SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTIONProxy Statement Pursuant to Section 14(a) OF THE SECURITIES EXCHANGE ACT OFof
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Partyparty 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 Section 240.14a-11(c) or Section
240.14a-12
APPLIED DIGITAL ACCESS, INC.Applied Digital Access, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.required
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and 0-11.0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set(set forth the amount on which the
filing fee is calculated and state how it was determined):
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/ / Fee paid previously with preliminary materials.
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0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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APPLIED DIGITAL ACCESS, INC.
9855 SCRANTON ROAD
SAN DIEGO, CA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 199812, 1999
Dear Stockholder:
You are invited to attend the Annual Meeting of the Stockholders of Applied
Digital Access, Inc., a Delaware corporation (the "Company"), which will be held
on May 21, 1998,12, 1999, at 9:00 a.m., local time, at the Company, 9855 Scranton Road,
San Diego, California, for the following purposes:
1. To elect a Board of Directors. Management has nominated the following
people for election at the meeting: Gary D. Cuccio, John F. Malone,
Kenneth E. Olson, Christopher B. Paisley, Peter P. Savage, Edward F. Tuck.Donald L.
Strohmeyer.
2. To consider and vote upon a proposal to adopt the Company's 1998
Employee Stock Purchase Plan and to approve the authorization of
300,000 shares to be reserved for issuance thereunder.
3. To consider and vote upon a proposal to amend the Company's 19941998
Employee Stock Option/Stock IssuancePurchase Plan to increase the maximum aggregate number
of shares reserved for issuance thereunder by 300,000 and to
increase the automatic annual grants to non-employee directors from
3,000 to 10,000 shares.
4.300,000.
3. To consider a proposal to ratify the appointment of
Coopers &
Lybrand L.L.P.PricewaterhouseCoopers, LLP, as the Company's independent public
accountants for the fiscal year ending December 31, 1998.
5. To transact such other business as may properly come before the
meeting.1999.
Stockholders of record at the close of business on April 3, 1998,2, 1999, are
entitled to notice of, and to vote at, this meeting and any adjournments
thereof. For ten days prior to the meeting, a complete list of the stockholders
entitled to vote at the meeting will be available for examination by any
stockholder for any purpose relating to the meeting during ordinary business
hours at the Company.
By Order of the Board of Directors,
JAMES L. KEEFE
SECRETARY
San Diego, California
April 16, 199812, 1999
APPLIED DIGITAL ACCESS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1998
TABLE OF CONTENTS12, 1999
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1INFORMATION.................................................1
EXECUTIVE COMPENSATION AND OTHER MATTERS . . . . . . . . . . . . . . . . . . 5MATTERS............................6
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . .12COMPENSATION..........................................13
COMPARISON OF STOCKHOLDER RETURN . . . . . . . . . . . . . . . . . . . . . .15RETURN...................................20
ELECTION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . .16DIRECTORS..............................................21
PROPOSAL TO ADOPTAMEND 1998 EMPLOYEE STOCK PURCHASE PLAN. . . . . . . . . . . . .16
PROPOSAL TO AMEND 1994 STOCK OPTION PLAN/STOCK ISSUANCE PLAN . . . . . . . .18PLAN................21
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS. . . . . . . .22ACCOUNTANTS......23
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING . . . . . . . .23MEETING.......23
TRANSACTION OF OTHER BUSINESS. . . . . . . . . . . . . . . . . . . . . . . .23BUSINESS......................................24
i
APPLIED DIGITAL ACCESS, INC.
9855 SCRANTON ROAD
SAN DIEGO, CALIFORNIA 92121
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
The accompanying proxy is solicited by the Board of Directors of Applied
Digital Access, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held May 21, 1998,12, 1999, or any adjournment
thereof, for the purposes set forth in the accompanying Notice of Annual
Meeting. The date of this Proxy Statement is April 16, 1998,12, 1999, the approximate
date on which this Proxy Statement and the accompanying form of proxy were first
sent or given to stockholders.
GENERAL INFORMATION
ANNUAL REPORT. An annual report on Form 10-K for the fiscal year ended
December 31, 1997,1998, is enclosed with this Proxy Statement.
VOTING SECURITIES. Only stockholders of record as of the close of business
on April 3, 1998,2, 1999, will be entitled to vote at the meeting and any adjournment
thereof. As of that date, there were 12,671,26712,943,324 shares of Common Stock of the
Company, par value $0.001 per share, issued and outstanding. Stockholders may
vote in person or by proxy. Each holder of shares of Common Stock is entitled to
one (1) vote for each share of stock held on the proposals presented in this
Proxy Statement. The Company's by-laws provide that a majority of all of the
shares of the stock entitled to vote, whether present in person or represented
by proxy, shall constitute a quorum for the transaction of business at the
meeting. Abstentions and broker non-votes will each be counted as present for
purposes of determining the presence of a quorum.
SOLICITATION OF PROXIES. The cost of soliciting proxies will be borne by
the Company. The Company will solicit stockholders by mail through its regular
employees and will request banks and brokers, and other custodians, nominees and
fiduciaries, to solicit their customers who have stock of the Company registered
in the names of such persons and will reimburse them for their reasonable,
out-of-pocket costs. The Company also may use the services of its officers,
directors, and others to solicit proxies, personally or by telephone, without
additional compensation. In addition, the Company has engaged the services of
Corporate Investor Communications, Inc. ("CIC"), a proxy solicitation firm. The
Company will pay a fee for such services, which it reasonably expects to be no
more than $5,000, and will reimburse out-of-pocket expenses of CIC.
VOTING OF PROXIES. All valid proxies received prior to the meeting will be
voted. All shares represented by a proxy will be voted, and where a stockholder
specifies by means of the proxy a choice with respect to any matter to be acted
upon, the shares will be voted in accordance with the specification so made. If
no choice is indicated on the proxy, the shares will be voted in favor of the
director-nominees and the proposals. A stockholder giving a proxy has the power
to revoke his or her proxy, at any time prior to the time it is voted, by
delivery to the Secretary of the Company of a written instrument revoking the
proxy or a duly executed proxy with a later date, or by attending the meeting
and voting in person.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The
following table sets forth certain information, as of February 28, 1998,1999, with
respect to the beneficial ownership of the Company's Common Stock by (i) all
persons known by the Company to be the beneficial owners of more than 5% of the
outstanding Common Stock of the Company, (ii) each director and director-nominee
of the Company, (iii) each executive officer of the Company named in the Summary
Compensation Table and (iv) all executive officers and directors of the Company
as a group.
1
SHARES OWNED (1)
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NAME AND ADDRESS OF NUMBER PERCENTAGE OF
BENEFICIAL OWNERS OF SHARES OF CLASS (2)
- ---------------------------------------------------- ------------ --------------------------------------------------------------------------------------------- ----------------- ----------------
Kopp Investment Advisors, Inc. (3) . . . . . . . . 3,636,867 28.8%
6600.............................................. 2,106,940 16.3%
7701 France Avenue South, Suite 672500
Edina, MN 55435
State of Wisconsin Investment Board (4). . . . . . 1,009,800 8.0%......................................... 1,209,800 9.4%
P.O. Box 7842
Madison, WI 53707
Brown Investment Advisory & Trust Company (5).................................. 952,773 7.4%
19 South Street
Baltimore, MD 21202
Merrill Lynch & Co., Inc. (6).................................................. 920,500 7.1%
World Financial Center, North Tower
250 Vesey Street
New York, NY 10381
Gary D. Cuccio ................................................................ -- --
John F. Malone (7)............................................................. 10,000 *
Kenneth E. Olson (5) . . . . . . . . . . . . . . . . 15,000(8)........................................................... 28,750 *
Christopher B. Paisley (6) . . . . . . . . . . . . . 10,812(9)...................................................... 24,562 *
Peter P. Savage (7). . . . . . . . . . . . . . . . . 403,698 3.1%
Edward F. Tuck (8) . . . . . . . . . . . . . . . . . 27,869(10) ........................................................... 341,761 2.6%
Donald L. Strohmeyer (11)....................................................... 10,000 *
Paul R. Hartmann (9) . . . . . . . . . . . . . . . . 138,568 1.1%(12)........................................................... 101,788 *
Wayne M. Lettiere (10) . . . . . . . . . . . . . . . 108,006(13).......................................................... 91,530 *
Steven F.X. Murphy (11) . . . . . . . . . . . . . . 19,442(14)......................................................... 22,920 *
Donald J. O'Connor (12). . . . . . . . . . . . . . . 47,168............................................................. 5,719 *
Executive Officers and Directors as a group (10(12 persons) (13). . . . . . . . . . . . . . . . . 899,808 6.8%(15)................... 708,527 5.3%
- -----------------
* Less than 1%---------------
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws, where applicable.
(2) Calculated on the basis of 12,629,46912,918,599 shares of Common Stock outstanding,
except that shares of Common Stock underlying options exercisable within 60
days of February 28, 19981999 are deemed to be outstanding for purposes of
calculating the beneficial ownership of securities of the holders of such
options.
(3) The information reported in the table is basedBased on disclosures made in thean amendment to Schedule 13D13G filed with the Securities and
Exchange Commission ("SEC") on February 10, 1998January 28, 1999 by Kopp Investment
Advisors, Inc. ("KIA"), Kopp Holding Company ("KHC") and LeRoy C. Kopp
("Kopp"). KIA holds 30,000is wholly owned by KHC which is wholly owned by Kopp.
Includes 300,000 shares for
its own accountas to which Kopp has sole voting and is the beneficial owner of an additional 3,326,867dispositive
power. Also includes 1,696,940 shares pursuantas to limited powers of attorney or investment advisory
agreements entered into with its clients.which KIA generally (i) does not vote
its clients'has shared
dispositive power and 110,000 shares and (ii)as to which it has sole dispositive
power. Of these shares, the power to dispose of its clients'
shares with such clients; provided however, that KIA has sole voting power with respect to vote 674,000 of its clients' shares and to dispose of 245,000 of its
clients'357,500
shares. KHC and Kopp may be deemed to have indirect beneficial
ownership of the shares beneficially owned by KIA. In addition, Kopp may
be deemed to be the direct beneficial owner of and to have sole power to
vote and dispose of 280,000 shares, including 40,000 shares held by the
Kopp Family Foundation and 10,000 shares held by the Kopp Holding Company
Profit Sharing Plan.
(4) Based on an amendment to Schedule 13G filed with the SEC on February 11,
1998,2,
1999, by State of Wisconsin Investment Board ("SWIB"). SWIB may be deemed
to be the beneficial owner of all such shares owned by it. SWIB has the sole
power to vote and dispose of all 1,009,8001,209,800 shares.
2
(5) Includes 5,000Based on a Schedule 13G filed with the SEC on February 17, 1999, by Brown
Investment Advisory & Trust Company ("BIATC") and its wholly owned
subsidiary, Brown Advisory Incorporated ("BAI"). BIATC has sole power to
dispose of 279,663 shares and to vote 246,963 shares. BAI has sole power to
vote and dispose of 673,110 shares.
(6) Based on a Schedule 13G filed with the SEC on February 3, 1999, by Merrill
Lynch & Co., Inc. ("ML&Co."). ML&Co. is a holding company that has shared
power to vote and dispose of 920,500 shares held by its subsidiaries,
Merrill Lynch Asset Management, L.P. and Fund Asset Management, L.P. ML&
Co. disclaims beneficial ownership of such shares.
(7) Represents 10,000 shares subject to stock options exercisable within sixty
days of February 28, 1998.
(6) Includes 10,812 shares subject to stock options exercisable within sixty
days of February 28, 1998.
(7) Includes 314,718 shares subject to stock options exercisable within sixty
days of February 28, 1998.1999.
(8) Includes 13,500 shares subject to stock options exercisable within sixty
days of February 28, 1998.
(9) Includes 87,670 shares subject to stock options exercisable within sixty
days of February 28, 1998.
(10) Includes 43,333 shares subject to stock options exercisable within sixty
days of February 28, 1998.
(11) Includes 18,750 shares subject to stock options exercisable within sixty
days of February 28, 1998.
(12)1999.
(9) Includes 43,89324,562 shares subject to stock options exercisable within sixty
days of February 28, 1998.
