com21 since April 1995.
Dr. Wilmot has been Chairman at Wilmot Consulting Inc. since May 1995. From
April 1994 to May 1995, Mr. Wilmot was an independent consultant and investor.
From May 1985 through April 1994, he was Chairman at Wilmot Enterprises Ltd. His
other prior positions include Vice President and Managing Director of Texas
Instruments and CEO of International Computers PLC, a computer company. Dr.
Wilmot is a founder of a number of companies including ES2 SA, the OASiS Group
Plc, CMI Ltd., MOVID Technology Inc., Poqet Computer Inc., VXtreme, Inc. and
Integrity Arts, Inc. He is a Director of FVC.COM and Sequent Computer Systems.
Dr. Wilmot received a B.S. in Electrical Engineering from Nottingham University.
BOARD AND COMMITTEE MEETINGS
The board of directors held nine (9) meetings and did not act by written
consent during the fiscal year ended December 31, 1998. The board of directors
has an audit committee and a compensation committee. Each of the directors
attended 75% or more 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 of directors on which such director served during the fiscal year
ended December 31, 1998.
Audit Committee. The audit committee is primarily responsible for approving
the services performed by Com21's independent auditors and reviewing the
auditor's reports regarding Com21's accounting practices and systems of internal
accounting controls. The committee currently consists of two directors, Mr.
Wilmot and Mr. Kramlich. The audit committee held one (1) meeting during the
fiscal year ended December 31, 1998.
Compensation Committee. The compensation committee is primarily responsible
for reviewing and approving Com21's general compensation policy and setting
compensation levels for Com21's executive officers. The committee also
administers Com21's incentive compensation plans. The committee currently
consists of two directors, Mr. Loftesness and Mr. Hoff. The compensation
committee met one (1) time and acted by written consent one (1) time during the
fiscal year ended December 31, 1998.
DIRECTOR COMPENSATION
Com21 currently does not compensate any member of Com21's board of
directors. Under the Automatic Option Grant Program in effect under Com21's 1998
Stock Incentive Plan, each individual who first joins the board as a
non-employee director any time after April 1, 1998 will also receive, at the
time of such initial
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election or appointment, an automatic option grant, to purchase 15,000 shares of
common stock, provided such person has not previously been in Com21's employ. In
addition, on the date of each annual stockholders meeting, beginning with the
1999 Annual Meeting, each individual who is to continue to serve as a non-
employee board member will automatically be granted an option to purchase 5,000
shares of common stock, provided that such individual has been on the board for
at least six months. Each automatic grant for the non-employee board members
will have a term of 10 years, subject to earlier termination following the
optionee's cessation of board service. Each automatic option will be immediately
exercisable for all of the option shares; however, any unvested shares purchased
under the option will be subject to repurchase by Com21, at the exercise price
paid per share, should the optionee cease board service prior to vesting in
those shares. The shares subject to each initial 15,000-share automatic option
grant will vest over a four-year period in successive equal annual installments
upon the individual's completion of each year of board service measured from the
option grant date. Each 5,000-share automatic option grant will vest over a
two-year period in successive equal annual installments upon the individual's
completion of each year of board service measured from the option grant date.
However, the shares subject to each automatic grant will immediately vest in
full upon certain changes in control or ownership of Com21 or upon the
optionee's death or disability while a board member. Each grant under the
Automatic Option Grant Program will have an exercise price per share equal to
the fair market value per share of Com21's common stock on the grant date, and
will have a maximum term of 10 years, subject to earlier termination should
optionee cease to serve as a board member.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee of Com21's board of directors are
Mr. Loftesness and Mr. Hoff. No executive officer of Com21 serves on the board
of directors or compensation committee of any entity which has one or more
executive officers serving as a member of Com21's board of directors or
compensation committee.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ELECTION OF ALL NOMINEES LISTED ABOVE.
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PROPOSAL TWO
APPROVAL OF AMENDMENT TO 1998 STOCK INCENTIVE PLAN
Com21's stockholders are being asked to approve an amendment to Com21's
1998 Stock Incentive Plan (the "1998 Plan") that will increase the maximum
number of shares of common stock authorized for issuance over the term of the
1998 Plan by an additional 1,000,000 shares from 3,483,446 shares to 4,483,446
shares.
The 1998 Plan was adopted by the board of directors in March 1998 as the
successor to Com21's 1995 Stock Option/Stock Issuance Plan (the "1995 Plan") and
was subsequently approved by the stockholders in March 1998. The 1998 Plan
became effective on April 1, 1998 in connection with the initial public offering
of Com21's common stock. At that time all outstanding options under the 1995
Plan were incorporated into the 1998 Plan and the 1995 Plan was accordingly
terminated as to all future option grants. The amendment to the 1998 Plan for
which stockholder approval is sought under this Proposal No. Two was adopted by
the board in March 1999, subject to stockholder approval at the Annual Meeting.
The proposed share increase will assure that a sufficient reserve of common
stock is available under the 1998 Plan to attract and retain the services of key
individuals, essential to Com21's long-term growth and success.
The following is a summary of the principal features of the 1998 Plan,
including the amendments which will become effective upon stockholder approval
of this Proposal No. Two, together with the applicable tax and accounting
implications for Com21 and the participants. However, the summary does not
purport to be a complete description of all the provisions of the 1998 Plan. Any
stockholder of Com21 who wishes to obtain a copy of the actual plan document may
do so upon written request to Com21's Chief Financial Officer at Com21's
principal executive offices in Milpitas, California.
EQUITY INCENTIVE PROGRAMS
The 1998 Plan contains five separate equity incentive programs: (i) a
Discretionary Option Grant Program; (ii) a Stock Issuance Program; (iii) the
Salary Investment Option Grant Program; (iv) an Automatic Option Grant Program;
and (v) the Director Fee Option Grant Program. The principal features of each of
these programs are described below. The compensation committee of the board
administers the provisions of the 1998 Plan (other than the Automatic Option
Grant Program) with respect to all officers and directors of Com21 subject to
the short-swing trading restrictions of the federal securities laws ("Section 16
Insiders"). With respect to all other participants, the 1998 Plan may be
administered by either the compensation committee or a special stock option
committee (the "Secondary Committee") comprised of one or more board members
appointed by the board or by the entire board itself. Each entity, whether the
compensation committee, the Secondary Committee or the board, will be referred
to in this summary as the plan administrator with respect to its particular
administrative functions under the 1998 Plan, and each plan administrator will
have complete discretion (subject to the provisions of the 1998 Plan) to
authorize option grants and direct stock issuances under the 1998 Plan within
the scope of its administrative jurisdiction. However, all grants under the
Automatic Option Grant Program will be made in strict compliance with the
provisions of that program, and no administrative discretion will be exercised
by any plan administrator with respect to the grants made under such program.
SHARE RESERVE
4,483,446 shares of common stock have been reserved for issuance over the
ten (10)-year term of the 1998 Plan, including the 1,000,000-share increase
subject to stockholder approval as part of this Proposal No. Two. This reserve
may be automatically increased by an additional 210,283 shares to the extent any
unvested shares of common stock issued under the 1995 Stock Option Plan are
repurchased by Com21 after April 1, 1998. The number of shares under the 1998
Stock Incentive Plan is automatically increased on the first trading day of each
calendar year beginning in the calendar year 1999 by an amount equal to the
lesser of five percent (5%) of the total number of shares of common stock
outstanding on the last trading day of the preceding calendar year or 1,500,000.
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Should any option terminate prior to full vesting, the shares subject to
the unexercised portion of that option will be available for subsequent option
grants. In addition, any unvested shares issued under the 1998 Plan and
subsequently repurchased by Com21 at the option exercise or direct issue price
paid per share pursuant to Com21's repurchase rights under the Plan will be
added back to the number of shares of common stock reserved for issuance under
the 1998 Plan and will accordingly be available for reissuance through one or
more subsequent option grants or direct stock issuances made under the 1998
Plan. However, shares subject to any option surrendered in accordance with the
stock appreciation right provisions of the 1998 Plan will not be available for
subsequent issuance.
In no event may any one participant in the 1998 Plan be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 500,000 shares in the aggregate under the 1998 Plan.
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 Com21's receipt of consideration, appropriate adjustments will be made
to (i) the maximum number and class of securities issuable under the 1998 Plan,
(ii) the maximum number and class of securities for which any one participant
may be granted stock options, separately exercisable stock appreciation rights
and direct stock issuances under the 1998 Plan, (iii) the number and class of
securities for which option grants will subsequently be made under the Automatic
Option Grant Program to each newly-elected or continuing non-employee board
member and (iv) the number and class of securities and the exercise price per
share in effect under each outstanding option under the Plan. All such
adjustments will be designed to preclude the enlargement or dilution of
participant rights and benefits under the Option Plan.
ELIGIBILITY
Employees, non-employee board members, and independent consultants and
advisors to Com21 and its subsidiaries (whether now existing or subsequently
established) 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 February 28, 1999, eight (8) executive officers, seven (7)
non-employee board members and approximately 170 other employees were eligible
to participate in the 1998 Plan, and seven (7) non-employee board members 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 1998 Plan will be the closing selling price per share on that date on the
Nasdaq National Market. On March 1, 1999, the closing selling price of Com21's
common stock was $23.63 per share.
DISCRETIONARY OPTION GRANT PROGRAM
GRANTS
The plan administrator has complete discretion under the Discretionary
Option Grant Program to determine which eligible individuals are to receive
option grants or stock issuances, the time or times when such grants or
issuances are to be made, the number of shares subject to each such grant or
issuance, the status of any granted option as either an incentive stock option
or a non-statutory option under the federal tax laws, the vesting schedule (if
any) to be in effect for the option grant or stock issuance and the maximum term
for which any granted option is to remain outstanding. All expenses incurred in
administering the 1998 Plan will be paid by Com21.