(13)1999.
(10) Includes 611,453248,428 shares subject to stock options exercisable within sixty
days of February 28, 1998.1999.
(11) Includes 10,000 shares subject to stock options exercisable within sixty
days of February 28, 1999.
(12) Includes 47,142 shares subject to stock options exercisable within sixty
days of February 28, 1999.
(13) Includes 26,857 shares subject to stock options exercisable within sixty
days of February 28, 1999.
(14) Includes 19,426 shares subject to stock options exercisable within sixty
days of February 28, 1999.
(15) Includes 415,292 shares subject to stock options exercisable within sixty
days of February 28, 1999.
DIRECTOR NOMINEES. The table below sets forth the Company's directors, who
are also the nominees to be elected at this meeting, and certain information, concerning
theiras
of February 28, 1999, with respect to age and background.
POSITION DIRECTOR
NAME WITH THE COMPANY AGE SINCE
- -------------------------- ------------------------------ --- --------------------------------------- --------- -------------------
Gary D. Cuccio Director 52 1999
John F. Malone Director 51 1998
Kenneth E. Olson Director 6162 1996
Christopher B. Paisley Director 4546 1996
Peter P. Savage Chairman of the Board 57 1990
Donald L. Strohmeyer Director and President/President and CEO 56 1990
of the Company since 1990
Edward F. Tuck Director 66 198763 1999
Mr. Cuccio has served as a director of the Company since March 1999. Since
July 1998, Mr. Cuccio has been the President of Airtouch Paging, the paging
operations business unit of Airtouch Communications, Inc. ("ATI"), a wireless
communications company. Prior to joining Airtouch Paging, Mr. Cuccio served as
Chief Operating Officer of Omnipoint Communications, Inc., a wireless personal
communications services company from September 1996 to July 1998. Prior to that,
Mr. Cuccio served as Vice President of International Operations for Europe and
Asia for ATI from May 1995 to September 1996 and as Chief Operations Officer for
Belgacom Mobile, a wireless communications subsidiary of ATI from April 1994 to
May 1995. Prior to that Mr. Cuccio held various senior management positions in
sales, marketing, and operations for Pacific Bell, a telecommunications company
that merged with Southwestern Bell Communications, Inc. in 1998. Mr. Cuccio also
serves as a director of Airtouch Paging - Canada, a subsidiary of ATI and two
privately held telecommunications companies.
Mr. Malone has served as a director of the Company since September 1998.
Mr. Malone has been President and Chief Executive Officer of Eastern Management
Group, a management consulting firm, since April 1979. Prior to founding Eastern
Management Group, Mr. Malone held various sales and marketing positions with
AT&T. Mr. Malone is also a director of a privately held company.
Mr. Olson has served as a director of the Company since December 1996. Mr.
Olson has served as Chairman of the Board of Proxima Corporation, ("Proxima"), a publicly-traded manufacturer of
multimedia projection products, sincefrom July 1983 through June 1998 and as its
President and Chief Executive Officer from March 1997 through the presentJune 1998 and from
April 1995 through February 1996 and as Chief Executive Officer from December
1990 through April 1995. In addition to serving
as a director of Proxima, Mr. Olson also currently serves as a director of
LIDAK
Pharmaceuticals, Inc. and Laser Power Corp.AVANIR Pharmaceuticals.
3
Mr. Paisley has served as a director of the Company since March 1996. Since
August 1996, Mr. Paisley has been the Senior Vice President, Finance and Chief
Financial Officer of 3Com Corporation, a global data networking company. Prior
to becoming Senior Vice President, Finance of 3Com Corporation, from September
1985 through July 1996 Mr. Paisley was Vice President, Finance and Chief
Financial Officer of 3Com Corporation.
Mr. Savage has served as Chairman of the Board of the Company since
February 1999, and prior to that served as its President, and Chief Executive
Officer and as a director of the Company since November 1990. Prior to joining the Company, Mr.
Savage served as President and Chief Operating Officer of Xylogics, Inc., a
manufacturer of storage and communications controllers, from February 1989
through May 1990, and as Vice President, Engineering of Xylogics from September
1987 through January 1989. Prior to that, Mr. Savage served as President and
Chief Operating Officer of Alliance Telecommunications Corp. Commterm Division,
a manufacturer of voice messaging systems, from August 1986 through March 1987
and as Vice President, Engineering from February 1985 through July 1986. Mr.
Savage previously held a number of technical and management positions with the
telecommunications companies, Infinet, Plantronics and Bell Telephone
Laboratories.
3
Mr. TuckStrohmeyer has served as a director since the Company's incorporation in
August 1987. In addition, Mr. Tuck served as the President of the Company from
August 1987 through December 1987, and as the Chief FinancialExecutive Officer of the
Company from August 1987 through April 1989. Since June 1990, Mr. Tuck has been
the managing director of Kinship Venture Management, L.L.P., a venture capital
fund. Mr. Tuck currently servesand
as a director of Triquint Semiconductor Corp.,
a semiconductor manufacturer.the Company since February 1999. Mr. Strohmeyer spent his
career with BellSouth Telecommunications, Inc. ("BST") where he held the
positions of Vice President, Network Operations from January 1997 through March
1998, Vice President Network Operations, South from October 1994 to January
1997, and Vice President, Network Operations, North from October 1990 to October
1994. Prior to that, Mr. Strohmeyer held various senior management positions in
marketing and network operations for BST.
During the fiscal year ended December 31, 1997,1998, the Board held eight (8)
meetings. Each director serving on the Board in fiscal year 19971998 attended at
least 75% the meetings of the Board and the Committees on which he served.
The Company does not have a standing Nominating Committee, but does have an
Audit Committee and a Compensation Committee.
The Audit Committee's function is to review with the Company's independent
accountants and management the annual financial statements and independent
accountants' opinion, review the scope and results of the examination of the
Company's financial statements by the independent accountants, approve all
professional services performed by the independent accountants and related fees,
recommend the retention of the independent accountants to the Board and
periodically review the Company's accounting policies and internal accounting
and financial controls. The members of the Audit Committee are Christopher B.
Paisley and EdwardJohn F. Tuck.Malone. During the fiscal year ended December 31, 1997,1998, the
Audit Committee held two (2) meetings.one (1) meeting.
The Compensation Committee's function is to review and approve salary and
bonus levels and stock option grants for executive officers and key employees.
The members of the Compensation Committee are Kenneth E. Olson and Christopher
B. Paisley. During the fiscal year ended December 31, 1997,1998, the Compensation
Committee held four (4) meetings. For additional information concerning the
Compensation Committee, see "REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD
OF DIRECTORS ON EXECUTIVE COMPENSATION."
4
EXECUTIVE OFFICERS. The following executive officers of the Company held
the following positions as of February 28, 1998:1999:
NAME POSITION HELD WITH THE COMPANY AGE
- ----------------------- -------------------------------------------- ----------------------------- ----------------------------------------------------- -------
Peter P. SavageDonald L. Strohmeyer President, Chief Executive Officer and 56
Director 63
Peter P. Savage Chairman of the Board 57
Paul R. Hartmann Vice President, Systems Engineering 5556
James L. Keefe Vice President, Finance and Administration, 37
Chief
Financial Officer and Secretary 38
Wayne M. Lettiere Vice President, Operations 58
Stephen F.X. Murphy Vice President, Sales and Marketing 4059
Donald J. O'Connor Vice President, Customer Support 43Network Systems 44
Kevin T. Pope Vice President, Development Engineering 4041
Mr.Messrs. Strohmeyer and Savage isare being considered for re-election to the
position of director of the Company. See "Director Nominees" for a discussion of
Mr.Messrs. Strohmeyer's and Savage's business experience.
Mr. Hartmann has served as Vice President, Systems Engineering of the
Company since July 1988. Prior to joining the Company, Mr. Hartmann served as
Director of Advanced Technology and as Director of Transmission Systems
Technology for the Rockwell Communications Systems Division of Rockwell
International, a manufacturer of telecommunications transmissions equipment,
from September 1984 through July 1988.
4
Mr. Keefe has served as Vice President, Finance and Administration, Chief
Financial Officer and Secretary of the Company since May 1996 and previously
served as Controller of the Company from December 1993 to May 1996 and as
Accounting Manager of the Company from March 1992 to December 1993. Prior to
joining the Company, Mr. Keefe served as Accounting Manager of U.S. Fiberline
Communications, Inc., a privately-held telecommunications service provider, from
January 1990 to October 1991 and as Accounting Manager for Scientific Computer
Systems, Inc., a computer manufacturer, from February 1987 through December
1989. Prior to that, Mr. Keefe held financial accounting positions with
Honeywell, Inc. and Coopers & Lybrand, L.L.P.
Mr. Lettiere has served as Vice President, Operations of the Company since
July 1991. Prior to joining the Company, Mr. Lettiere served as Vice President,
Operations of Digital Communication Associates (and its successor corporations),
a manufacturer of telecommunications products, from April 1984 through July
1991.
Mr. Murphy has served as Vice President, Sales and Marketing since March
1997. Prior to joining the Company, Mr. Murphy served as Vice President,
Operations of MAXM Systems Inc., a supplier of network integrated operations
software, from September 1994 to March 1997. Prior to that, Mr. Murphy served
as Vice President, Sales and Chief Operating Officer of SQL Software Inc., a
developer of client-server software, from January 1991 to September 1994.
Mr. O'Connor has served as Vice President, Customer Support since May 1995.
Prior to joining the Company, Mr. O'ConnerO'Connor was with NYNEX Corporation for 14
years where he served as Managing Director, Service Delivery from February 1995
through May 1995, as Director of Operations, Business Customer Service Center
from June 1994 through February 1995, as Director of Operations, Inter-exchange
Carrier Services from March 1992 through June 1994 and as Director of
Operations, Digital Center from August 1990 to March 1992.
Mr. Pope has served as Vice President, Development Engineering since April
1995. Mr. Pope joined the Company in June 1988. Mr. Pope served as Senior
Director of Development Engineering from December 1994 through March 1995, as
Director of Hardware Development from July 1993 through December 1994 and as
Manager of Circuit Design from April 1990 through July 1993. Prior to joining
the Company, Mr. Pope served as Senior Project Engineer for ASEA HAFO Inc., an
integrated circuit design company, from February 1986 through June 1988 and
prior to that was a member of the Technical Staff for Bell Laboratories.
5
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information for the fiscal years ended
December 31, 1998, 1997 1996 and 19951996 concerning the compensation of the Chief
Executive Officer of the Company and the four most highly compensated executive
officers of the Company as of December 31, 1997,1998, whose total salary and bonus
for the year ended December 31, 1997,1998, exceeded $100,000.
5
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------------------------------------------------------- -------------
OTHER ANNUAL SECURITIES
COMPENSATION UNDERLYING ALL OTHER
NAME AND PRINCIPAL COMPEN-SATION UNDERLYING ALL OTHER POSITION YEAR SALARY BONUS (1) (2) OPTIONS COMPENSATION
------------------------- ---------------------------- ---- -------- ----------------- ------------- ------------------------ ------------
Peter P. Savage (3) 1998 $200,000 -- -- 139,000 (4) $5,640 (5)
President and 1997 $200,000 $52,800$50,000 -- 50,000-- $4,138 (3)
President,(5)
Chief Executive 1996 $175,000 $17,500 -- -- $5,477 (3)
Executive(5)
Officer 1995 $175,000 $16,800 -- 65,000 (4) $4,280 (3)
Director
Paul R. Hartmann 1998 $140,500 -- -- 74,000 (6) --
Vice President, 1997 $140,500 $27,234 -- 20,000 -- Vice President,--
Systems Engineering 1996 $134,500 $19,504 -- -- --
Systems Engineering 1995 $134,500 $15,535 -- 40,000 (5) --
Wayne M. Lettiere 1998 $126,000 -- -- 52,000 (7) --
Vice President, 1997 $126,000 $25,746 -- 10,000 -- Vice President,--
Operations 1996 $120,000 $18,211 -- -- --
Operations 1995 $120,000 $16,020 -- 30,000 (6) --
Steven F.X. Murphy (7)(8) 1998 $212,592 -- $35,812 (9) 85,000 (10) --
Vice President, 1997 $113,077 $37,494 $27,182 (8) 75,000 --
Vice President, 1996 -- -- --(9) -- --
Sales &and Marketing 19951996 -- -- -- -- --
Donald J. O Connor (9)O'Connor 1998 $133,000 -- -- 94,000 (12) --
Vice President, 1997 $133,000 $34,678 -- 25,000 -- Vice President,--
Customer Support 1996 $125,000 $17,500 $23,062 (10)(11) -- --
Customer Support 1995 $ 73,878 $ 7,188 $45,838 (10) 50,000 --
- -------------------------------------------
(1) Except with respect to Mr. Murphy, amounts wereAmounts paid pursuant to a Management Team Incentive Compensation Plan approved by the Company's
Compensation Committee. Mr. Murphy's bonus compensation was paid
pursuant to a Sales Management Incentive Compensation Plan
approved by the Company's Compensation Committee. See "REPORT OF THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION."
(2) "Other Annual Compensation" includes only amounts totaling more than the
lesser of either $50,000 andor 10% of the reported salary and bonus for the
years covered.
(3) On February 20, 1999, Mr. Savage was appointed to the position of Chairman
of the Board of the Company, and resigned from the positions of President
and Chief Executive Officer.
(4) Represents an option grant for 35,000 shares originally granted in August
1994 which was canceled and regranted in June 1995 and then cancelled and
regranted in November 1998; an option grant for 30,000 shares originally
granted in November 1995 which was canceled and regranted in November 1998;
an option grant for 50,000 shares originally granted in February 1997 which
was canceled and regranted in November 1998; and an option grant for 24,000
shares originally granted in January 1998 which was canceled and regranted
in November 1998. See "REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS ON EXECUTIVE COMPENSATION--Report on 1998 Cancellation and
Regrant of Options" and "TEN YEAR OPTION REPRICINGS."
(5) Amounts paid in connection with reimbursement of premiums on life insurance
and disability insurance policies for Mr. Savage in accordance with his
employment agreement.
(4) Includes an option grant for 35,000 shares, originally granted in August
994, which was cancelled and regranted in June 1995.
(5) Includes6
(6) Represents an option grant for 20,000 shares originally granted in August
1994 which was canceled and regranted in June 1995 and then cancelled and
regranted in June 1995.
(6) IncludesNovember 1998; an option grant for 20,000 shares originally
granted in November 1995 which was canceled and regranted in November 1998;
an option grant for 20,000 shares originally granted in February 1997 which
was canceled and regranted in November 1998; and an option grant for 14,000
shares originally granted in January 1998 which was canceled and regranted
in November 1998. See "REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS ON EXECUTIVE COMPENSATION--Report on 1998 Cancellation and
Regrant of Options" and "TEN YEAR OPTION REPRICINGS."
(7) Represents an option grant for 15,000 shares originally granted in August
1994 which was canceled and regranted in June 1995 and then cancelled and
regranted in June 1995.
(7)November 1998; an option grant for 15,000 shares originally
granted in November 1995 which was canceled and regranted in November 1998;
an option grant for 10,000 shares originally granted in February 1997 which
was canceled and regranted in November 1998; and an option grant for 12,000
shares originally granted in January 1998 which was canceled and regranted
in November 1998. See "REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS ON EXECUTIVE COMPENSATION--Report on 1998 Cancellation and
Regrant of Options" and "TEN YEAR OPTION REPRICINGS."
(8) Mr. Murphy became an employee of the Company in March 1997. (8)On January 25,
1999, Mr. Murphy resigned from his position of Vice President, Sales and
Marketing with the Company.
(9) Amounts paid in connection with the reimbursement of relocation expenses
and related tax liability pursuant to Mr. Murphy's employment arrangement.
(9) Mr. O'Connor became(10) Represents an employeeoption grant for 75,000 shares originally granted in April
1997 which was canceled and regranted in November 1998; and an option grant
for 10,000 shares originally granted in January 1998 which was canceled and
regranted in November 1998. See "REPORT OF THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION--Report on 1998
Cancellation and Regrant of the Company in May 1995.
(10)Options" and "TEN YEAR OPTION REPRICINGS."
(11) Amounts paid in connection with the reimbursement of relocation expenses
and related tax liability pursuant to Mr. O'Connor's employment
arrangement.
6(12) Represents an option grant for 50,000 shares originally granted in June
1995 which was canceled and regranted in November 1998; an option grant for
25,000 shares originally granted in February 1997 which was canceled and
regranted in November 1998; and an option grant for 19,000 shares
originally granted in January 1998 which was canceled and regranted in
November 1998. See "REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS ON EXECUTIVE COMPENSATION--Report on 1998 Cancellation and
Regrant of Options" and "TEN YEAR OPTION REPRICINGS."
7
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during the fiscal year ended
December 31, 1997,1998, to the persons named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
------------------------------------------------------------------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ----------------------------------------------------
NAME GRANTED (2) FISCAL YEAR (3) SHARE (4) DATE 5% 10%
- -------------------- ------------ ----------------------------------- ------------- -------------- ----------- ---------- --------- ---------- ------------- ----------------
Peter P. Savage 50,000 3.5% $6.88 02/13/07 $216,183 $547,849(5) 139,000 (7)(8) 4.6% $2.75 11/06/08 $240,395 $609,208
Paul R. Hartmann 20,000 1.4% $6.88 02/13/07 $ 86,473 $219,14074,000 (7)(9) 2.5% $2.75 11/06/08 $127,980 $324,327
Wayne M. Lettiere 10,000 0.7% $6.88 02/13/0752,000 (7)(10) 1.7% $2.75 11/06/08 $ 43,237 $109,57089,932 $227,905
Steven F.X.F. X. Murphy 75,000(5) 5.3% $4.75 04/01/07 $224,044 $567,771(6) 85,000 (7)(11) 2.8% $2.75 11/06/08 $147,004 $372,537
Donald J. O Connor 25,000 1.8% $6.88 02/13/07 $108,091 $273,924O'Connor 94,000 (7)(12) 3.1% $2.75 11/06/08 $162,569 $411,982
- -----------------
(1) Potential gains are net of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation
only, in accordance with the SEC's rules. Actual gains, if any, on stock
option exercises are dependent on the future performance of the Common
Stock, overall market conditions and the option holders' continued
employment through the vesting period. The amounts reflected in this table
may not necessarily be achieved.
(2) Options granted in fiscal 19971998 under the Company's 1994 Stock Option/Stock
Issuance Plan (the "1994 Option Plan") generally vest and become
exercisable over a four year period at the rate of 1/48 per month for each
full month of the optionee's continuous employment with the Company. Under
the 1994 Option Plan, the Board retains discretion to modify the terms,
including the price, of outstanding options. The shares subject to each
option will immediately vest in the event the Company is acquired by a
merger or asset sale unless the option is assumed by the successor entity.
See "--Severance and Change of Control Arrangements.Arrangements", "REPORT OF THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION--Report on 1998 Cancellation and Regrant of Options" and "TEN
YEAR OPTION REPRICINGS."
(3) Based upon options granted to purchase an aggregate of 1,422,0392,990,941 shares of
Common Stock.Stock of which approximately 2,304,133 represent regranted options
subject to the Company's Option Cancellation/Regrant Program in October and
November 1998. See "REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS ON EXECUTIVE COMPENSATION--Report on 1998 Cancellation and
Regrant of Options" and "TEN YEAR OPTION REPRICINGS."
(4) All options listed were granted at market value on the date of grant, based
on the closing salesselling price of the Company's Common Stock on such date.
(5) Option grantedOn February 20, 1999, Mr. Savage was appointed to the position of Chairman
of the Board of the Company and resigned from the positions of President
and Chief Executive Officer.
(6) On January 25, 1999, Mr. Murphy uponresigned from his startposition of employmentVice
President, Sales and Marketing with the Company.
On(7) In September 1998 and November 1998, as a result of a broad decline in the
one year anniversary from the option grant date, 1/4fair market value of the option shares will vest and become exercisable andCompany's Common Stock, the remainder ofCompensation Committee
determined that it was in the options will vest and become exercisable for so long as Mr. Murphy
remains an employeebest interests of the Company to offer to all
current employees who were option holders, including executive officers,
whom the Committee considered separately, the opportunity to have
outstanding options with an exercise price above the then current market
price cancelled in exchange for new options with an exercise price equal monthly installments overto
the three years thereafter.
7then current fair market value. For details concerning the
8
cancellation and regrant of options, see "REPORT OF THE COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION--Report on
1998 Cancellation and Regrant of Options" and "TEN YEAR OPTION REPRICINGS."
(8) Includes an option grant for 35,000 shares originally granted in August
1994 which was canceled and regranted in June 1995 and then cancelled and
regranted in November 1998; an option grant for 30,000 shares originally
granted in November 1995 which was canceled and regranted in November 1998;
an option grant for 50,000 shares originally granted in February 1997 which
was canceled and regranted in November 1998; and an option grant for 24,000
shares originally granted in January 1998 which was canceled and regranted
in November 1998.
(9) Includes an option grant for 20,000 shares originally granted in August
1994 which was canceled and regranted in June 1995 and then cancelled and
regranted in November 1998; an option grant for 20,000 shares originally
granted in November 1995 which was canceled and regranted in November 1998;
an option grant for 20,000 shares originally granted in February 1997 which
was canceled and regranted in November 1998; and an option grant for 14,000
shares originally granted in January 1998 which was canceled and regranted
in November 1998.
(10) Includes an option grant for 15,000 shares originally granted in August
1994 which was canceled and regranted in June 1995 and then cancelled and
regranted in November 1998; an option grant for 15,000 shares originally
granted in November 1995 which was canceled and regranted in November 1998;
an option grant for 10,000 shares originally granted in February 1997 which
was canceled and regranted in November 1998; and an option grant for 12,000
shares originally granted in January 1998 which was canceled and regranted
in November 1998.
(11) Includes an option grant for 75,000 shares originally granted in April 1997
which was canceled and regranted in November 1998, and an option grant for
10,000 shares originally granted in January 1998 which was canceled and
regranted in November 1998.
(12) Includes an option grant for 50,000 shares originally granted in June 1995
which was canceled and regranted in November 1998; an option grant for
25,000 shares originally granted in February 1997 which was canceled and
regranted in November 1998; and an option grant for 19,000 shares
originally granted in January 1998 which was canceled and regranted in
November 1998.
9
The following table provides the specified information concerning
unexercised options held as of December 31, 1997,1998, by the persons named in the
Summary Compensation Table.
AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END VALUES
Number of SecuritiesNUMBER OF SECURITIES VALUE OF UNEXERCISED
Underlying UnexercisedSHARES UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES Options at 12/31/97ACQUIRED OPTIONS AT 12/31/97(1)
ACQUIRED98 OPTIONS AT 12/31/98(1)
ON VALUE ------------------------------------- ------------------------------------------------------------------- ---------------------------------
NAME EXERCISE REALIZED EXERCISABLE(2) UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE
----------------------- ------------------------ -------- -------- -------------- ------------- -------------- -------------
Peter P. Savage (3) -- -- 303,635 59,793 $1,406,326248,428 139,000 $598,935 --
Paul R. Hartmann 40,516 $173,850 81,796 28,753 $ 261,2923,407 -- 47,142 74,000 $103,948 --
Wayne M. Lettiere 7,142 $ 28,354 59,251 17,606 $ 201,05510,000 $60,800 26,857 52,000 $59,220 --
Steven F.X. Murphy (4) -- -- -- 75,00085,000 -- $84,375--
Donald J. O ConnorO'Connor -- -- 37,499 37,501-- 94,000 -- --
- -----------------------------------------------
(1) Based on a fair market value of $5.88,$2.63, the closing selling price of the Common
Stock on December 31, 1997,1998, as reported by the Nasdaq National \ Market. Does
not include options that had an exercise price greater than $5.88.$2.63.
(2) Under the 1994 Option Plan, stock options generally vest and become
exercisable over a period of four years.