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PRICE AND EXERCISABILITY
The exercise price per share for options granted under the Discretionary
Option Grant Program may not be less than eighty-five percent (85%) (100% for
incentive stock options) of the fair market value per share of common stock on
the option grant date. No option granted will have a term in excess of ten (10)
years, and each option will generally vest and become exercisable in one or more
installments over the optionee's period of service with Com21. The plan
administrator may grant options that are exercisable for unvested shares, but
any shares will be subject to repurchase by Com21, at the exercise price paid
per share, if the optionee ceases service with Com21 prior to vesting in those
shares. The plan administrator may at any time cancel Com21's outstanding
repurchase rights with respect to those shares and thereby accelerate the
vesting of those shares.
The exercise price may be paid in cash or in shares of the common stock.
Outstanding options may also be exercised through a same-day sale program
pursuant to which a designated brokerage firm is to effect an immediate sale of
the shares purchased under the option and pay over to Com21, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
exercise price for the purchased shares plus all applicable withholding taxes.
No optionee will have any stockholder rights with respect to the option
shares until such optionee has exercised the option and paid the exercise price
for the purchased shares. Options are generally not assignable or transferable
other than by will or the laws of inheritance and, during the optionee's
lifetime, the option may be exercised only by such optionee. However, the plan
administrator may allow non-statutory options to be transferred or assigned
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, to the extent such transfer or assignment is in furtherance of
the optionee's estate plan.
TERMINATION OF SERVICE
Upon the optionee's cessation of employment or service, the optionee will
have a limited period of time in which to exercise his or her outstanding
options for any shares in which the optionee is vested at that time. However, at
any time while the options remain outstanding, the plan administrator will have
complete discretion to extend the period following the optionee's cessation of
employment or service during which his or her outstanding options may be
exercised. The plan administrator will also have complete discretion to
accelerate the exercisability or vesting of those options in whole or in part at
any time.
STOCK APPRECIATION RIGHTS
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 provide the holders with the right to
surrender their options for an appreciation distribution from Com21 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 provided to one or more
officers of Com21 as part of their option grants. Any option with such a
limited stock appreciation right may be surrendered to Com21 upon the
successful completion of a hostile tender offer for more than fifty percent
(50%) of Com21's outstanding voting stock. In return for the surrendered
option, the officer will be entitled to a cash distribution from Com21 in
an amount per surrendered option share equal to the excess of (a) the
highest price per share of common stock paid in connection with the tender
offer over (b) the exercise price payable for such share.
CANCELLATION/REGRANT PROGRAM
The plan administrator has 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
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the 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.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share
not less than one hundred percent (100%) of their fair market value, payable in
cash or past services rendered to Com21. Shares may also be issued as a bonus
for past services.
The shares issued as a bonus for past services will be fully vested upon
issuance. All other shares issued under the program will be 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 and all unvested shares outstanding
under the 1998 Plan.
GENERAL PROVISIONS
ACCELERATION
In the event that Com21 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 in full,
and all unvested shares under the Discretionary Option Grant and Stock Issuance
Programs will immediately vest, except to the extent Com21's repurchase rights
with respect to those shares are to be assigned to the successor corporation.
Options may also be granted and shares may be issued which will immediately vest
in full following an acquisition in which the options are assumed and the
repurchase rights are assigned, in the event the optionee's service with Com21
or any successor entity is subsequently terminated within eighteen (18) months
after the acquisition. The plan administrator also has the authority to grant
options and issue shares which will immediately vest upon an acquisition of
Com21, whether or not those options are assumed by, or repurchase rights
assigned to, the successor corporation. The plan administrator also has the
discretionary authority to provide for the full and immediate vesting of all
outstanding stock options and unvested shares under the Discretionary Option
Grant and Stock Issuance Programs in connection with a change in control of
Com21 (whether by successful tender offer for more than fifty percent (50%) of
the outstanding voting stock or a change in the majority of the board by reason
of one or more proxy contests for the election of board members), with such
vesting to occur either at the time of such change in control or upon the
subsequent termination of the individual's service.
The acceleration of vesting upon a change in the ownership or control of
Com21 may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of Com21.
FINANCIAL ASSISTANCE
The plan administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options under the
Discretionary Option Grant Program or the purchase of shares under the Stock
Issuance Program. The plan administrator will have complete discretion to
determine the terms of any such financial assistance. However, the maximum
amount of financing provided any individual may not exceed the cash
consideration payable for the issued shares plus all applicable taxes. Any such
financing 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 Com21 withhold a portion of the shares
otherwise issuable to such individuals in satisfaction of the tax liability
incurred by such individuals in connection with the exercise of those options or
the vesting of those
9
<PAGE> 12
shares. Alternatively, the plan administrator may allow such individuals to
deliver previously acquired shares of common stock in payment of such tax
liability.
SALARY INVESTMENT OPTION GRANT PROGRAM
In the event the plan administrator elects to activate the Salary
Investments Option Grant Program for one or more calendar years, each executive
officer and other highly compensated employees of Com21 selected for
participation may elect, prior to the start of the calendar year, to reduce his
or her base salary for that calendar year by a specific dollar amount not less
than $10,000 nor more than $50,000. If this election is approved by the plan
administrator, the individual will automatically be granted, on the first
trading day in January of the calendar year for which that salary reduction is
to be in effect, a non-statutory option to purchase that number of shares of
common stock determined by dividing the salary reduction amount by two-thirds of
the fair market value per share of common stock on the grant date. The option
will be exercisable at a price per share equal to one-third of the fair market
value of the option shares on the grant date. The option will vest and become
exercisable in a series of twelve (12) equal monthly installments over the
calendar year for which the salary reduction is to be in effect.
In the event of a change in control while the optionee remains in the
employ of Com21, each outstanding option held by such employee under the Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable with respect to the total
number of shares of common stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of common stock.
The option shall remain so exercisable until the earlier of (i) the expiration
of the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the optionee's cessation of service.
AUTOMATIC OPTION GRANT PROGRAM
TERMS
Under the Automatic Option Grant Program, non-employee board members will
receive option grants at specified intervals over their period of board service.
All grants under the Automatic Option Grant Program will be made in strict
compliance with the express provisions of such program, and stockholder approval
of this Proposal will also constitute pre-approval of each option subsequently
granted pursuant to the provisions of the Automatic Option Grant Program
summarized below and the subsequent exercise of that option in accordance with
such provisions.
1. Each individual who first becomes a non-employee board member after
April 1, 1998, whether through election by the stockholders or appointment by
the board, will automatically be granted, at the time of such initial election
or appointment, a non-statutory option to purchase 15,000 shares of common
stock, provided such individual has not previously been in Com21's employ.
2. On the date of each Annual Meeting, beginning with the 1999 Annual
Meeting, each individual who is to continue to serve as a non-employee board
member, whether or not such individual is standing for re-election at that
particular Annual Meeting, will automatically be granted a non-statutory option
to purchase 5,000 shares of common stock, provided such individual has not
received an option grant under the Automatic Option Grant Program within the
preceding six (6) months. There will be no limit on the number of such
5,000-share option grants any one non-employee board member may receive over his
or her period of board service, and non-employee board members who have
previously been in Com21's employ will be eligible to receive one or more of
those annual grants.
3. Each automatic option grant will have an exercise price per share equal
to 100% of the fair market value per share of common stock on the grant date.
The option will have a maximum term of ten (10) years, subject to earlier
termination at the end of the twelve (12)-month period measured from the date of
the optionee's cessation of board service. Each option will be immediately
exercisable for all of the option shares. However, any shares purchased under
the option will be subject to repurchase by Com21, at the exercise price
10
<PAGE> 13
paid per share, upon the optionee's cessation of board service prior to vesting
in those shares. The shares of common stock subject to each initial 15,000-share
grant, will vest in a series of four (4) equal annual installments upon the
optionee's completion of each successive year of board service measured from the
grant date. The shares of common stock subject to each annual 5,000-share grant
will vest over two years in two (2) equal annual installments upon the
optionee's completion of each successive year of board service measured from the
grant date.
4. Each automatic option will remain exercisable for a twelve (12)-month
period following the optionee's cessation of service as a board member. In no
event, however, may the option be exercised after the expiration date of the
option term. During the applicable post-service exercise period, the option may
not be exercised for more than the number of option shares (if any) in which the
board member is vested at the time of his or her cessation of board service.
5. The shares subject to each automatic option grant will immediately vest
upon (i) the optionee's death or permanent disability while a board member, (ii)
an acquisition of Com21 by merger or asset sale, (iii) the successful completion
of a tender offer for more than 50% of Com21's outstanding voting stock or (iv)
a change in the majority of the board effected through one or more proxy
contests for board membership.
6. Upon the successful completion of a hostile tender offer for more than
50% of Com21's outstanding voting stock, each outstanding automatic option grant
may be surrendered to Com21 for a cash distribution per surrendered option share
in an amount equal to the excess of (a) the highest price per share of common
stock paid in connection with such tender offer over (b) the exercise price
payable for such share. Stockholder approval of this Proposal No. Two will
constitute pre-approval of each option subsequently granted with such a
surrender right and the subsequent surrender of that option in accordance with
foregoing provisions. No additional approval of the plan administrator or the
board will be required at the time of the actual option surrender and cash
distribution.
The remaining terms and conditions of each automatic option grant will in
general conform to the terms summarized above for option grants made under the
Discretionary Option Grant Program and will be incorporated into the option
agreement evidencing the automatic grant.
DIRECTOR FEE OPTION GRANT PROGRAM
Should the Director Fee Option Grant Program be activated in the future,
each non-employee board member will have the opportunity to apply all or a
portion of any annual retainer fee otherwise payable in cash to the acquisition
of a below-market option grant. The option grant will automatically be made on
the first trading day in January in the year for which the retainer fee would
otherwise be payable in cash. The option will have an exercise price per share
equal to one-third of the fair market value of the option shares on the grant
date, and the number of shares subject to the option will be determined by
dividing the amount of the retainer fee applied to the program by two-thirds of
the fair market value per share of common stock on the grant date. The option
will vest and become exercisable for the option shares in a series of twelve
(12) equal monthly installments over the calendar year for which the election is
to be in effect. However, the option will become immediately exercisable and
vested for all the option shares upon the death or disability of the optionee
while serving as a board member.
In the event of a change in control while the optionee remains in service,
each outstanding option held by such optionee under this Director Fee Option
Grant Program shall automatically accelerate so that each such option shall
immediately become fully exercisable with respect to the total number of shares
of common stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. The option shall
remain so exercisable until the earlier of (i) the expiration of the ten (10)-
year option term or (ii) the expiration of the three (3)-year period measured
from the date of the optionee's cessation of service. Options under the Director
Fee Option Grant Program include limited stock appreciation rights in the event
of a hostile take-over.
11
<PAGE> 14
STOCK AWARDS
The table below shows, as to each of Com21's executive officers named in
the Summary Compensation Table of the Executive Compensation and Related
Information section of this Proxy Statement and the various indicated
individuals and groups, the number of shares of common stock subject to options
granted under the 1998 Plan between the April 1, 1998 effective date of the 1998
Plan and February 28, 1999, together with the weighted average exercise price
payable per share. No direct stock issuances have been made to date under the
1998 Plan.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS GRANTED EXERCISE PRICE
NAME (NUMBER OF SHARES) OF GRANTED OPTIONS
---- ------------------ ------------------
<S> <C> <C>
Peter D. Fenner............................. 100,000 $ 9.00
President and Chief Executive Officer
David L. Robertson.......................... 21,425 $ 9.00
Chief Financial Officer, Vice President,
Finance, Treasurer and Secretary
Buck J. Gee................................. 21,425 $ 9.00
Vice President, Marketing
William J. Gallagher........................ 22,505 $ 9.00
Vice President, Sales
Kenneth C. Gorman........................... 21,425 $ 9.00
Vice President, Engineering
All current executive officers as a group
(8 persons)............................... 251,080 $ 9.00
All current non-employee directors as a
group
(6 persons)............................... 0 $ 0.00
All employees, including current officers
who are not executive officers, as a group
(190 persons)............................. 940,595 $14.03
</TABLE>
As of February 28, 1999, options covering 2,259,640 shares of common stock
were outstanding under the 1998 Plan, 1,958,757 shares remained available for
future option grant or direct issuance (assuming stockholder approval of the
increase which forms part of this Proposal Two), and 265,049 shares have been
issued pursuant to the exercise of outstanding options under the 1998 Plan.
AMENDMENT AND TERMINATION
The board may amend or modify the 1998 Plan in any or all respects
whatsoever, subject to any stockholder approval required under applicable law or
regulation. The board may terminate the 1998 Plan at any time, and the 1998 Plan
will in all events terminate on March 31, 2008.
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the 1998 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 a taxable disposition. For Federal tax purposes, dispositions are
divided into two categories: qualifying and disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the optionee
has held the shares for more than two (2) years after the option grant date and
more than one (1) year after the exercise date. If either of these two holding
periods is not satisfied, then a disqualifying disposition will result.
12
<PAGE> 15
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be taxable
as ordinary income to the optionee. Any additional gain or loss recognized upon
the disposition will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then Com21 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. If the optionee makes a qualifying disposition, Com21 will not be
entitled to any income tax deduction.
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 Com21 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 Com21's repurchase right lapses, an amount equal
to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
Com21 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 Com21 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. Com21 will be entitled to an income tax deduction equal to such
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 1998 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Com21 anticipates that any compensation deemed paid by it in connection
with the disqualifying disposition of incentive stock option shares or the
exercise of non-statutory options granted with exercise prices equal to the fair
market value of the 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
Com21.
Accordingly, all compensation deemed paid under the 1998 Plan will remain
deductible by Com21 without limitation under Code Section 162(m).
13
<PAGE> 16
ACCOUNTING TREATMENT
Option grants or stock issuances to employees with exercise or issue prices
less than the fair market value of the shares on the grant or issue date will
result in a direct compensation expense to Com21'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 Com21 over
the period that the option shares or issued shares are to vest. Option grants or
stock issuances to employees at 100% of fair market value will not result in any
direct charge to Com21's earnings. However, the fair value of those options is
required to be disclosed in the notes to Com21's financial statements, and Com21
must also disclose, in pro-forma statements to Com21's financial statements, the
impact those options would have upon Com21'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 may be a factor in
determining Com21's earnings per share on a fully-diluted basis.
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 Com21's
earnings.
NEW PLAN BENEFITS
As of February 28, 1999, no options have been granted, and no direct stock
issuances have been made, on the basis of the 1,000,000-share increase which
forms part of this Proposal No. Two. At the 1999 Annual Meeting, each individual
who will continue to serve as a non-employee board member will receive an option
grant under the Automatic Option Grant Program to purchase 5,000 shares of
common stock at an exercise price per share equal to the fair market value per
share of common stock on the grant date.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of
Com21 present or represented and entitled to vote at the 1999 Annual Meeting is
required for approval of the amendment to the 1998 Plan. Should such stockholder
approval not be obtained, then the 1,000,000-share increase to the share reserve
will not be implemented, and any stock options granted on the basis of the
1,000,000-share increase to the 1998 Plan will immediately terminate without
becoming exercisable for the shares of common stock subject to those options,
and no additional options will be granted on the basis of such share increase
for reissuance. The 1998 Plan will, however, continue to remain in effect, and
option grants and direct stock issuances may continue to be made pursuant to the
provisions of the 1998 Plan in effect prior to the amendments summarized in this
Proposal No. Two, until the available reserve of common stock as last approved
by the stockholders has been issued pursuant to option grants and direct stock
issuances made under the 1998 Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
approval of the amendments to the 1998 Plan.
14
<PAGE> 17
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The board has appointed Deloitte & Touche LLP, independent public auditors
for Com21 for the 1998 fiscal year, to serve in the same capacity for the year
ending December 31, 1999. The affirmative vote of a majority of the shares
represented and voting at the Annual Meeting is required to ratify the selection
of Deloitte & Touche LLP.
In the event the stockholders fail to ratify the appointment, the board
will reconsider its selection. Even if the selection is ratified, the board in
its discretion may direct the appointment of a different independent auditing
firm at any time during the year if the board believes that such a change would
be in the best interest of Com21 and its stockholders.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The board recommends that the stockholders vote FOR the ratification of the
selection of Deloitte & Touche LLP to serve as Com21's independent auditors for
the fiscal year ending December 31, 1999.
OTHER MATTERS
Com21 knows of no other matters that will be presented for consideration at
the Annual Meeting. If any other matters properly come before the Annual
Meeting, it is the intention of the persons named in the enclosed form of Proxy
to vote the shares they represent as the board of directors may recommend.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed Proxy.
15
<PAGE> 18
MANAGEMENT
The following table sets forth certain information regarding the executive
officers and directors of Com21 as of February 28, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Peter D. Fenner.................... 62 President, Chief Executive Officer
and Director
Paul Baran......................... 72 Chairman of the Board of Directors
David L. Robertson................. 57 Chief Financial Officer, Vice
President, Finance and
Administration and Corporate
Secretary
William J. Gallagher............... 54 Vice President, Sales
Buck J. Gee........................ 49 Vice President, Marketing
Michael F. Gordon.................. 48 Vice President, Field and Customer
Support
Kenneth C. Gorman.................. 54 Vice President, Engineering
Mark E. Laubach.................... 44 Chief Technical Officer and Vice
President, Technology
Timothy I. Miller.................. 43 Vice President, Manufacturing
C. Richard Kramlich(1)............. 63 Director
Scott J. Loftesness(2)(3).......... 51 Director
Robert C. Hawk..................... 58 Director
William R. Hearst III.............. 48 Director
Robert A. Hoff(2).................. 46 Director
Robert W. Wilmot(1)................ 53 Director
</TABLE>
- ---------------
(1) Member of audit committee.
(2) Member of compensation committee.
(3) Mr. Loftesness, effective March 25, 1999, resigned from the Board of
Directors.
PETER D. FENNER. Mr. Fenner has been President, Chief Executive Officer and
a Director of Com21 since February 1996. From January 1989 through April 1992,
he served as President of the Transmission Systems Business Unit of AT&T Network
Systems (Lucent) and Corporate Officer at AT&T. From April 1992 to February
1996, Mr. Fenner was an independent consultant. From February 1986 through
December 1988, Mr. Fenner was Vice President, Product Planning for AT&T's
Network Systems Division. Mr. Fenner is Director of CorNet Information Ltd. Mr.
Fenner received an S.M. from the Sloan School of Management at the Massachusetts
Institute of Technology, where he was a Sloan Fellow, and a B.S. in Industrial
Engineering from Lehigh University.
PAUL BARAN. Mr. Baran has been the Chairman of the Board of Directors since
Com21's inception in June 1992. He is presently retired. Mr. Baran was chosen by
Communications Week and Data Communications as one of the top 25 visionaries in
the data communications industry and was recipient of the Electronic Frontier
Foundation Pioneer Award (1993), the Marconi International Fellowship Award
(1991), the Institute of Electronics and Electrical Engineering, Inc. ("IEEE")
Alexander Graham Bell Medal (1990), the ACM SIG/Communications Award (1989) and
the IEEE Communications Society Edwin Armstrong Award (1987). He co-founded
Equatorial Communications, Packet Technologies, Telebit Corporation and
Metricom, Inc. Mr. Baran is a Fellow of the IEEE and a Fellow of the AAAS. Mr.
Baran received an M.S. in Computers from the University of California, Los
Angeles, and a B.S. in Electrical Engineering and a Dr.Sci. in Engineering
(Hon.) from Drexel University.
DAVID L. ROBERTSON. Mr. Robertson has been Chief Financial Officer and Vice
President, Finance of Com21 since April 1995. From March 1993 through April
1995, Mr. Robertson was the Vice President of Finance and Chief Financial
Officer at Endosonics Corporation, a medical device company. From December
16
<PAGE> 19
1992 to March 1993, Mr. Robertson was an independent consultant. From November
1990 through December 1992, Mr. Robertson was the Vice President and Chief
Financial Officer at Circadian, Inc., a medical device company. He also
participated in the founding of StrataCom, Inc. and served as a Director of
StrataCom for two years during its early stages. Mr. Robertson is a Certified
Public Accountant, and received an M.B.A. from the University of California,
Berkeley and a B.A. in economics from the University of Washington.