With respect(3) On February 20, 1999, Mr. Savage was appointed to the option
granted to Mr. Murphy upon his startposition of employment with the Company, 1/4Chairman
of the option shares will vest and become exercisable on the one year
anniversary from the option grant date and the remainder of the options
will vest and become exercisable for so long as Mr. Murphy remains an
employeeBoard of the Company in equal monthly installments overand resigned from the three
years thereafter.positions of President
and Chief Executive Officer.
(4) On January 25, 1999, Mr. Murphy resigned from his position of Vice
President, Sales and Marketing with the Company.
SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS
In November 1998, the Company entered into certain retention agreements
("agreements") with its chief executive officer and executive officers
("Executives") relating to a change in control of the Company. Under the
agreements, the termination of an Executive's employment without cause or for
"good reason", as defined in the agreement, within twelve months following a
change in control of the Company would be deemed a covered termination. A
covered termination provides for the continuation of an Executive's base salary
for a period of eighteen months for the chief executive officer and twelve
months for the executive officers. The Executive will be deemed a consultant of
the Company during these periods ("Consulting Periods"). The Executive's then
outstanding stock options will continue vesting and employee benefits will
continue to be provided by the Company during the Consulting Period.
In February 1999, the Company entered into an employment arrangement with
Donald L. Strohmeyer, the Company's President and Chief Executive Officer. If
Mr. Strohmeyer is terminated without cause, the Company has agreed to pay him
his monthly base salary for a period of twelve months after his termination. In
addition, during such twelve month period, Mr. Strohmeyer will continue to vest
in any outstanding stock options still subject to vesting. The arrangement does
not have an expiration date and is operative during Mr. Strohmeyer's employment
by the Company.
In November 1990, the Company entered into an employment arrangement with
Peter P. Savage, the Company's President and Chief Executive Officer.Chairman of the Board. If Mr. Savage is
terminated without cause, the Company has agreed to pay him his monthly base
salary for a period of six months after his termination or until he commences
employment with another company. In addition, he will be entitled to his pro
rata share of any guaranteed bonus or profit sharing plan in which he
participated (for the portion of the year that he was employed by the Company).
During the severance term, Mr. Savage would continue to be treated as a Company
employee for purposes of all Company-provided employee benefits (other than for
purposes of stock option vesting and vacation eligibility). The arrangement does
not have an expiration date and is operative during Mr. Savage's employment by
the Company.
10
In January 1999, the Company entered into a separation agreement with
Steven F.X. Murphy, the Company's former Vice President, Sales and Marketing.
Under the separation agreement, Mr. Murphy will receive severance totaling
$100,000, paid in six equal monthly installments ending in June 1999.
In June 1988, the Company entered into an employment arrangement with Paul
R. Hartmann, the Company's Vice President, Systems Engineering. If Mr. Hartmann
is terminated without cause, the Company has agreed to pay him his monthly base
salary for a period of six months after the termination or until he commences
employment with another company. The arrangement does not have an expiration
date and is operative during Mr. Hartmann's employment by the Company.
In March 1997, the Company entered into an employment arrangement with
Steven F.X. Murphy, the Company's Vice President, Sales & Marketing. If Mr.
Murphy is terminated involuntarily, the Company has agreed to pay him a
severance payment equal to three months of his monthly base salary upon such
termination. The arrangement does not have an expiration date and is
operative during Mr. Murphy's employment by the Company.
In May 1995, the Company entered into an employment arrangement with Donald
J. O'Connor, the Company's Vice President, Customer Support. If Mr. O'Connor is
terminated involuntarily, the Company has agreed to pay him a severance payment
equal to three months of his monthly base salary upon such termination. The
arrangement does not have an expiration date and is operative during Mr.
O'Connor's employment by the Company.
8
Pursuant to the 1994 Option Plan, in the event the Company is acquired,
whether by merger or asset sale, each outstanding option which is not to be
assumed by the successor corporation or replaced with a comparable option to
purchase the capital stock of the successor corporation will automatically
accelerate vesting in full, and all unvested shares will automatically vest,
except to the extent such accelerated vesting is precluded by the terms of the
agreements evidencing those unvested shares.
The 1994 Option Plan also provides for the automatic acceleration of
vesting with respect to outstanding options or shares upon the following change
in control events: (i) the acquisition of more than 50% of the Company's voting
stock by hostile tender offer or (ii) a change in the composition of the Board
of Directors effected through one or more contested Board elections, except that
the Compensation Committee may at the time of a discretionary option grant or
stock issuance, provide that no such acceleration shall occur.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive annual compensation
totaling $10,000 for serving on the Company's Board of Directors. In addition,
members of the Audit and Compensation Committees receive payments of $500 for
each committee meeting they attend which is not held in conjunction with a
meeting of the Board of Directors. Also, the Company reimburses non-employee
directors for reasonable travel expenses incurred in attending Board of
Directors' meetings. Non-employee directors are eligible to participate in the
automatic option grant program whereby, upon election or re-election, each
director receives a non-qualified stock option for shares of the Company's
Common Stock. The proposed amendment to
the 1994 Option Plan would increase the annual option grants to non-employee
directors from 3,000 shares to 10,000 shares upon re-election to the Board of
Directors. In May 1997, the Board of Directors approved the increase in
re-election grants and granted each of the non-employee directors an option
for 7,000 shares, subject to stockholder approval, to bring the non-employee
directors' option grants to a total of 10,000 shares for 1997. See "PROPOSAL
TO AMEND 1994 STOCK OPTION PLAN/STOCK ISSUANCE PLAN." Directors who are employees of the Company receive no additional
compensation for serving on the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year, executive compensation was administered by the
Compensation Committee comprised of two non-employee directors of the Company,
Kenneth E. Olson and Christopher B. Paisley. Mr. Savage, the Company's President
and Chief Executive Officer during the last fiscal year, participated in the
deliberations of the Compensation Committee regarding executive stock options
and compensation that occurred during 1997,1998, but did not take part in the
deliberations regarding his own stock options or compensation. Mr. Savage's
participation in the deliberations of the Compensation Committee included
providing information on the performance of people who work at the Company and
advisory recommendations regarding appropriate levels of compensation for the
Company's officers.
CERTAIN TRANSACTIONS
Peter P. Savage,Donald L. Strohmeyer, the President and Chief Executive Officer and a
director of the Company, entered into an employment arrangement with the Company
in February 1999. See "--Severance and Change of Control Arrangements."
Steven F.X. Murphy, the Company's former Vice President, Sales and
Marketing, entered into a separation agreement with the Company in January 1999.
See "--Severance and Change of Control Arrangements."
11
Peter P. Savage, the Chairman of the Board of Directors of the Company,
entered into an employment arrangement with the Company in November 1990. See
"--Severance and Change of Control Arrangements."
Paul R. Hartmann, the Vice President, Systems Engineering of the Company,
entered into an employment arrangement with the Company in June 1988. See
"--Severance and Change of Control Arrangements."
Steven F.X. Murphy, the Vice President, Sales & Marketing of the
Company, entered into an employment arrangement with the Company in March
1997. See "--Severance and Change of Control Arrangements."
Donald J. O'Connor, the Vice President, Customer Support of the Company,
entered into an employment arrangement with the Company in May 1995. See
"--Severance and Change of Control Arrangements."
9
Executive officers, directors, principal stockholders and affiliates of
such individuals or entities holding approximately 400,000 shares of Common
Stock or their permitted transferees (the "Holders") are entitled to certain
rights with respect to the registration of such shares under the Securities
Act of 1933, as amended (the "Securities Act") (taking into account the
exercise of outstanding options). Under the terms of agreements between the
Company and such Holders, if the Company proposes to register any of its
securities under the Securities Act for its own account, such Holders are
entitled to notice of such registration and are entitled to include shares of
Common Stock therein, provided, among other conditions, that the underwriters
of any such offering have the right to limit the number of shares included in
such registration.
Officers and directors of the Company are indemnified pursuant to certain
provisions of the Delaware General Corporation Law, the Company's charter
documents and indemnity agreements, to the fullest extent permitted under
Delaware law.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers, directors and persons who beneficially own
more than 10% of the Company's Common Stock to file initial reports of ownership
and reports of changes in ownership with the SEC. Such persons are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
filed by such persons.
Based solely on the Company's review of such forms furnished to the Company
and written representations from certain reporting persons, the Company believes
that all filing requirements applicable to the Company's executive officers,
directors and more than 10% stockholders were complied with and filed in a
timely manner, with the exception of a single report with
respect to Marilyn Suey, the Company's former Vice President of Marketing,
which was filed late.manner.
CHANGES TO BENEFIT PLANS
1998 EMPLOYEE STOCK PURCHASE PLAN. The Board of Directors of the Company
has adopted, subject to stockholder approval, an amendment to the 1998 Employee
Stock Purchase Plan (the "1998 Purchase Plan") with an initial share reserveto increase the maximum number of
shares that may be issued thereunder by 300,000 shares. See "PROPOSAL TO ADOPTAMEND
1998 EMPLOYEE STOCK PURCHASE PLAN." As of March 31, 1998,Currently, no purchases hadhave been made by
any employee conditioned upon stockholder approval of the adoptionincrease in the share
reserve of the 1998 Purchase Plan. Non-employee directors are not eligible to
participate in the 1998 Purchase Plan.
1994 STOCK OPTION/STOCK ISSUANCE PLAN. The Board of Directors of the
Company has adopted, subject to stockholder approval, amendments to the 1994
Option Plan to (a) increase the maximum number of shares that may be issued
thereunder by 300,000 shares, and (b) increase the size of the automatic
"re-election grants" to non-employee directors from 3,000 shares to 10,000
shares. See "PROPOSAL TO AMEND 1994 STOCK OPTION/STOCK ISSUANCE PLAN." As
of March 31, 1998, no grant of options had been made to any person
conditioned upon stockholder approval of the increase in the share reserve of
the 1994 Option Plan. Re-election grants were made to three non-employee
directors on May 22, 1997 subject to stockholder approval of the proposed
increase in the size of the re-election grants.12
NEW PLAN BENEFITS. The benefits to be received by executive officers directors and
employees under the amended 1994 Option Plan or the 1998 Purchase Plan are not currently determinable. Under the
1994 Option1998 Purchase Plan, the number of
options to be granted to officers and employees out of the increased share
reserve will not be determined until such grants are made at the discretion
of the Company's Board of Directors. In addition, the exercise prices of
such options and of the automatic re-election options to be granted to
non-employee directors will not be determinable until the date of such option
grants. Similarly, the purchase price of all of shares to be purchased under
the 1998 Purchase Plan will not
be determined until the date such shares are purchased. Accordingly, the
following table sets forth issuances of stock which would have been made under the 1998 Purchase Plan
had it been in effect
duringfor the fiscal year ended December 31, 1997 and grants of stock options
under the 1994 Option Plan during the fiscal year ended December 31, 19971998 to (i) the Chief Executive Officer
of the Company and the four other most highly compensated executive officers of
the Company as of December 31, 1997;1998; (ii) all current executive officers as a
group; (iii) all current directors who
are not executive officers as a group; and (iv)(iii) all employees, including all current officers who are not
executive officers, as a group.
10
NEW PLAN BENEFITS
1998 PURCHASE PLAN (1)
1994 OPTION PLAN (2)
------------------------ ---------------------------------------------------------------
WEIGHTED
AVERAGE
PURCHASE NO. OF EXERCISE NO. OF
NAME AND POSITION PURCHASE PRICE NO. OF SHARES
PRICE SHARES
--------------------- ----------- --------- ---------- ----------- ------------------------------------ ------------------- ----------------
Peter P. Savage $4.57 4,545 $6.88 50,000$3.48 4,353
President, Chief Executive
Officer, Director (2)
Paul R. Hartmann $4.59 4,372 $6.88 20,000$3.52 4,341
Vice President, Systems
Engineering
Wayne M. Lettiere -- --
$6.88 10,000
Vice President, Operations
Steven F.X. Murphy $5.78 692 $4.75 75,000$2.91 2,802
Vice President, Sales &and
Marketing (3)
Donald J. O'Connor $4.60 2,167 $6.88 25,000$3.58 2,444
Vice President, Customer SupportNetwork Systems
Executive Group $4.63 17,274 $6.17 225,000$3.39 19,842
(7 persons)
Non-Executive -- -- $7.25 9,000 (3)
Director Group (3 $6.25 21,000 (4)
persons)
Non-Executive $4.66 80,161 $6.71 705,663
Officer Employee $3.03 150,541
Group
- ----------------------------------------
(1) Only employees are eligible to participate in the 1998 Purchase Plan.