WILLIAM J. GALLAGHER. Mr. Gallagher has been Vice President of Sales since
August 1995. From October 1994 to July 1995 he was Vice President of Marketing
at Pacific Gas & Electric Company ("PG&E"), a utility company. From October 1993
to September 1994, Mr. Gallagher was with MCI Telecommunications Corp. as Vice
President, Carrier Services. From August 1991 to September 1994, Mr. Gallagher
was a Vice President and Consultant at San Francisco Consulting Group. He
received a B.A. from the University of New Mexico.
BUCK J. GEE. Mr. Gee has been Vice President of Marketing since November
1994. From September 1993 through October 1994, Mr. Gee was the Manager of the
FDDI Adapters Group at Cisco. From December 1990 through September 1993 he was
Director of Marketing and Director of Business Development for Crescendo
Communications, Inc., a computer networking company. Mr. Gee has also held
engineering and marketing positions at Hewlett-Packard Company, 3Com and
National Semiconductor Corp. He received an M.B.A. from Harvard Business School
and both a B.S. and a M.S. in Electrical Engineering from Stanford University.
MICHAEL F. GORDON. Mr. Gordon has been Vice President of Field Services and
Customer Support since July 1997. From December 1995 through June 1997, he was
an independent technical and management consultant. From February 1992 through
December 1997, Mr. Gordon was the President and Chief Operating Officer of
Telecoupon Network, Inc. a coupon delivery kiosk company. Mr. Gordon received a
B.S. in Computer Science from the University of Michigan.
KENNETH C. GORMAN. Mr. Gorman has been Vice President of Engineering since
July 1995. From April 1992 through June 1995, he was employed at Resound, Inc.,
a consumer health company where he served in various capacities including Vice
President, Engineering. From April 1989 to April 1992 Mr. Gorman was employed at
Sun Microsystems, Inc. ("Sun"). Mr. Gorman received an S.M.E. in Electrical
Engineering from the Massachusetts Institute of Technology and a B.S. in
Electrical Engineering from the University of Kansas.
MARK E. LAUBACH. Mr. Laubach has been Vice President of Technology and
Chief Technical Officer of Com21 since June 1996. He is a co-founder of Com21
and has also been Chief Architect since June 1994. From November 1979 to June
1994, Mr. Laubach was an engineer at Hewlett-Packard Laboratories, where he was
directly responsible for impacting the international IP over ATM networking
standards. He is a member of the Internet Engineering Task Force ("IETF") and
past chair of the IP over ATM Working Group. Mr. Laubach participates in the ATM
Forum's Residential Broadband working group and is the past liaison to the IEEE
802.14 working group. He participates in the IEEE 802.14 working group and the
SCTE High-Speed Digital Communications standards working group. Mr. Laubach
received both a M.S.C.S. in Computer Engineering and a B.S. in Electrical
Engineering from the University of Delaware.
TIMOTHY I. MILLER. Mr. Miller has been Vice President of Manufacturing
since November 1996 and has been employed by Com21 since October 1994. From
November 1990 to September 1994, he was Director of Manufacturing and Materials
at Coactive Computers, a computer software company, where he was responsible for
scheduling and production. Mr. Miller has also held senior management positions
with Tidewater Associates and Morrison Design. Mr. Miller received both a B.S.
in Business Administration and a B.A. from San Jose State University.
C. RICHARD KRAMLICH. Mr. Kramlich has been a Director of Com21 since May
1994. Mr. Kramlich is the co-founder and has been General Partner of New
Enterprise Associates since 1978. He is a Director of Ascend Communications,
Inc., Chalone, Inc., Healtheon Corporation, Lumisys, Inc., and Silicon Graphics,
Inc. Mr. Kramlich received an M.B.A. from Harvard Business School and a B.S.
from Northwestern University.
17
<PAGE> 20
SCOTT J. LOFTESNESS. Mr. Loftesness has been a Director of Com21 since its
inception in 1992 and is a co-founder of Com21. Mr. Loftesness was previously
the President of DigiCash, Inc., an electronic cash product company, Mr.
Loftesness was previously a Group Executive of Merchant Systems, First Data
Corporation, a credit card processing and payment system company, where he was
employed from June 1994 through July 1998. From September 1991 through June
1994, he was Group Executive at Visa International. He is a Director of First
Virtual Holdings and Consensus Development, Inc. Mr. Loftesness attended the
University of California, Berkeley.
ROBERT C. HAWK. Mr. Hawk has been a Director of Com21 since January 1997.
Mr. Hawk has been an independent business consultant since April 1997. From
April 1996 through March 1997, he was President of U.S. West Multimedia, a cable
Company. From April 1986 through March 1996, he was the President of Carrier
Division, U.S. West Communications, a telecommunications Company. He is a
Director of PairGain Technologies, COVAD Communications, Inc., Xylan Corp.,
Concord Corp., and RADCom Corp. Mr. Hawk received an M.B.A. from the University
of San Francisco and a B.B.A. from the University of Iowa.
WILLIAM R. HEARST III. Mr. Hearst has been a Director of Com21 since April
1998. Mr. Hearst has also been a Director of @Home Corporation ("@Home") since
August 1995 and has served as Vice Chairman of the Board of Directors of @Home
since July 1996. He has been a general partner of Kleiner Perkins Caulfield &
Byers ("KPCB"), a venture capital firm, since January 1995. From May 1995 to
July 1996, he was the founding Chief Executive Officer of @Home. Before joining
KPCB, Mr. Hearst was editor and publisher of the San Francisco Examiner for ten
years. He is a Fellow of the AAAS and a Trustee of the Carnegie Institute of
Washington and the California Academy of Sciences. Mr. Hearst holds an A.B. in
mathematics from Harvard University.
ROBERT A. HOFF. Mr. Hoff has been a Director since May 1994. He has been a
general partner at CrossPoint Venture Partners ("CrossPoint") since 1983. Mr.
Hoff serves as a Director of PairGain Inc., Onyx Acceptance Corp. and US Web
Corporation. Mr. Hoff received an M.B.A. from Harvard Business School and a B.S.
in Business Administration from Bucknell University.
ROBERT W. WILMOT. Dr. Wilmot has been a Director of Com21 since April 1995.
Dr. Wilmot has been Chairman at Wilmot Consulting Inc. since May 1995. From
April 1994 to May 1995, Mr. Wilmot was an independent consultant and investor.
From May 1985 through April 1994, he was Chairman at Wilmot Enterprises Ltd. His
other prior positions include Vice President and Managing Director of Texas
Instruments and CEO of International Computers PLC, a computer company. Dr.
Wilmot is a founder of a number of companies including ES2 SA, the OASiS Group
Plc, CMI Ltd., MOVID Technology Inc., Poqet Computer Inc., VXtreme, Inc. and
Integrity Arts, Inc. He is a Director of FVC.COM and Sequent Computer Systems.
Dr. Wilmot received a B.S. in Electrical Engineering from Nottingham University.
Com21 has authorized eight directors. Each director is elected for a period
of one year at Com21's annual meeting of stockholders and serves until the next
annual meeting or until his successor is duly elected and qualified. The
executive officers serve at the discretion of the board of directors. There are
no family relationships among any of Com21's directors or executive officers.
COMMITTEES OF THE BOARD OF DIRECTORS
Compensation Committee. The compensation committee is primarily responsible
for reviewing and approving Com21's general compensation policies and setting
compensation levels for Com21's executive officers. The committee also
administers Com21's incentive compensation plans. In 1998, the committee
consisted of two directors, Mr. Loftesness and Mr. Hoff. The board of directors
is currently evaluating a replacement for Mr. Loftesness on this committee.
Audit Committee. The audit committee is primarily responsible for approving
the services performed by Com21's independent auditors and reviewing the
auditor's reports regarding Com21's accounting practices and systems of internal
accounting controls. The committee currently consists of two directors, Mr.
Wilmot and Mr. Kramlich.
18
<PAGE> 21
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee of Com21's board are Mr.
Loftesness and Mr. Hoff. No executive officer of Com21 serves on the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of Com21's board or compensation
committee.
DIRECTOR COMPENSATION
Com21 currently does not compensate any member of Com21's board of
directors. Members of the board of directors are eligible to receive
discretionary option grants and stock issuances under the 1998 Stock Incentive
Plan. In addition, under the 1998 Stock Incentive Plan non-employee directors
will receive automatic option grants upon becoming directors and on the date of
each annual meeting of stockholders. The 1998 Stock Incentive Plan also contains
a director fee option grant program. Should this program be activated in the
future, each non-employee board member will have the opportunity to apply all or
a portion of any annual retainer fee otherwise payable in cash to the
acquisition of a below-market option grant. See "Management -- Benefit Plans."
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation of Com21's Chief Executive Officer and each of the four other
executive officers of Com21 who were serving as executive officers of Com21
during fiscal year 1998 (the "Last Fiscal Year") and whose total annual salary
and bonus during such fiscal year exceeded $100,000 (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION($) ---------------------
---------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS GRANTED(#)(1)
--------------------------- ---- --------- --------- ---------------------
<S> <C> <C> <C> <C>
Peter D. Fenner........................... 1998 $311,580 $120,000 100,000
President and Chief Executive Officer 1997 300,040 -- --
Buck J. Gee............................... 1998 170,100 70,000 36,425
Vice President, Marketing 1997 144,585 -- --
David L. Robertson........................ 1998 170,100 80,000 36,425
Chief Financial Officer, 1997 144,585 -- --
Vice President, Finance and Secretary
William J. Gallagher...................... 1998 149,443 235,018 22,505
Vice President, Sales 1997 150,020 78,065 --
Kenneth C. Gorman......................... 1998 171,369 66,000 36,425
Vice President, Engineering 1997 152,790 25,000 --
</TABLE>
- ---------------
(1) The options listed in the table were granted under Com21's 1998 Stock
Incentive Plan. See "-- Option Grants in Last Fiscal Year" for a description
of these options.
19
<PAGE> 22
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED TO OPTION TERM($)(4)
OPTIONS EMPLOYEES IN FISCAL EXERCISE EXPIRATION -----------------------
NAME GRANTED(#)(1) YEAR(%)(2) PRICE($)(3) DATE 5% 10%
---- ------------- ------------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Peter D. Fenner......... 60,417(5) 4.41% $9.00 04/21/08 $341,963 $866,602
39,583(6) 2.89 9.00 04/21/08 224,042 567,766
Buck J. Gee............. 15,000 1.10 7.00 01/14/08 66,034 167,343
21,425 1.57 9.00 04/21/08 121,267 307,313
David L. Robertson...... 15,000 1.10 7.00 01/14/08 66,034 167,343
21,425 1.57 9.00 04/21/08 121,267 307,313
William J. Gallagher.... 21,425 1.57 9.00 04/21/08 121,267 307,313
1,080(7) .08 9.00 04/21/08 6,113 15,491
Kenneth C. Gorman....... 15,000 1.10 7.00 01/14/08 66,034 167,343
21,425 1.57 9.00 04/21/08 121,267 307,313
</TABLE>
- ---------------
(1) With the exception of Mr. Gallagher's 1,080-share option grant and Mr.
Fenner's 60,417-share and 39,583-share option grants, all options granted to
the Named Executive Officers in the Last Fiscal Year vest as follows:
Twenty-five percent (25%) of the option shares will vest upon the optionee's
continuation in service through one year following the grant date and the
balance in thirty-six (36) equal installments upon the optionee's continued
service at the completion of each of the next thirty-six (36) months
thereafter. The date of Mr. Gee's 15,000-share option grant, Mr. Robertson's
15,000-share option grant and Mr. Gorman's 15,000-share option grant was
January 15, 1998. The date of all other option grants was April 22, 1998.
Each option has a maximum term of ten (10) years, subject to earlier
termination in the event of the optionee's cessation of service with Com21.
(2) Based on an aggregate of 1,368,615 options granted to employees, consultants
and directors, including the Named Executive Officers of Com21 during the
fiscal year ended December 31, 1998.
(3) The exercise price per share of each option was equal to the fair market
value of the common stock on the date of grant as determined by the board of
directors after consideration of a number of factors, including, but not
limited to, Com21's financial performance, market conditions, the price and
preferred rights and privileges of shares of equity securities sold to or
purchased by outside investors and third-party appraisals.
(4) The potential realizable value is calculated based on the term of the option
at its time of grant, which is ten years. It is calculated assuming that the
fair market value of Com21's common stock on the date of grant appreciates
at the indicated annual rate compounded annually for the entire term of the
option and that the option is exercised and sold on the last day of its term
for the appreciated stock price.
(5) Mr. Fenner's 60,417-share option grant was granted under Com21's 1998 Stock
Incentive Plan. The 60,417 share grant vests in the following manner: 11,111
shares will vest upon Mr. Fenner's continuation in service through March 10,
1999 and the balance of the shares become exercisable in amounts of
approximately 2,083 shares on the tenth day of each month January through
June in 2000, January through May in 2001 and January through March in 2002.
(6) Mr. Fenner's 39,483-share option grant was granted under Com21's 1998 Stock
Incentive Plan. The 39,583 share grant vests in the following manner: 13,889
shares will vest upon Mr. Fenner's continuation in service through March 10,
1999 and the balance of the shares become exercisable in amounts of
approximately 2,083 shares on the tenth day of each month, April through
December in 1999, June through December in 2000 and June through December in
2001.
(7) Mr. Gallagher's 1,080-share option grant vested in six (6) successive equal
monthly installments upon Mr. Gallagher's completion of each month of
service over the six month period following April 22, 1998, the grant date
of the option.
20
<PAGE> 23
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND LAST FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises and
option holdings for the Last Fiscal Year with respect to the Named Executive
Officers. Except as set forth below, no options or stock appreciation rights
were exercised by any such individual during such year, and no stock
appreciation rights were outstanding on December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE- MONEY OPTIONS
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(5)
EXERCISE REALIZED --------------------------------- ---------------------------
NAME (#)(1) ($)(2) EXERCISABLE(3) UNEXERCISABLE(4) EXERCISABLE UNEXERCISABLE
---- ----------- -------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter D. Fenner........ 64,000 $650,400 307,500 100,000 $6,334,500 $1,200,000
Buck J. Gee............ -- -- 15,000 21,425 210,000 257,100
David L. Robertson..... -- -- 30,000 21,425 513,000 257,100
William J. Gallagher... 4,000 65,900 94,580 21,425 1,930,060 257,100
Kenneth C. Gorman...... -- -- 15,000 21,425 210,000 257,100
</TABLE>
- ---------------
(1) As of December 31, 1998, Mr. Fenner was vested in all of the shares
exercised and Mr. Gallagher was vested in all of the shares exercised.
(2) Based on the fair market value of the purchased option shares at the time of
exercise less the option exercise price paid for those shares.
(3) Each of the options was granted under Com21's 1995 Stock Option Plan and has
been incorporated in Com21's 1998 Stock Incentive Plan. Each of the options
is immediately exercisable, but all shares purchased under the options are
subject to vesting requirements and may be repurchased by Com21 at the
original exercise price paid per share upon the optionee's cessation of
service prior to vesting in such shares. The repurchase right lapses with
respect to 25% of the option shares upon completion of one year of service
from the vesting commencement date and the balance in a series of equal
monthly installments over the next 36 months of service thereafter. Each
option has a maximum term of ten years, subject to earlier termination in
the event of the optionee's cessation of service with Com21. As of December
31, 1998, Mr. Fenner was vested in 161,663 shares of his outstanding
options, Mr. Gee was vested in none of his outstanding options, Mr.
Robertson was vested in 7,499 shares of his outstanding options, Mr.
Gallagher was vested in 73,639 shares of his outstanding options and Mr.
Gorman was vested in none of his outstanding options.
(4) Each of the options was granted under Com21's 1998 Stock Incentive Plan. All
options granted vest as follows: Twenty-five percent (25%) of the option
shares will vest upon the optionee's continuation in service through one
year following the vesting commencement date, and the balance of the shares
vest in thirty-six (36) successive equal monthly installments upon the
optionee's continued service at the completion of each of the next
thirty-six (36) months thereafter. Each option has a maximum term of ten
years, subject to earlier termination in the event of the optionee's
cessation of service with Com21.
(5) Based on the fair market value of the option shares on December 31, 1998
($21.00 per share) less the option exercise price payable for those shares.
21
<PAGE> 24
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to Com21 with
respect to the beneficial ownership of Com21's common stock as of March 1, 1999,
except as noted in the footnotes below by (i) all persons who are beneficial
owners of five percent (5%) or more of Com21's common stock; (ii) each director;
(iii) Com21's Named Executive Officers; (iv) all directors and executive
officers as a group; and (v) the selling stockholders. Unless otherwise
indicated, each of the stockholders has sole voting and investment power with
respect to the shares beneficially owned, subject to community property laws,
where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(2)
----------------------
NAMES AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT
---------------------------------------- --------- -------
<S> <C> <C>
C. Richard Kramlich(3)................................. 1,617,344 7.6%
New Enterprise Associates VI, L.P.
2490 Sand Hill Road
Menlo Park, CA 94025
Robert A. Hoff(4)...................................... 420,495 2.0
CrossPoint Venture Partners 1993
18552 MacArthur Boulevard, Suite 400
Irvine, CA 92715
William R. Hearst III(5)............................... 562,097 2.6
Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025
Peter D. Fenner(6)..................................... 486,000 2.2
Paul and Evelyn Baran Trust Agreement(7)............... 680,025 3.2
Paul Baran(8).......................................... 680,025 3.2
David L. Robertson(9).................................. 80,149 *
William J. Gallagher(10)............................... 88,116 *
Buck J. Gee(11)........................................ 80,679 *
Kenneth C. Gorman(12).................................. 64,684 *
Scott J. Loftesness.................................... 162,870 *
Robert C. Hawk(13)..................................... 26,499 *
Robert W. Wilmot(14)................................... 92,500 *
Michael Gordon(15)..................................... 31,145 *
Mark Laubach(16)....................................... 67,258 *
Timothy Miller(17)..................................... 42,552 *
All directors and officers as a group (15
persons)(18)......................................... 4,505,067 20.7%
</TABLE>
- ---------------
* Less than one percent.
(1) Except as otherwise noted below, the address of each person listed on the
table is c/o Com21, Inc., 750 Tasman Drive, Milpitas, California 95035.
(2) Number of shares beneficially owned and the percentage of shares
beneficially owned are based on 21,272,667 shares outstanding as of March
1, 1999. Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and includes voting and investment
power with respect to such shares. All shares of common stock subject to
options currently exercisable or exercisable within 60 days after March 1,
1999 are deemed to be outstanding and to be beneficially owned by the
person holding such options for the purpose of computing the number of
shares beneficially owned and the percentage ownership of such person, but
are not deemed to be outstanding and to be beneficially owned for the
purpose of computing the percentage ownership of any other person. Except
as indicated in the footnotes to the table and subject to applicable
community property laws, based on information provided by the persons named
in the table, such persons have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them.
22
<PAGE> 25
(3) Represents 1,243,934 shares held by New Enterprise Associates VI, L.P. Also
includes 369,521 shares held by New Enterprise Associates VII, 556 shares
held by NEA Venture 1998 L.P. and 3,333 shares held by NEA Presidents Fund
L.P. which were purchased from 3Com Corporation on April 21, 1998. Voting
and dispositive power over the shares is held among all the general
partners of New Enterprise Associates. Mr. Kramlich is a General Partner at
New Enterprise Associates, the General Partner of New Enterprise Associates
VI, L.P., and as such he may be deemed to share voting and investment power
with respect to such shares. However, Mr. Kramlich disclaims beneficial
ownership of all such shares.