Amounts in this column are based on actual purchases made pursuant to the
1994 Employee Stock Purchase Plan (the "1994 Purchase Plan"), the
predecessor to the 1998 Purchase Plan.
(2) Only employees, directors and consultantsOn February 20, 1999, Mr. Savage was appointed to the Company are eligible to
participate inposition of Chairman
of the 1994 Option Plan. Under the current share reserve, on
January 2, 1998Board of the Company issued options toand resigned from the following individuals at
an exercise pricepositions of $6.06: Mr. Savage (24,000 shares); Mr. Hartmann
(14,000 shares); Mr. Letteire (12,000 shares);President
and Chief Executive Officer.
(3) On January 25, 1999, Mr. Murphy (10,000 shares);
Mr. O'Connor (19,000 shares);resigned from his position of Vice
President, Sales and all current executive officers as a group
(108,500 shares). These options are not included inMarketing with the totals under the
New Plan Benefits table. As of March 31, 1998, no options had been issued
to non-executive officer employees or directors in 1998.
(3) Under the automatic option grant program of the 1994 Option Plan, upon
re-election by the Company's stockholders at the May 20, 1997 annual
stockholder's meeting, each continuing director received an option for
3,000 shares of the Company's common stock.
(4) The Board of Directors amended the 1994 Option Plan on May 22, 1997 to
increase the stock option grant issued under the automatic option grant
program of the 1994 Option Plan to 10,000 shares upon re-election of
continuing directors. Each continuing director, Mr. Olson, Mr. Paisley and
Mr. Tuck, received an option for 7,000 shares of Common Stock, subject to
stockholder approval of the proposed amendment to the 1994 Option Plan's
automatic option grant program at the Annual Meeting of Stockholders to be
held on May 21, 1998. Should the amendment to the 1994 Option Plan be
approved by the stockholders, each continuing director will receive options
for 10,000 shares of the Company's Common Stock. These potential options
are not included in the totals under the New Plan Benefits table.
11
Company.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
In fiscal 1997,1998, the Compensation Committee of the Board of Directors was
comprised of Kenneth E. Olson and Christopher B. Paisley. The Compensation
Committee was responsible for setting and administering the policies governing
annual compensation of the executive officers of the Company. These policies are
based upon the philosophy that the Company's long term success in its
marketplace is best achieved through (i) recruitment and retention of the best
people in the industry and (ii) providing compensation that focuses executive
officer efforts on maximizing both short and long term financial performance of
the Company. The Compensation Committee applied this philosophy in determining
compensation for the Company's executive officers in four areas: salary, annual
incentive programs, long term incentive compensation.compensation and benefits.
13
Each executive officer's aggregate compensation is designed to provide a
cumulative level of compensation roughly equivalent to the median paid by
comparably sized companies in similar industries and geographic locations. In
determining executive officers' compensation, for 1997, the Compensation Committee
consideredconsiders information contained in three surveys including one
published bysuch as the American Electronics
Association ("AEA"), Executive Compensation Survey, the Radford Executive
Compensation survey, and twovarious surveys published by venture capital firms. The Company relied primarily on a salary survey prepared
by a group of eight major venture capital firms (the "Venture Firms' Survey").
This survey incorporated compensation information for private and public
communications companies of comparable size to the Company. Accordingly, the
Compensation Committee believed that the information contained in the Venture
Firms' Survey provided the best data for developing a compensation program for
the Company's executive officers. The Venture Firms' Survey data used was for
the 1996 calendar year, and indicted that the executive officers of the Company
had aggregate compensation and stock options that averaged significantly below
the average of companies with revenues less than the Company's. TheseIn
recent years, these surveys have experienced year to year increases of
approximately 5% each year in recent
years.year.
In preparing1998, there were no compensation adjustments for the performance graph set forth in the section entitled
"COMPARISON OF STOCKHOLDER RETURNS," the Company has selected a peer group of
telecommunications companies that contains what the Company considers to be its
primary competitors and comparable companies; however, the companies included in
the Venture Firms' Survey were not necessarily those included in this index,
because companies in the index may not compete with the Company for executive talent, and companies which do compete for executive officers may not be
publicly traded.officers.
SALARY
The Company attempts to offer salaries to its executive officers which are
generally targeted near the median for similar positions in comparably sized
companies in the Company's industry and geographic location. The Company's Chief
Executive Officer evaluates the performance of all other executive officers, and
recommends salary adjustments which are subject to review by the Compensation
Committee. In addition to considering the results of performance evaluations and
information concerning competitive salaries, the Compensation Committee and the
Chief Executive Officer place weight on the financial condition of the Company
and the competitive employment situation in the Company's industry and
geographic area in considering salary adjustments.
The Company's Chief Executive Officer recommended an averagedid not recommend any salary
increase of 7% of base salaryadjustments for the Company's other executive officers in fiscal 1997. The Compensation Committee approved these increases and believes
that such increases in salary were advisable to encourage these executive
officers to remain with the Company. Except for increases associated with
promotions to executive officer, these increases were the first salary increases
for executive officers of the Company since 1994.
12
1998.
ANNUAL INCENTIVE COMPENSATION
The Company seeks to provide additional incentives to executives who make
contributions of outstanding value to the Company. For this reason, the
Compensation Committee awards incentive compensation which can comprise a
substantial portion of the total compensation of executive officers when earned
and paid. Incentive compensation may be paid to executives pursuant to three
plans: the Management Team Incentive Compensation Plan, the Sales Management
Incentive Compensation Plan and the Gain Sharing Plan. The Compensation
Committee attempts to structure these plans so that if the maximum amount
available under these plans is earned by an executive officer, his total cash
compensation for the year will be slightly above the median paid to executive
officers in similar positions at comparably sized companies in similar
industries and geographic locations.
MANAGEMENT TEAM INCENTIVE COMPENSATION PLAN. Potential compensation paid
under this plan is set as a significant percent of each officer's base salary.
The total incentive compensation which could be awarded under this plan if all
performance targets and individual objectives were achieved comprised up to 40%
of base salary for executive officers, (other than the Chief Executive Officer).
If performance targets were exceeded, up to 50% of base salary could be awarded
to such officers under this plan. The incentive compensation under this plan is
based on the financial performance of the Company and each business unit,
quantitative departmental goals and the executive officer's personal
performance. Each executive officer (other than those who participate in the
Sales Management Incentive Compensation Plan, as described below) earns
incentive compensation based upon some or all of these areas of performance. The
Company and business unit targets are based upon attaining certain bookings,
revenue and operating profit goals set by the Board of Directors in consultation
with the Chief Executive Officer. Departmental performance is measured by
appropriate metrics, such as on-time completion of key projects, level of
quality, and inventory levels. Compensation for personal performance under this
plan is awarded by the Compensation Committee based upon its objective and
subjective evaluation of the performance of each officer.
Company and business unit performance bonuses are weighted so that
proportionately higher awards are received when the Company's performance
exceeds targets and proportionately smaller or no awards are made when the
Company does not meet targets. No incentive compensation is paid for Company or
business unit performance unless minimum Company and business unit financial
goals are achieved during the fiscal year.
In 1997,1998, no compensation was earned by officers under the Management Team
Incentive Compensation Plan ranged from 19%
to 26% of base salary.Plan.
14
The Compensation Committee reviews and adjusts the Management Team
Incentive Compensation Plan annually.
SALES MANAGEMENT INCENTIVE COMPENSATION PLAN. One executive officer of the
Company participated in the Company's Sales Management Incentive Compensation
Plan in 1997.1998. Participation in this plan is in lieu of participation in the
Management Team Incentive Compensation Plan. The total incentive compensation
which could be awarded under this plan if all performance targets were achieved
comprised up to 66%67% of base salary for the executive officer. If performance
targets were exceeded, up to 100% of base salary could be awarded to the officer
under this plan. Incentive compensation is paid under this plan as a percentage
of bookings and revenue, to the extent that bookings and revenue exceed 80% of
the target goals set by the Board of Directors. In addition, the executive
officer could earn up to 17% of base salary based upon personal performance. In
1997,1998, compensation earned by the officer who participated in the Sales
Management Incentive Compensation Plan was 25% of the officer's base salary.
GAIN SHARING PLAN. Under this plan, eligible employees (including the
Company's executive officers) may receive quarterly payments based on the
Company's financial results exceeding certain levels. Officers are only eligible
to participate after all other employees have received an annual allocation of
$3,000 per person. No amounts were paid to officersearned under the Gain Sharing Plan in 1997.
13
1998.
LONG TERM INCENTIVE COMPENSATION
The Compensation Committee believes that long term incentive compensation
through employee equity ownership provides significant additional motivation to
executive officers to maximize value for the Company's stockholders, and
therefore, the Compensation Committee makes periodic grants of stock options
under the Company's option plans. Such options are granted at the prevailing
market price, and will only have value if the Company's stock price increases
over the exercise price. Therefore, the Compensation Committee believes that
stock options serve to align the interest of executive officers closely with
other stockholders because of the direct benefit executive officers receive
through improved stock performance. In addition, stock options vest over time to
provide financial incentive for the executive officers to remain with the
Company.
In fiscal 1997,1998, the Compensation Committee granted additional options to
executive officers, after consideration of recommendations from the Chief
Executive Officer and information in the Venture Firms' Survey.Officer. Option grants were based upon relative position and
responsibilities of each executive officer, historical and expected
contributions of each executive officer to the Company, and previous option
grants to such executive officers. Options were granted with a goal to provide
equity compensation for the Company's executive officers that is competitive
with equity compensation provided to executive officers with similar positions
in comparably sized companies in similar industries and geographic locations.
All options granted in fiscal 19971998 to executive officers in their capacities as
such were granted under the 1994 Option Plan. Generally, option grants under the
1994 Option Plan vest and become exercisable over four years. Option grants for
fiscal 19971998 are set forth in the tabletables entitled "OPTION GRANTS IN LAST FISCAL
YEAR" in the section entitled "EXECUTIVE COMPENSATION AND OTHER MATTERS.MATTERS" and
"TEN YEAR OPTION REPRICINGS."
OTHER BENEFITS
The Company's executive officers participate in benefits programs available
generally to all employees.
CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation of the Chief Executive Officer is based upon the same
criteria outlined above for the other executive officers of the Company. While
the CEO makes recommendations about the compensation levels, goals and
performance of the other executive officers, he does not participate in
discussions regarding his compensation or performance.
15
The Compensation Committee increaseddid not adjust Mr. Savage's salary by 14% in 1997,
the first increase in Mr. Savage's salary since 1994.1998. Mr.
Savage's compensation under the Management Team Incentive Compensation Plan was
based upon the Company achieving financial performance goals. In 1997,1998, Mr.
Savage could have received 50% of his base salary under the Management Team
Incentive Compensation Plan if the Company had met all of its performance
targets and up to 70% if those targets were exceeded by 10% or more. IncentiveNo
incentive compensation was earned by Mr. Savage in 1997 was 26% of his base salary, a portion of which was awarded at the
discretion of the Compensation Committee and the Board of Directors.1998. Mr. Savage received
an additional option grantgrants under the 1994 Option Plan to purchase 139,000 shares
which included an option grant for 35,000 shares granted in June 1995 which was
canceled and regranted in November 1998; an option grant for 30,000 shares
originally granted in November 1995 which was canceled and regranted in November
1998; an option grant for 50,000 shares. As with the Company's other officers, stock options are
expected to be the largest elementshares originally granted in February 1997
which was canceled and regranted in November 1998; and an option grant for
24,000 shares originally granted in January 1998 which was canceled and
regranted in November 1998. See "REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION--Report on 1998 Cancellation and
Regrant of Mr. Savage's compensation over time. It
is expected that these options will provide a direct link between the largest
element of Mr. Savage's compensationOptions" and the Company's performance."TEN YEAR OPTION REPRICINGS". In addition to
participating in benefit plans available to all employees, pursuant to his
employment agreement with the Company, Mr. Savage also receives reimbursement of
certain life and disability insurance premiums.
REPORT ON 1998 CANCELLATION AND REGRANT OF OPTIONS
In September and November of 1998, the Compensation Committee considered,
separately, the options held by the Company's employees and executive officers
and the fact that a broad decline in the price of the Common Stock of the
Company had resulted in a substantial number of stock options granted having
exercise prices well above the recent historical trading prices for the
Company's Common Stock. The Committee was advised by management that management
believed that key employee turnover was likely to increase in part because the
Company's total compensation package for long-term employees, which included
substantial options with exercise prices well above the current trading price,
was less attractive than compensation offered by other companies in the same
industry and geographic location. This is because options granted to new hires
at other companies would likely be granted at current trading prices, providing
more opportunity for appreciation than the Company's options.
The Committee believed that the Company's success in the future would
depend in large part on its ability to retain a number of its highly skilled
technical, managerial and marketing personnel and the loss of key employees
could have significant adverse impact on the Company's business. The Committee
also believed that unless an adjustment was made in option prices, existing
employees holding options would perceive a substantial inequity in comparison to
new employees granted stock options with exercise prices set at the current,
lower fair market value of the Company's Common Stock and that employee morale
would suffer as a consequence. The Committee concluded that it was important and
cost-effective to provide equity incentives to employees and executive officers
of the Company to improve the Company's performance and the value of the Company
for its stockholders. The Committee considered granting new options selectively
to current key employees at fair market value, but recognized that the size of
the option grants required to offset the decline in market price would result in
significant additional dilution to stockholders. The Committee recognized that
canceling existing options with exercise prices higher than fair market value
and regranting options at fair market value would provide additional incentives
to employees because of the increased potential for appreciation. The Committee
also recognized that the new options could require holding periods before they
became exercisable, providing optionees participating in the
cancellation/regrant program with an added incentive to remain with the Company.
Considering these factors, the Committee determined that it was in the best
interests of the Company and its stockholders to restore the incentives for
employees and executive officers to remain as employees of the Company and to
exert their maximum efforts on behalf of the Company by canceling and regranting
stock options under the Option Plan for those options with exercise prices above
recent trading prices.
In September 1998, the Compensation Committee approved the cancellation and
regrant of all outstanding options granted to non-officer employees at exercise
prices exceeding the fair market value of common stock as of October 23, 1998,
the effective date of the program. The exercise price of each regranted option
is $2.75, which is the closing market price of the Company's common stock on
October 23, 1998. Each optionee holding such an option had the opportunity to
(i) elect to retain the old option or (ii) accept a new option with an exercise
price equal to the fair market value of the Company's common stock on the
effective date and cancel the old option. Each regranted option covered the same
number of shares subject to the old option at the time of cancellation and
maintained the same vesting period as the previously canceled option. The
regranted options cannot be exercised for a period of six months following the
effective date. Any employee voluntarily leaving the Company during the six
month period will lose the affected options, including previously vested
portions of those options. All replacement options will terminate no later than
ten (10) years from the date of grant. Options to purchase a total
16
of 1,706,275 shares of the Company's Common Stock at exercise prices ranging
from $2.80 per share to $9.88 per share have been canceled in exchange for
regranted options for an equal number of shares at an exercise price of $2.75
per share, the closing price of the Company's Common Stock on the effective date
of the program.
In November 1998, the Compensation Committee of the Company's Board of
Directors approved the cancellation and regrant of all outstanding options
granted to executive officers at exercise prices exceeding the fair market value
of common stock as of November 6, 1998, the effective date of the program. The
exercise price of each regranted option is $2.75, which was the closing market
price of the Company's common stock on November 6, 1998. Each executive officer
holding such an option had the opportunity to (i) elect to retain the old option
or (ii) accept two new options with exercise prices equal to the fair market
value of the Company's common stock on the effective date and cancel the old
option. Each regranted option covered one-half of the number of shares subject
to the old option at the time of cancellation. One of the regranted options
maintained the same vesting period as the previously canceled option. The other
regranted option vests in equal monthly installments over a 48 month period
beginning on the regrant date. The regranted options are subject to the
condition that the options cannot be exercised for a period of six months
following the effective date. Any executive officer voluntarily leaving the
Company during the six month period will lose the affected options, including
previously vested portions of those options. All replacement options will
terminate no later than ten (10) years from the date of grant. Options to
purchase a total of 597,858 shares of the Company's Common Stock at exercise
prices ranging from $4.75 per share to $15.25 per share have been canceled in
exchange for regranted options for an equal number of shares at an exercise
price of $2.75 per share, the closing price of the Company's Common Stock on the
effective date of the program.
The Compensation Committee believes the regranted options strike an
appropriate balance between the interests of the option holders and those of the
stockholders. The lower exercise prices in effect under the regranted options
make those options valuable to the executive officers and employees critical to
the Company's financial performance. However, those individuals will enjoy the
benefits of the regranted options only if they remain in the Company's employ
and contribute to the Company's and investor's financial success.
COMPENSATION COMMITTEE
Kenneth E. Olson
Christopher B. Paisley
14TEN YEAR OPTION REPRICINGS
The table below sets forth (i) information with respect to each of the
Company's named executive officers concerning his participation in the option
cancellation/regrant program which was effected November 6, 1998 and (ii)
information with respect to all former or current executive officers of the
Company concerning their participation in other option repricing programs
implemented by the Company during the last ten fiscal years. Options referenced
in the table below that were repriced on November 6, 1998 represent two new
option agreements. Each such option agreement is for one-half of the number of
shares subject to the old option at the time of cancellation. One of the
regranted options maintained the same vesting period as the previously canceled
option, and the other regranted option vests in equal monthly installments over
a 48-month period beginning on the date of repricing.
17
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES MARKET PRICE EXERCISE OPTION TERM
UNDERLYING OF STOCK AT PRICE AT NEW REMAINING AT
DATE OF OPTIONS TIME OF TIME OF EXERCISE DATE OF
NAME REPRICING REPRICED REPRICING REPRICING PRICE REPRICING
- ---- --------- -------- --------- --------- ----- ---------
Peter P. Savage (1) 11/06/98 24,000(3) $ 2.75 $ 6.06 $ 2.75 110 Months
President and Chief 11/06/98 50,000(4) $ 2.75 $ 6.88 $ 2.75 100 Months
Executive Officer 11/06/98 30,000(5) $ 2.75 $ 11.75 $ 2.75 85 Months
11/06/98 35,000(6) $ 2.75 $ 12.50 $ 2.75 80 Months
6/29/95(2) 35,000(7) $ 12.50 $ 18.75 $ 12.50 110 Months
Paul R. Hartmann 11/06/98 14,000(3) $ 2.75 $ 6.06 $ 2.75 110 Months
Vice President, Systems 11/06/98 20,000(4) $ 2.75 $ 6.88 $ 2.75 100 Months
Engineering 11/06/98 20,000(5) $ 2.75 $ 11.75 $ 2.75 85 Months
11/06/98 20,000(6) $ 2.75 $ 12.50 $ 2.75 80 Months
6/29/95(2) 20,000(7) $ 12.50 $ 18.75 $ 12.50 110 Months
Wayne M. Lettiere 11/06/98 12,000(3) $ 2.75 $ 6.06 $ 2.75 110 Months
Vice President, 11/06/98 10,000(4) $ 2.75 $ 6.88 $ 2.75 100 Months
Operations 11/06/98 15,000(5) $ 2.75 $ 11.75 $ 2.75 85 Months
11/06/98 15,000(6) $ 2.75 $ 12.50 $ 2.75 80 Months
6/29/95(2) 15,000(7) $ 12.50 $ 18.75 $ 12.50 110 Months
Steven F.X. Murphy (8) 11/06/98 10,000(3) $ 2.75 $ 6.06 $ 2.75 110 Months
Vice President, Sales 11/06/98 75,000(9) $ 2.75 $ 4.75 $ 2.75 101 Months
and Marketing
Donald J. O'Connor 11/06/98 19,000(3) $ 2.75 $ 6.06 $ 2.75 110 Months
Vice President, Network 11/06/98 25,000(4) $ 2.75 $ 6.88 $ 2.75 100 Months
Systems 11/06/98 50,000(10) $ 2.75 $ 12.50 $ 2.75 80 Months
James L. Keefe 11/06/98 13,500(3) $ 2.75 $ 6.06 $ 2.75 110 Months
Vice President, Finance 11/06/98 20,000(4) $ 2.75 $ 6.88 $ 2.75 100 Months
Administration, 11/06/98 25,000(11) $ 2.75 $ 15.25 $ 2.75 91 Months
Chief Financial Officer 11/06/98 6,000(5) $ 2.75 $ 11.75 $ 2.75 85 Months
and Secretary 11/06/98 5,000(6) $ 2.75 $ 12.50 $ 2.75 80 Months
6/29/95(2) 5,000(7) $ 12.50 $ 18.75 $ 12.50 110 Months
Kevin T. Pope 11/06/98 16,000(3) $ 2.75 $ 6.06 $ 2.75 110 Months
Vice President, Network 11/06/98 25,000(4) $ 2.75 $ 6.88 $ 2.75 100 Months
Development 11/06/98 35,000(5) $ 2.75 $ 11.75 $ 2.75 85 Months
Engineering 11/06/98 535(12) $ 2.75 $ 7.00 $ 2.75 19 Months
11/06/98 107(13) $ 2.75 $ 7.00 $ 2.75 10 Months
11/06/98 216(14) $ 2.75 $ 7.00 $ 2.75 5 Months
11/06/98 7,500(6) $ 2.75 $ 12.50 $ 2.75 80 Months
6/29/95(2) 7,500(7) $ 12.50 $ 18.75 $ 12.50 110 Months
Richard W. Carter (15) 06/29/95 15,000(7) $ 12.50 $ 18.75 $ 12.50 110 Months
Chief Financial Officer
Howard J. Rutka (16) 06/29/95 13,000(7) $ 12.50 $ 18.75 $ 12.50 110 Months
Vice President, Sales
18
(1) On February 20, 1999, Mr. Savage was appointed to the position of Chairman
of the Board of the Company, and resigned from the positions of President
and Chief Executive Officer.
(2) Option was subsequently cancelled and regranted on November 6, 1998.
(3) Represents the regrant of a cancelled option originally granted in January
1998.
(4) Represents the regrant of a cancelled option originally granted in February
1997.
(5) Represents the regrant of a cancelled option originally granted in November
1995.
(6) Represents the regrant of a cancelled option originally granted in June
1995.
(7) Represents the regrant of a cancelled option originally granted in August
1994.
(8) On January 25, 1999, Mr. Murphy resigned from his position of Vice
President, Sales and Marketing with the Company.
(9) Represents the regrant of a cancelled option originally granted in April
1997.
(10) Represents the regrant of a cancelled option originally granted in June
1995.
(11) Represents the regrant of a cancelled option originally granted in May
1996.
(12) Represents the regrant of a cancelled option originally granted in May
1990.
(13) Represents the regrant of a cancelled option originally granted in
September 1989.
(14) Represents the regrant of a cancelled option originally granted in March
1989.
(15) Mr. Carter is no longer an employee of the Company.
(16) Mr. Rutka is no longer an employee of the Company.