(4) Represents 405,789 shares of common stock held by CrossPoint Venture
Partners 1993, 14,394 shares of common stock held by CrossPoint 1993
Entrepreneurs Fund and 0 shares of common stock held by CrossPoint Venture
Partners LS 1997. Voting and dispositive power over the shares is held by
all the General Partners of CrossPoint Venture Partners. Mr. Hoff is a
General Partner at CrossPoint Venture Partners and as such he may be deemed
to share voting and investment power with respect to such shares. However,
Mr. Hoff disclaims beneficial ownership of all such shares, except for 312
shares held directly by him.
(5) Represents 528,350 shares held by Kleiner Perkins Caufield & Byers VII and
33,747 shares held by KPCB Information Sciences Zaibatsu Fund II. Voting
and dispositive power over the shares is held by all the General Partners
of Kleiner Perkins Caufield & Byers. Mr. Hearst is a General Partner of
Kleiner Perkins Caufield & Byers, and as such he may be deemed to share
voting and investment power with respect to such shares. However, Mr.
Hearst disclaims beneficial ownership of all such shares, except for 2,654
shares held directly by him.
(6) Includes 307,500 shares of common stock issuable upon exercise of
immediately exercisable options, 104,684 of which are subject to Com21's
right of repurchase. Includes 198,500 shares of common stock acquired
pursuant to a stock option exercise, none of which are subject to Com21's
right of repurchase.
(7) Represents 400,000 shares held by the Baran Family Limited Partnership and
280,025 shares held under the Paul and Evelyn Baran Trust Agreement dated
May 23, 1984.
(8) Represents 400,000 shares held by the Baran Family Limited Partnership and
280,025 shares held in the name of the Paul and Evelyn Baran Trust
Agreement dated May 23, 1984. Mr. Baran is a General Partner of the Baran
Family Limited Partnership, and as such he may be deemed to share voting
and investment power with respect to such shares. However, Mr. Baran
disclaims beneficial ownership of 360,000 of such shares.
(9) Includes 30,000 shares of common stock issuable upon exercise of
immediately exercisable options, 16,250 shares of which are subject to
Com21's right of repurchase. Also includes 60,000 shares acquired pursuant
to exercise of certain options, 3,565 shares of which are subject to
Com21's right of repurchase.
(10) Includes 68,500 shares of common stock issuable upon exercise of
immediately exercisable options, 9,390 shares of which are subject to
Com21's right of repurchase. Includes 4,000 shares of common stock acquired
pursuant to exercise of certain options, none of which are subject to
Com21's right of repurchase.
(11) Includes 15,000 shares of common stock issuable upon exercise of
immediately exercisable options, 10,312 of which are subject to Com21's
right of repurchase. Also includes 25,000 shares of common stock acquired
pursuant to a stock option exercise, of which 8,750 shares are subject to
Com21's right of repurchase.
(12) Includes 15,000 shares of common stock issuable upon exercise of
immediately exercisable options, 6,250 which are subject to Com21's right
of repurchase. Also includes 75,000 shares of common stock acquired
pursuant to a stock option exercise, 15,002 shares of which are subject to
Com21's right of repurchase.
(13) Includes 15,000 shares of common stock acquired pursuant to a stock option
exercise, 6,875 of which are subject to Com21's right of repurchase.
(14) Represents 37,500 shares of common stock acquired pursuant to a stock
option exercise, 363 of which are subject to Com21's right of repurchase.
23
<PAGE> 26
(15) Includes 33,587 shares of common stock issuable upon exercise of
immediately exercisable options, none of which are subject to Com21's right
of repurchase.
(16) Includes 28,772 shares of common stock issuable upon exercise of
immediately exercisable options, none of which are subject to Com21's right
of repurchase.
(17) Includes 18,558 shares of common stock issuable upon exercise of
immediately exercisable options, none of which are subject to Com21's right
of repurchase.
(18) Includes 535,918 shares of common stock issuable upon exercise of
immediately exercisable options, 166,439 of which are subject to Com21's
right of repurchase.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
It is the duty of the compensation committee to review and determine the
salaries and bonuses of executive officers of Com21, including the Chief
Executive Officer, and to establish the general compensation policies for such
individuals. The compensation committee also has the sole and exclusive
authority to make discretionary option grants to Com21's executive officers
under Com21's 1998 Stock Incentive Plan.
The compensation committee believes that the compensation programs for
Com21's executive officers should reflect Com21's performance and the value
created for Com21's stockholders. In addition, the compensation programs should
support the short-term and long-term strategic goals and values of Com21 and
should reward individual contribution to Com21's success. Com21 is engaged in a
very competitive industry, and Com21's success depends upon its ability to
attract and retain qualified executives through the competitive compensation
packages it offers to such individuals.
General Compensation Policy. The compensation committee's policy is to
provide Com21's executive officers with compensation opportunities which are
based upon their personal performance, the financial performance of Com21 and
their contribution to that performance and which are competitive enough to
attract and retain highly skilled individuals. Each executive officer's
compensation package is comprised of three elements: (i) base salary that is
competitive with the market and reflects individual performance, (ii) annual
variable performance awards payable in cash and tied to Com21's achievement of
annual financial performance goals and (iii) long-term stock-based incentive
awards designed to strengthen the mutuality of interests between the executive
officers and Com21's stockholders. As an officer's level of responsibility
increases, a greater proportion of his or her total compensation will be
dependent upon Com21's financial performance and stock price appreciation rather
than base salary.
Com21 used outside executive compensation studies to advise the
compensation committee as to how Com21's executive compensation levels compare
to those of companies within and outside of the industry.
Factors. The principal factors that were taken into account in establishing
each executive officer's compensation package for the 1998 fiscal year are
described below. However, the compensation committee may in its discretion apply
entirely different factors, such as different measures of financial performance,
for future fiscal years.
Base Salary. In setting base salaries, the compensation committee reviewed
published compensation survey data for its industry. The base salary for each
officer reflects the salary levels for comparable positions in the published
surveys and the comparative group of companies, as well as the individual's
personal performance and internal alignment considerations. The relative weight
given to each factor varies with each individual in the sole discretion of the
compensation committee. Each executive officer's base salary is adjusted each
year on the basis of (i) the compensation committee's evaluation of the
officer's personal performance for the year and (ii) the competitive marketplace
for persons in comparable positions. Com21's performance and profitability may
also be a factor in determining the base salaries of executive officers. For the
1998 fiscal year, the base salary of Com21's executive officers ranged from the
50th percentile to the 70th percentile of the base salary levels in effect for
comparable positions in the surveyed compensation data.
Annual Incentives. The annual incentive bonus for the Chief Executive
Officer is based on a percentage of his base pay (approximately 40% for the 1998
fiscal year) and was tied to reflect the actual financial
24
<PAGE> 27
performance of Com21 in comparison to Com21's business plan. The other executive
officers of Com21 are also awarded annual incentive bonuses equal to a
percentage of base salary (approximately 35% for fiscal 1998) on the basis of
Com21's performance.
CEO Compensation. In setting the total compensation payable to Com21's
Chief Executive Officer for the 1998 fiscal year, the compensation committee
sought to make that compensation competitive with the compensation paid to the
chief executive officers of the companies in the surveyed group, while at the
same time assuring that a significant percentage of compensation was tied to
Com21's performance and stock price appreciation.
The compensation committee did not adjust Mr. Fenner's base salary for the
1998 fiscal year. With respect to Mr. Fenner's base salary, it is the
compensation committee's intent to provide him with a level of stability and
certainty each year and not have this particular component of compensation
affected to any significant degree by Com21's performance factors. For the 1998
fiscal year, Mr. Fenner's base salary was approximately at the median of the
base salary levels of other chief executive officers at the surveyed companies.
The remaining components of Mr. Fenner's 1998 fiscal year compensation,
however, were primarily dependent upon corporate performance. Mr. Fenner was
eligible for a cash bonus for the 1998 fiscal year based on business plan
objectives. A $120,000 bonus was paid to him for fiscal year 1998 because Com21
attained its objectives. The compensation committee awarded a stock option grant
to Mr. Fenner in fiscal 1998 in order to provide him with an equity incentive to
continue contributing to the financial success of Com21. The option will have
value for Mr. Fenner only if the market price of the underlying option shares
appreciates over the market price in effect on the date the grant was made.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code disallows a tax deduction to publicly held companies for
compensation paid to certain of their executive officers, to the extent that
compensation exceeds $1 million per covered officer in any fiscal year. The
limitation applies only to compensation which is not considered to be
performance-based. Non-performance based compensation paid to Com21's executive
officers for the 1998 fiscal year did not exceed the $1 million limit per
officer, and the compensation committee does not anticipate that the
non-performance based compensation to be paid to Com21's executive officers for
fiscal 1998 will exceed that limit. Com21's 1998 Plan has been structured so
that any compensation deemed paid in connection with the exercise of option
grants made under that plan 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 unlikely that the cash compensation payable to any of Com21's executive
officers in the foreseeable future will approach the $1 million limit, the
compensation committee has decided at this time not to take any action to limit
or restructure the elements of cash compensation payable to Com21's executive
officers. The compensation committee will reconsider this decision should the
individual cash compensation of any executive officer ever approach the $1
million level.
It is the opinion of the compensation committee that the executive
compensation policies and plans provide the necessary total remuneration program
to properly align Com21's performance and the interests of Com21's stockholders
through the use of competitive and equitable executive compensation in a
balanced and reasonable manner, for both the short and long-term.
Submitted by the compensation committee of Com21's Board of Directors:
Robert A. Hoff
Scott J. Loftesness
25
<PAGE> 28
STOCK PERFORMANCE GRAPH
The graph depicted below shows a comparison of cumulative total stockholder
returns for Com21, the Standard and Poor's 500 Index and the Nasdaq
Telecommunications Index.