19
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the annual percentage change
in the cumulative total return on the Company's Common Stock with the cumulative
total return of (i) the S&P 500 and, (ii) a self-constructed peer group of
telecommunication companies that the Company considers to be its primarypeers and
competitors andin the industry which is comprised of the following companies: ADC
Telecommunications, Inc., Adtran, Inc., Architel Systems Corporation, Clarify
Inc., Objective Systems Integrators, Inc., Pairgain Technologies, Inc., TSCI
Corporation, Telco Systems, Inc., Tellabs, Inc., Teltrend Inc. and Westell Technologies, Inc. (the
"New Peer Group") and (iii) a self-constructed peer
group of telecommunications companies used by the Company in its proxy statement
for the 1997 Annual Meeting of Stockholders, which is comprised of the following
companies: ADC Telecommunications, Inc., Broadband Technologies, Inc., DSC
Communications Corp., American Phoenix Group, Inc., Pairgain Technologies, Inc.,
Summa Four, Inc., Telco Systems, Inc. and Tellabs, Inc. (the "Old Peer"Peer Group"), for the period commencing March 29, 1994 and ending on December
31, 1997. The
Company believes that the New Peer Group is a better basis for comparison with
the Company's current business and operations than is the Old Peer Group.1998. The total stockholder returns of the companies comprising each Peer
Group have been weighted in accordance with their respectrespective market
capitalizations.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM MARCH 29, 1994, THROUGH
DECEMBER 31, 1997(1)1998(1)
APPLIED DIGITAL ACCESS, INC., S&P 500, NEW PEER GROUP OLD PEER GROUP(2)
[GRAPH]
3/29/94 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
------- -------- -------- -------- -------- --------
Old
Peer Group $100.00 $101.95 $127.20 $164.70 $206.00
New Peer Group $100.00 $179.23 $288.58 $426.10 $454.58$ 100.00 $ 179.23 $ 294.45 $ 433.89 $465.70 $479.94
S&P 500 $100.00 $103.75 $142.74 $175.51$ 100.00 $ 103.75 $ 142.74 $ 175.51 $234.07 $300.96
Applied Digital Access, $100.00 $211.46Inc. $ 100.00 $ 211.46 $ 97.92 $ 45.83 $ 48.96 Inc.$ 21.88
- ---------------------------------------
(1) Assumes that $100.00 was invested on March 29, 1994, in the Company's
Common Stock and each index, and that all dividends were reinvested. No
dividends have been declared on the Company's Common Stock. Stockholder
returns over the indicated period should not be considered indicative of
future stockholder returns.
15(2) The Peer Group is the same as the new peer group in the proxy statement
prepared for the 1998 Annual Meeting of Stockholders (the "1998 Peer
Group") except that it does not include Telco Systems, Inc. which was
acquired in June 1998 and ceased to be a separate corporate entity. Data
for the 1998 Peer Group is not available for the period ended December 31,
1998. Assuming $100.00 was invested in the 1998 Peer Group on March 29,
1994, that peer group had the following stockholder returns during the
period beginning on March 29, 1994 and ending on December 31, 1997: $100.00
on March 29, 1994; $179.23 on December 31, 1994; $288.58 on December 31,
1995; $426.10 on December 31, 1996; and $454.58 on December 31, 1997.
20
ELECTION OF DIRECTORS
Management's nominees for election at the Annual Meeting of Stockholders to
the Board of Directors are Gary D. Cuccio, John F. Malone, Kenneth E. Olson,
Christopher B. Paisley, Peter P. Savage and Edward F. Tuck.Donald L. Strohmeyer. If elected,
the nominees will serve as directors until the Company's Annual Meeting of
Stockholders in 1999,2000, and until their successors are elected and qualified. If a
nominee declines to serve or becomes unavailable for any reason, or if a vacancy
occurs before the election (although Management knows of no reason to anticipate
that this will occur), the proxies may be voted for such substitute nominee as
Management may designate.
If a quorum is present and voting, the foursix nominees for the positions of
directors receiving the highest number of votes will be elected. Abstentions and
broker non-votes will have no effect on the outcome of the vote. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES NAMED ABOVE.
PROPOSAL TO ADOPTAMEND 1998 EMPLOYEE STOCK PURCHASE PLAN
The Company currently maintains the Applied Digital Access, Inc. 19941998 Employee Stock Purchase Plan pursuant to whichwas
adopted by the Board of Directors in March 1998 and approved by the Company's
Stockholders in May 1998. The 1998 Purchase Plan became effective on May 21,
1998. The 1998 Purchase Plan permits eligible employees mayto purchase sharesshare of the
Company's Common Stock at a discount through payroll deductions.
After
March 31, 1998, noThe Stockholders are now being asked to approve an amendment to increase by
300,000 shares remained available for issuance under the 1994
Purchase Plan. The 1994 Purchase Plan is implemented through offerings of
approximately 12 months in duration, and the Board of Directors has determined
that themaximum aggregate number of shares available for issuance under the 1994 Purchase Plan
will not be sufficient to cover anticipated share requirements for the offering
which is currently in progress. Because of a recent change to generally
accepted accounting principles applicable to employee stock purchase plans, the
Company could be required to recognize a compensation expense if the share
reserve of the 1994 Purchase Plan was increased and such additional shares were
issued pursuant to offerings which began prior to the date on which the
stockholders approved the share reserve increase. However, adoption of a new
employee stock purchase plan under which offerings would not begin until after
the date that the stockholders approve the plan will not cause the recognition
of a compensation expense under current generally accepted accounting
principles. Accordingly, on March 20, 1998, the Board of Directors adopted the
Applied Digital Access, Inc. 1998 Employee Stock Purchase Plan, subject to
stockholder approval, to become effective on May 21, 1998 (the "Effective
Date"). A total of 300,000 shares of Common Stock will be reserved for issuanceissuable under the 1998
Purchase Plan. The Board of Directors believes that adoptingthis amendment to the 1998
Purchase Plan will
benefitis in the best interests of the Company sinceand its stockholders
because providing employees of the Company with an opportunity to purchase
shares of Common Stock pursuant to the 1998 Purchase Plan should prove helpful
in attracting, retaining, and motivating valued employees.
SUMMARY OF THE PROVISIONS OF THE 1998 PURCHASE PLAN
The following summary of the 1998 Purchase Plan is qualified in its
entirety by the specific language of the 1998 Purchase Plan, a copy of which is
available to any stockholder upon request.
The 1998 Purchase Plan is intended to qualify as an "employee stock
purchase plan" under section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). Any employee of the Company or any present or future
parent or subsidiary corporation of the Company (including any director who is
also an employee) is eligible to participate in the 1998 Purchase Plan upon
completion of 90 days continuous service, so long as the employee is customarily
employed for at least 20 hours per week and more than five months in any
calendar year. However, employees of any subsidiary of the Company are eligible
to participate in the 1998 Purchase Plan only if the Company's Board of
Directors adopts a resolution approving such participation. Currently, employees
of the Company's Canadian subsidiary are not approved to participate in the 1998
Purchase Plan. No person who owns or holds options to purchase, or as a result
of participation in the 1998 Purchase Plan would own or hold options to
purchase, 5% or more of the total combined voting power or value of all classes
of stock of the Company is entitled to participate in the 1998 Purchase Plan. As
of March 31, 1998, 2171999, approximately 130 employees were eligible to participate in
the 1998 Purchase Plan.
Each offering of Common Stock under the 1998 Purchase Plan is generally for
a period of twelve months (an "Offering Period"). Offering Periods under the
1998 Purchase Plan generally commence on or about July 1 of each year and end on
the next following June 30. However, the initial Offering Period under the 1998
Purchase Plan will commence
16
on the Effective Date and end on June 30, 1999. At the end of each calendar quarter during the
Offering Period, shares are issued based on the payroll deductions accumulated
during that quarter. The first purchase date in the
initial Offering Period will be June 30, 1998. Participation in the 1998 Purchase Plan is limited to
eligible employees who authorize payroll deductions pursuant to the 1998
Purchase Plan. Such payroll deductions must be at least 1% but may not exceed
15% of an employee's compensation. Once an employee becomes a participant in the
1998 Purchase Plan, that employee will automatically participate in each
successive offering until such time as that employee withdraws from the 1998
Purchase Plan, becomes ineligible to participate in the 1998 Purchase Plan, or
his or her employment ceases.
21
The purchase price per share at which the shares of the Company's Common
Stock are sold in an offering generally will be equal to 85% of the lesser of
the fair market value of the Common Stock on (a) the first day of the Offering
Period (the "Entry Date"), or (b) the last business day of the quarter. However,
if a participant commences participation in the offering period after the first
day of the offering period, his or her Entry Date will be the date on which he
or she commenced such participation, and the price described in clause (a) of
the preceding sentence will be the higher of the fair market value if a share of
the Company's stock on his or her Entry Date or the first day of the Offering
Period. As of March 31, 1998,1999, the closing price of the Company's Common Stock,
as reported on the Nasdaq National Market, was $8.00$2.25 per share. Subject to
certain limitations, the number of shares of the Company's Common Stock a
participant purchases in an Offering Period is determined by dividing the total
amount of payroll deductions withheld from the participant's compensation during
the quarter by the purchase price per share. Participants may not purchase
shares of the Company's Common Stock having a fair market value exceeding
$25,000 in any calendar year (measured by the fair market value of the Company's
Common Stock on the Entry Date of the Offering Period in which the shares are
purchased). Any cash not applied to the purchase of shares will be returned to
the participant unless the amount of such cash is less than the amount necessary
to purchase a whole share of Common Stock, in which case the Company may
establish procedures to apply the remaining amount to a subsequent quarter.
A participant may withdraw from an offering at any time without affecting
his or her eligibility to participate in future offerings. However, once a
participant withdraws from an offering, that participant may not again
participate in the same offering.
The Board of Directors (or any committee of the Board appointed to
administer the 1998 Purchase Plan) may at any time amend or terminate the 1998
Purchase Plan, except that the approval of the Company's stockholders is
required within twelve months of the adoption of any amendment increasing the
number of shares authorized for issuance under the 1998 Purchase Plan, or
changing the definition of the corporations which may be designated by the Board
as corporations whose employees may purchase shares of the Company's Common
Stock under the 1998 Purchase Plan. The 1998 Purchase Plan will terminate at the
time determined by the Board of Directors or when all the shares reserved for
issuance under the 1998 Purchase Plan have been issued, whichever occurs first.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE 1998 PURCHASE PLAN
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
1998 Purchase Plan and does not attempt to describe all potential tax
consequences. Furthermore, the tax consequences are complex and subject to
change, and a taxpayer's particular situation may be such that some variation of
the described rules is applicable.
Generally, a participant recognizes no taxable income either as a result of
becoming a participant in the 1998 Purchase Plan or purchasing shares of the
Company's Common Stock under the 1998 Purchase Plan.
The tax consequences of a disposition of 1998 Purchase Plan shares vary
depending on the period that such stock is held before its disposition. If a
participant disposes of shares purchased under the 1998 Purchase Plan within two
years from the Entry Date or within one year from the date of purchase (a
"disqualifying disposition"), the participant will realize ordinary income in
the year of such disposition equal to the amount by which the fair market value
of the shares on the date the shares were purchased exceeds the purchase price.
The amount of the ordinary income will be added to the participant's basis in
the shares, and any additional gain or resulting loss recognized on the
disposition of the shares will be a capital gain or loss. A capital gain or loss
will be long term or mid-term if the participant's holding period is more than twelve
months.
17
If the participant disposes of shares purchased under the 1998 Purchase
Plan at least two years after the Entry Date and at least one year after the
date of purchase, the participant will realize ordinary income in the year of
disposition equal to the lesser of (i) the excess of the fair market value of
the shares on the date of disposition over the purchase price or (ii) 15% of the
fair market value of the shares on the Entry Date. The amount of any ordinary
income will be added to the participant's basis in the shares, and any
additional gain recognized upon the disposition after such basis adjustment will
be a long term or mid-term capital gain. If the fair market value of the shares on the date
of disposition is less than the purchase price, there will be no ordinary income
and any loss recognized will be a long term or mid-term capital loss.
22
The Company will generally be entitled to a deduction in the year of a
disqualifying disposition equal to the amount of ordinary income recognized by
the participant as a result of the disposition, except to the extent such
deduction is limited by applicable provisions of the Code or the regulations
thereunder. In all other cases, no deduction is allowed to the Company.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes cast at the Annual Meeting
of Stockholders, at which a quorum is present and voting, either in person or by
proxy, is required for approval of this proposal. Abstentions will have the same
effect as a negative vote. Broker non-votes, on the other hand, will have no
effect on the outcome of the vote.
The Board of Directors believes that the adoption ofamendment to the 1998 Purchase
Plan is in the best interests of the stockholders and the Company for the
reasons stated above. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" APPROVAL OF THE ADOPTION OFAMENDMENT TO THE 1998 EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL TO AMEND 1994 STOCK OPTION/STOCK ISSUANCE PLAN
The 1994 Stock Option/Stock Issuance Plan was adopted by the Board of
Directors in February 1994 and approved by the Company's stockholders in March
1994. The 1994 Option Plan became effective on March 28, 1994 (the "IPO
Effective Date"). The 1994 Option Plan permits the discretionary grant of stock
options to eligible employees, consultants and directors, the automatic grant of
options to non-employee directors and a direct stock issuance program.