<TABLE>
<CAPTION>
COM21 S&P 500 NASDAQ-TELCOM
----- ------- -------------
<S> <C> <C> <C>
5/21/98 100.00 100.00 100.00
6/30/98 177.00 102.00 108.00
9/30/98 149.00 92.00 96.00
12/31/98 175.00 111.00 131.00
</TABLE>
- ---------------
(1) The graph covers the period from May 21, 1998, the commencement date of
Com21's initial public offering of shares of its common stock to December
31, 1998.
(2) The graph assumes that on May 21, 1998, $100 was invested in Com21's common
stock and in each index, and that all dividends were reinvested. No cash
dividends have been declared on Com21's common stock.
(3) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
Notwithstanding anything to the contrary set forth in any of Com21's
previous filings made under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings made by Com21 under those statutes, neither the preceding Stock
Performance Graph nor the Compensation Committee Report is to be incorporated by
reference into any such prior filings, nor shall such graph or report be
incorporated by reference into any future filings made by Com21 under those
statutes.
CERTAIN TRANSACTIONS
In addition to the indemnification provisions contained in Com21's Amended
and Restated Certificate of Incorporation and Bylaws, Com21 has entered into
separate indemnification agreements with each of its directors and officers.
These agreements require Com21, among other things, to indemnify such director
or officer against expenses (including attorneys' fees), judgments, fines and
settlements (collectively, "Liabilities"') paid by such individual in connection
with any action, suit or proceeding arising out of such individual's status or
service as a director or officer of Com21 (other than Liabilities arising from
willful misconduct or conduct that is knowingly fraudulent or deliberately
dishonest) and to advance expenses incurred by such individual in connection
with any proceeding against such individual with respect to which such
individual may be entitled to indemnification by Com21.
26
<PAGE> 29
All future transactions between Com21 and its officers, directors,
principal stockholders and affiliates will be approved by a majority of the
independent and disinterested members of the board of directors, and will be on
terms no less favorable to Com21 than could be obtained from unaffiliated third
parties.
COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
The members of the board of directors, the executive officers of Com21 and
persons who hold more than 10% of Com21's outstanding common stock are subject
to the reporting requirements of Section 16(a) of the Securities Exchange Act of
1934 which require them to file reports with respect to their ownership of the
common stock and their transactions in such common stock. Based upon (i) the
copies of Section 16(a) reports which Com21 received from such persons for their
1998 Fiscal Year transactions in the common stock and their common stock
holdings, and (ii) the written representations received from one or more of such
persons that no annual Form 5 reports were required to be filed by them for the
1998 Fiscal Year, Com21 believes that all reporting requirements under Section
16(a) for such fiscal year were met in a timely manner by its directors,
executive officers and greater than ten percent beneficial owners except as set
forth below.
Mr. Gallagher timely filed a Form 3 in which a transaction was not reported
correctly, and subsequently filed a corrective amendment thereto.
ANNUAL REPORT
A copy of the Annual Report of Com21 for the 1998 Fiscal Year has been
mailed concurrently with this Proxy Statement to all stockholders entitled to
notice of and to vote at the Annual Meeting. The Annual Report is not
incorporated into this Proxy Statement and is not considered proxy solicitation
material.
FORM 10-K
Com21 filed an Annual Report on Form 10-K with the Securities and Exchange
Commission on March 11, 1999. Stockholders may obtain a copy of this report,
without charge, by writing to David L. Robertson, Vice President, Finance and
Administration, Chief Financial Officer and Corporate Secretary of Com21, at
Com21's principal executive offices located at 750 Tasman Drive, Milpitas,
California 95035, or from the Company's Website address at http://www.Com21.com.
OTHER MATTERS
Management does not know of any matters to be presented at this Annual
Meeting other than those set forth herein and in the Notice accompanying this
Proxy Statement.
THE BOARD OF DIRECTORS OF COM21, INC.
Dated: April 1, 1999
27
<PAGE> 30
COM21, INC.
1998 STOCK INCENTIVE PLAN
(AMENDED AND RESTATED AS OF MARCH __, 1999)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1998 Stock Incentive Plan is intended to promote the
interests of Com 21, 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.
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 five separate equity programs:
- 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,
- the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary invested
each year in special option grants,
- 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),
- the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock, and
- the Director Fee Option Grant Program under which
non-employee Board members may elect to have all or any portion of their annual
retainer fee otherwise payable in cash applied to a special option grant.
<PAGE> 31
B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall 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 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. However, any
discretionary option grants or stock issuances for members of the Primary
Committee shall be made by a disinterested majority of the Board.
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 and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
D. The Primary Committee shall have the sole and exclusive
authority to determine which Section 16 Insiders and other highly compensated
Employees shall be eligible for participation in the Salary Investment Option
Grant Program for one or more calendar years. However, all option grants under
the Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
<PAGE> 32
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. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority 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
for such shares.
D. 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.
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members after the Underwriting 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
at one or more Annual Stockholders Meetings held after the Underwriting Date. 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 Automatic Option Grant Program while he or she
continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to
participate in the Director Fee Option Grant Program.
<PAGE> 33
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 initially reserved for issuance over the term of the Plan shall not exceed
4,474,520 shares, which shall consist of the number of shares which remained
available for issuance, as of the Plan Effective Date, under the Predecessor
Plan as last approved by the Corporation's stockholders, including the shares
subject to outstanding options under that Predecessor Plan. To the extent any
unvested shares of Common Stock outstanding under the Predecessor Plan as of the
Plan Effective Date are subsequently repurchased by the Corporation, at the
option exercise price paid per share, in connection with the holder's
termination of service prior to vesting in the shares, those repurchased shares
shall be added to the reserve of Common Stock available for issuance under the
Plan, but in no event shall the number of such repurchased shares added to the
reserve exceed 210,283 shares.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of each
calendar year during the term of the Plan, beginning with the 1999 calendar
year, by an amount equal to five percent (5%) of the shares of Common Stock
outstanding on the last trading day of the immediately preceding calendar year,
but in no event shall any such annual increase exceed 1,500,000 shares.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1998 calendar year.
D. Shares of Common Stock subject to outstanding options
(including options incorporated into this Plan from the Predecessor Plan) shall
be available for subsequent issuance under the Plan to the extent (i) those
options expire or terminate for any reason prior to exercise in full or (ii) the
options are cancelled in accordance with the cancellation-regrant provisions of
Article Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation (including unvested shares issued under the
Predecessor Plan and repurchased by the Corporation at or after the Plan
Effective Date), 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. Shares of
Common Stock underlying one or more stock appreciation rights exercised under
Section IV of Article Two of the Plan shall NOT be available for subsequent
issuance under the Plan.
<PAGE> 34
E. If any change is 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 the 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, (iv) the number and/or class of securities and the exercise price
per share in effect under each outstanding option under the Plan and (v) the
number and/or class of securities and price per share in effect under each
outstanding option incorporated into this Plan from the Predecessor Plan. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
<PAGE> 35
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 one hundred percent (100%) 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 Six 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.
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.
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.
<PAGE> 36
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) 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.
(iv) 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 to the extent the option is not
otherwise at that time exercisable for vested shares.
2. The Plan Administrator shall have complete 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 limited exercise period otherwise in effect for that option to such
greater period of time as the Plan 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 had the Optionee continued in Service.
<PAGE> 37
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 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 Seven 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.
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 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
<PAGE> 38
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 with respect to the total number of 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 become exercisable on such an accelerated basis if and to the extent:
(i) such option is, in connection with the Corporate Transaction, to be assumed
by 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 at the time of the Corporate Transaction on any
shares for which the option is not otherwise at that time exercisable and
provides for subsequent payout in accordance with the same exercise/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.
B. All outstanding repurchase rights shall automatically
terminate, 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
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 to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum 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 Plan per calendar year.
E. The Plan Administrator shall have the discretionary authority
to provide for the automatic acceleration of one or more outstanding options
under the Discretionary Option Grant Program upon the occurrence of a Corporate
Transaction, whether or not those options are to be assumed in the Corporate
Transaction, so that each such option shall, immediately prior to the effect
date of such Corporate Transaction, become fully exercisable with respect to the
total
<PAGE> 39
number of shares of Common Stock at the time subject to that option and may be
exercised for any or all of those shares as fully vested shares of Common Stock.
In addition, the Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the
Discretionary Option Grant Program so that those rights shall not be assignable
in connection with such Corporate Transaction and shall accordingly terminate
upon the consummation of such Corporate Transaction, and the shares subject to
those terminated rights shall thereupon vest in full.
F. The Plan Administrator shall have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options under the Discretionary Option Grant Program in the
event the Optionee's Service is subsequently terminated by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which those
options are assumed and do not otherwise accelerate. 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. In addition,
the Plan Administrator may provide that one or more of the Corporation's
outstanding repurchase rights with respect to shares held by the Optionee at the
time of such Involuntary Termination shall immediately terminate, and the shares
subject to those terminated repurchase rights shall accordingly vest in full.
G. The Plan Administrator shall have the discretionary authority
to provide for the automatic acceleration of one or more outstanding options
under the Discretionary Option Grant Program upon the occurrence of a Change in
Control so that each such option shall, immediately prior to the effect date of
such Change in Control, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to that option and may be
exercised for any or all of those shares as fully vested shares of Common Stock.
In addition, the Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the
Discretionary Option Grant Program so that those rights shall terminate
automatically upon the consummation of such Change in Control, and the shares
subject to those terminated rights shall thereupon vest in full. Alternatively,
the Plan Administrator may condition the automatic acceleration of one or more
outstanding options under the Discretionary Option Grant Program and the
termination of one or more of the Corporation's outstanding repurchase rights
under such program upon the subsequent termination of the Optionee's Service by
reason of an Involuntary Termination within a designated period (not to exceed
eighteen (18) months) following the effective date of such Change in Control.
Each option 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
Optionee's cessation of Service.
H. 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
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
<PAGE> 40
I. The outstanding options 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
Plan) 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 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
actual 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 not approved 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 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.
<PAGE> 41
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
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 pre-approval by the Plan Administrator of
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
option surrender and cash distribution.
(iv) The balance of the option (if any) shall remain
outstanding and exercisable in accordance with the documents evidencing
such option.
<PAGE> 42
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority
to determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for those calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). The Primary Committee shall have complete
discretion to determine whether to approve the filed authorization in whole or
in part. To the extent the Primary Committee approves the authorization, the
individual who filed that authorization shall automatically be granted an option
under the Salary Investment Grant Program on the first trading day in January of
the calendar year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option 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.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) 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 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.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the approved reduction in the
Optionee's base salary for the calendar year, and
<PAGE> 43
B is the Fair Market Value per share of Common Stock on
the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the Optionee's cessation of Service.
However, the option shall, immediately upon the Optionee's cessation of Service
for any reason, terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable with respect to the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. Each such
outstanding option shall be assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and shall remain exercisable for the
fully-vested shares until the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains
in Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
The option shall remain so exercisable until the earlier of (i) the expiration
of the ten (10)-year option term, (ii) the expiration of the three (3)-year
period measured from the
<PAGE> 44
date of the Optionee's cessation of Service or (iii) 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
outstanding option granted him or her under the Salary Investment 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. The Primary Committee shall, at the time the option
with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
D. The grant of options under the Salary Investment 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 Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
<PAGE> 45
ARTICLE FOUR
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 one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article
Seven, 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,
(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,
<PAGE> 46
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 the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those 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.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's 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 to be 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.
<PAGE> 47
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights remain outstanding under the Stock Issuance
Program, to provide that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).
C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights remain outstanding under the Stock Issuance
Program, to provide that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated 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.
<PAGE> 48
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates
specified below:
1. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 15,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held
after the Underwriting Date, each individual who is to continue to serve as an
Eligible Director, whether or not that individual is standing for re-election to
the Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase 5,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 5,000-share option grants
any one Eligible Director may receive over his or her period of Board service,
and non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who have otherwise received a stock
option grant from the Corporation prior to the Underwriting Date shall be
eligible to receive one or more such annual option grants over their period of
continued Board service.
B. 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.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. 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. Each initial 15,000-share grant shall
vest, and the Corporation's repurchase right shall lapse, in a series of four
(4) successive equal annual 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) year of Board service measured from the option
grant date. Each annual 5,000-share automatic option shall vest, and the
Corporation's repurchase right shall lapse, in a series of two (2) successive
<PAGE> 49
equal annual 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) year of Board service measured from the option grant date.
E. 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 those
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 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 for any reason other than death or Permanent Disability,
terminate and cease to be outstanding to the extent the option is not
otherwise at that time exercisable for vested shares.
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 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
fully 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 those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each
<PAGE> 50
automatic option grant shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
B. In connection with 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 fully 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 those 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. All outstanding repurchase rights shall automatically
terminate, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction or
Change in Control.
D. 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 of
his or her outstanding automatic option grants. 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 each 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. No approval or consent
of the Board or any Plan Administrator shall be required in connection with such
option surrender and cash distribution.
E. 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 the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
F. 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.
<PAGE> 51
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
Each non-employee Board member may elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board to the acquisition of a special option grant under this
Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to first day of the calendar year
for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms
and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) 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 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.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the
non-employee Board member's election, and
B is the Fair Market Value per share of Common Stock on
the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) equal monthly installments upon the
Optionee's completion of each month
<PAGE> 52
of Board service over the twelve (12)-month period measured from the grant date.
Each option shall have a maximum term of ten (10) years measured from the option
grant date.
D. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
E. DEATH OR PERMANENT DISABILITY. Should the Optionee's service
as a Board member cease by reason of death or Permanent Disability, then each
option held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service.
Should the Optionee die after cessation of Board service but
while holding one or more options under this Director Fee Option Grant Program,
then each such option may be exercised, for any or all of the shares for which
the option is exercisable at the time of the Optionee's cessation of Board
service (less any shares subsequently purchased by Optionee prior to death), by
the personal representative of the Optionee's estate or by the person or persons
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution. Such right of exercise
shall lapse, and the option shall terminate, upon the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the three (3)-year period
measured from the date of the Optionee's cessation of Board service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable with respect to the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. Each such
outstanding option shall be assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and shall remain exercisable for the
fully-vested shares until the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Board service.
<PAGE> 53
B. In the event of a Change in Control while the Optionee remains
in Service, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such option
shall immediately become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common Stock. The
option shall remain so exercisable until the earlier or (i) the expiration of
the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Service.
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
outstanding option granted him or her under the Director Fee 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 each 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. No approval or consent of the Board or any Plan
Administrator shall be required in connection with such option surrender and
cash distribution.
D. The grant of options under the Director Fee 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. REMAINING TERMS
The remaining terms of each option granted under this Director
Fee Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.
<PAGE> 54
ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
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 of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing 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. In no event may the maximum credit available to the
Optionee or Participant 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.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or 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 or Director Fee 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:
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.
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 shall become effective immediately at the Plan
Effective Date. However, the Salary Investment Option Grant Program and the
Director Fee Option Grant
<PAGE> 55
Program shall not be implemented until such time as the Primary Committee may
deem appropriate. Options may be granted under the Discretionary Option Grant at
any time on or after the Plan 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 Plan 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 serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Section 12 Registration Date. All options outstanding
under the Predecessor Plan on the Section 12 Registration Date shall be
incorporated into the Plan at that time and shall be treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i)
March 9, 2008, (ii) the date on which all shares available for issuance under
the Plan shall have been issued as fully-vested shares or (iii) the termination
of all outstanding options in connection with a Corporate Transaction. Should
the Plan terminate on March 9, 2008, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants 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 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 laws or regulations.
B. The Plan was amended and restated by the Board on March __,
1999 (the "1999 Restatement") to increase the maximum number of shares of Common
Stock authorized for issuance over the term of the Plan from 3,474,520 shares to
4,474,520 shares. The 1999 Restatement is subject to stockholder approval at the
1999 Annual Meeting, and no option grants made on the basis of the
1,000,000-share increase shall become exercisable in whole or in part unless and
until the 1999 Restatement is approved by the stockholders. Should such
stockholder approval not be obtained, then any options granted on the basis of
the 1,000,000-share increase shall
<PAGE> 56
terminate without ever becoming exercisable for those shares, and no further
option grants or direct stock issuances shall be made on the basis of such share
increase. Subject to the foregoing limitations, the Plan Administrator may make
option grants and direct stock issuances under the Plan at any time before the
date fixed herein for the termination of the Plan.
C. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant and Salary Investment Option Grant Programs
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 shall be 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 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 stock
option under the Plan and the issuance of any shares of Common Stock (i) upon
the exercise of any granted option 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 stock
options 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.
<PAGE> 57
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
(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.
<PAGE> 58
G. CORPORATION shall mean Com21, Inc., a Delaware corporation,
and its successors.
H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
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.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.
N. 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
<PAGE> 59
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.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. 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 duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and target
bonus 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.
Q. 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).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
S. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant, Salary Investment Option Grant, Automatic
Option Grant or Director Fee Option Grant Program.
U. 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.
<PAGE> 60
V. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
W. 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 purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, 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.
X. PLAN shall mean the Corporation's 1998 Stock Incentive Plan,
as set forth in this document.
Y. 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.
Z. PLAN EFFECTIVE DATE shall mean April 1, 1998.
AA. PREDECESSOR PLAN shall mean the Corporation's pre-existing
Stock Option Plan in effect immediately prior to the Plan Effective Date
hereunder.
BB. 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 and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.
CC. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment option grant program in effect under the Plan.
DD. SECONDARY COMMITTEE shall mean a committee of one 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.
EE. SECTION 12 REGISTRATION DATE shall mean the date on which the
Common Stock is first registered under Section 12 of the 1934 Act.
FF. 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.
GG. 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
<PAGE> 61
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.
HH. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
II. 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.
JJ. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.
KK. 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.
LL. 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.
MM. 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.
NN. 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).
OO. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
PP. UNDERWRITING DATE shall mean the date on which the
Underwriting Agreement is executed and priced in connection with an initial
public offering of the Common Stock.
<PAGE> 62
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COM21, INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, hereby appoints Peter D. Fenner and David L. Robertson and
each of them as Proxies of the undersigned, with full power of substitution, and
hereby authorizes them to represent and to vote, as designated below, all of the
shares of Common Stock of Com21, Inc. (the "Company"), held of record by the
undersigned on March 18, 1999 at the Annual Meeting of Stockholders of Com21,
Inc. to be held on May 12, 1999, or at any adjournment or postponement thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NOS. 1, 2, 3, AND 4.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ON THE REVERSE
SIDE. THIS PROXY WILL BE VOTED FOR PROPOSAL NOS. 1, 2, 3, AND 4 IF NO
SPECIFICATION IS MADE.
1. To elect eight directors to serve for a one-year term or until their
successors are duly elected and qualified.
FOR all nominees WITHHOLD AUTHORITY EXCEPTIONS
listed below
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:
Peter D. Fenner Robert C. Hawk
Paul Baran William R. Hearst III
C. Richard Kramlich Robert A. Hoff
Jerald L. Kent Robert W. Wilmot
2. To approve an amendment to the Company's 1998 Stock Issuance Plan to
increase the number of shares of Common Stock authorized for issuance over
the term of the 1998 Stock Issuance Plan by an additional 1,000,000 shares.
FOR AGAINST ABSTAIN
(continued, and to be signed, on the other side)
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3. To ratify the appointment of Deloitte & Touche LLP as independent auditors
of the Company for the fiscal year ending December 31, 1999.
FOR AGAINST ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting, including the election of
any director if any of the above nominees is unable to serve or for good
cause will not serve.
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 President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
DATED:______________________________________, 1999
__________________________________________________
Signature
__________________________________________________
(Additional signature if held jointly)
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
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