The stockholders are now being asked to approve amendments to (1) increase
by 300,000 shares the maximum aggregate number of shares issuable under the 1994
Option Plan and (2) increase the size of the automatic re-election grants to
non-employee directors of the Company from 3,000 shares to 10,000 shares. The
Board of Directors believes that these amendments of the 1994 Option Plan are in
the best interests of the Company and its stockholders because the availability
of an adequate stock option program is an important factor in attracting and
retaining qualified officers, employees, consultants and directors essential to
the success of the Company and in aligning their long term interests with those
of the stockholders.
SUMMARY OF THE PROVISIONS OF THE 1994 OPTION PLAN
The following summary of the 1994 Option Plan is qualified in its entirety
by the specific language of the 1994 Option Plan, a copy of which is available
to any stockholder upon request.
GENERAL. The 1994 Option Plan is divided into three separate programs: the
discretionary option grant program, the automatic option grant program and the
stock issuance program. The 1994 Option Plan provides for the grant of
incentive stock options within the meaning of section 422 of the Code and
nonstatutory stock options. As of March 31, 1998, options to purchase
approximately 1,445,190 shares granted under the 1994 Option Plan had been
exercised, options to purchase an aggregate of approximately 2,214,013 shares
remained outstanding and approximately 140,797 shares remained available for
future grant under the 1994 Option Plan.
SHARES SUBJECT TO PLAN. Currently, the maximum number of authorized but
unissued or reacquired shares of the Company's Common Stock available for
issuance under the 1994 Option Plan will not exceed 3,800,000 shares; of this
amount, the number of shares issuable under the 1994 Option Plan is reduced by
(a) the number shares issued pursuant to
18
the Company's 1988 Stock Option Plan and Restricted Stock Purchase Plan
(collectively, the "Prior Plans"), and (b) the number of shares subject to
outstanding options granted under the Prior Plans (the "Share Reserve"). In
March 1998, the Board of Directors amended the 1994 Option Plan, subject to
stockholder approval, to increase the Share Reserve by 300,000 shares. The 1994
Option Plan imposes a grant limit under which no person may receive options to
purchase in excess of 1,000,000 shares (the "Grant Limit"). Appropriate
adjustments will be made to the shares subject to the 1994 Option Plan, to the
Grant Limit, to the automatic non-employee grant provisions and to outstanding
options upon any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change in the
capital structure of the Company. To the extent that any outstanding option
under the 1994 Option Plan expires or terminates prior to exercise in full, the
shares of Common Stock for which such option is not exercised are returned to
the 1994 Option Plan and become available for future grant.
ADMINISTRATION AND PLAN OPERATION. The 1994 Option Plan is administered by
the Board of Directors or a duly appointed committee of the Board (hereinafter
referred to as the "Board"). Subject to the provisions of the 1994 Option Plan,
with respect to the discretionary option grant program and the stock issuance
program, the Board determines the persons to whom options or stock issuances are
to be granted, the number of shares to be covered by such grant, whether an
option is to be an incentive stock option or a nonstatutory stock option, the
timing and terms of exercisability of each option or the vesting of shares
acquired upon the exercise of an option, including the effect thereon of an
optionee's termination of service, the exercise price of and the type of
consideration to be paid to the Company upon the exercise of each option, the
duration of each option, and all other terms and conditions of the options. The
Board will interpret the 1994 Option Plan and options granted thereunder, and
all determinations of the Board will be final and binding on all persons having
an interest in the 1994 Option Plan or any option.
STOCK OPTION PROGRAM. Options may be granted under the 1994 Option Plan to
employees, directors and consultants of the Company or of any parent or
subsidiary corporations of the Company. Non-employee directors may only receive
grants under the 1994 Option Plan pursuant to the automatic option grant program
described below. As of March 31, 1998, the Company had approximately 275
employees, including seven executive officers, and three non-employee directors.
While any person eligible under the 1994 Option Plan may be granted a
nonstatutory option, only employees may be granted incentive stock options.
The 1994 Option Plan also includes an automatic option grant program under
which option grants will be made to non-employee directors. The terms and
conditions of the automatic option grants are fixed by the 1994 Option Plan and
are not subject to discretion of the Board. Under the automatic option grant
program, non-employee directors on the IPO Effective Date were granted an option
to purchase 7,500 shares, and each non-employee director who first joins the
Company's Board of Directors after the IPO Effective Date will receive an
initial option to purchase 15,000 shares upon their election or appointment to
the Board of Directors. Each director who continues to serve as a non-employee
director will receive an option grant for 3,000 shares each time he or she is
re-elected (the "Re-election Grant"). The Board has amended the 1994 Option
Plan, subject to stockholder approval, to increase the size of the Re-election
Grant from 3,000 shares to 10,000 shares, with respect to grants occurring
during and after May, 1997.
The initial options granted under the automatic option grant program to
directors will become exercisable in installments over a four year period of
board service with the first installment becoming exercisable one month (for
grants on the IPO Effective Date) or one year (for other grants) after the grant
date. Re-election Grants will become exercisable in full after one year of
continued service after the grant date.
Options granted under the discretionary option grant program may be
immediately exercisable for all of the option shares, on either a vested or
unvested basis, or may become exercisable for shares in one or more installments
over the participant's period of service. Upon exercise, any unvested shares
will be subject to repurchase by the Company, at the original purchase price
paid for such shares, upon the participant's cessation of service prior to
vesting in the shares. However, the Board will have full discretionary
authority to accelerate the exercisability of any outstanding discretionary
option grant or the vesting of any issued shares.
19
Each option granted under the 1994 Option Plan is evidenced by a written
agreement between the Company and the optionee specifying the number of shares
subject to the option and the other terms and conditions of the option,
consistent with the requirements of the plan. The exercise price per share of
each (a) incentive stock option granted under the 1994 Option Plan, and
(b) option granted to a non-employee director must equal at least the fair
market value of a share of the Company's Common Stock on the date of grant.
Each nonstatutory stock option granted under the 1994 Option Plan (other than a
grant to a non-employee director) must have an exercise price no less than 85%
of the fair market value of a share of the Company's Common Stock on the date of
grant. In addition, any incentive stock option granted to a person who at the
time of grant owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company (a "Ten Percent Stockholder") must have an exercise
price equal to at least 110% of the fair market value of a share of Common Stock
on the date of grant. As of March 31, 1998, the closing price of a share of the
Company's Common Stock as reported on the Nasdaq National Market was $8.00.
The option exercise price may be paid in cash, by check, or in cash
equivalent, by tender of shares of the Company's Common Stock owned by the
optionee for at least 6 months which have a fair market value not less than the
exercise price, by the assignment of the proceeds of a sale with respect to some
or all of the shares of Common Stock being acquired upon the exercise of the
option, by means of a promissory note, or by any combination of these. The
Board may nevertheless restrict the forms of payment permitted in connection
with any option grant. The 1994 Option Plan also authorizes the Company to
withhold from shares otherwise issuable upon the exercise of an option or to
accept the tender of shares of the Company's Common Stock in full or partial
payment of any tax withholding obligations.
The 1994 Option Plan provides that the maximum term of an option is ten
years unless granted to a Ten Percent Stockholder, in which case the maximum
term is five years. Options are nontransferable by the optionee other than by
will or by the laws of descent and distribution, and are exercisable during the
optionee's lifetime only by the optionee.
STOCK ISSUANCE PROGRAM. The 1994 Option Plan provides that shares may be
issued under the "Stock Issuance Program" through direct and immediate purchases
without any intervening stock option grants. The Board will have the discretion
to determine when and to whom such share issuances will be made, the number of
shares to be issued, the vesting schedule (if any) applicable to the issued
shares, the consideration to be paid for the issued shares, and all other terms
and conditions applicable to the issuance. Each issuance will be evidenced by a
stock issuance agreement executed by the Company and the participant. The
purchase price per share will be determined by the Board but cannot be less than
eighty-five percent (85%) of the fair market value of a share the Company's
Common Stock on the issuance date.
Shares issued under the stock issuance program may either be fully-vested
or subject to a vesting schedule tied to future service. All unvested shares
will be subject to repurchase by the Company, at the original purchase price
paid for such shares, upon the participant's cessation of service prior to
vesting in the shares. However, the Board will have full discretionary
authority to accelerate the vesting of any issued shares.
STOCK APPRECIATION RIGHTS. The 1994 Option Plan also permits the Board to
grant stock appreciation rights ("SARs"), and to the extent an optionee is
allowed to participate in the SAR program, he or she will have the right to
elect between the normal exercise of the option for shares of Common Stock and
the surrender of that option for a distribution from the Company equal to the
excess of (a) the fair market value of the vested shares of Common Stock subject
to the surrendered option over (b) the exercise price payable for such shares.
The distribution may be made in shares of Common Stock valued at fair market
value on the option surrender date, in cash or partly in shares of Common Stock
and partly in cash, as the Board will determine in its sole discretion.
Exercise of the SAR is subject to approval by the Board. Non-employee directors
of the Company who have options which have been outstanding for more than
6 months also have limited SARs ("LSARs") in connection with such options. The
LSAR provides that the outstanding option can be surrendered for cancellation
upon a hostile take-over of the Company in return for a cash distribution from
the Company, based on the excess of the price per share paid by the acquiring
entity in effecting the take-over above the option exercise price. Exercise of
an LSAR is not subject to approval by the Board. As of March 31, 1998, no SARs
have been granted under the 1994 Option Plan.
20
TRANSFER OF CONTROL. In the event the Company is acquired, pursuant to
certain "corporate transactions", such as a merger or asset sale, each
outstanding option which is not to be assumed by the successor corporation or
replaced with a comparable option to purchase the capital stock of the successor
corporation will automatically accelerate vesting in full, except to the extent
such accelerated vesting is precluded by the terms of the agreements evidencing
those unvested shares. The Board can apply this acceleration to options
outstanding under the Prior Plans. Vesting of shares issued under the Stock
Issuance Program will not accelerate as a result of a corporate transaction.
The 1994 Option Plan provides for the automatic acceleration of outstanding
options and the vesting of unvested shares issued under the Stock Issuance
Program upon the following change in control events: (i) the acquisition of
more than 50% of the Company's voting stock by hostile tender offer or (ii) a
change in the composition of the Board of Directors effected through one or more
contested Board elections over a period of 24 months, except that the Board may
at the time of a discretionary option grant or stock issuance, provide that no
such acceleration shall occur. However, no unvested options or stock issuances
under the Prior Plans will accelerate in connection with any such change in
control unless the Board has determined to grant such acceleration.
TERMINATION OR AMENDMENT. The 1994 Option Plan will continue in effect
until the earlier of the date on which all shares available for issuance under
the 1994 Option Plan have been issued, or the tenth anniversary of the Effective
Date unless sooner terminated as a result of a corporate transaction. The Board
may terminate or amend the 1994 Option Plan at any time. However, subject to
changes in the law that would permit otherwise, without stockholder approval the
Board may not adopt an amendment to the 1994 Option Plan which would materially
modify the benefits accruing to individuals who participate in the 1994 Option
Plan, materially modify the eligibility requirements for participation in the
1994 Option Plan or materially increase the maximum number of shares issuable
under the 1994 Option Plan (except in the event of certain changes in the
Company's capital structure). Finally, the Board may not amend the provisions
of the automatic option grant program more than once every six months except to
comply with changes in the Code or the Employee Retirement Income Security Act
of 1974, as amended. No amendment may adversely affect an outstanding option
without the consent of the optionee.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE 1994 OPTION PLAN
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law with respect to stock
options granted under the 1994 Option Plan and does not attempt to describe all
possible federal or other tax consequences of such options or tax consequences
based on particular circumstances.
INCENTIVE STOCK OPTIONS. An optionee recognizes no taxable income for
regular income tax purposes as the result of the grant or exercise of an
incentive stock option qualifying under section 422 of the Code. Optionees who
do not dispose of their shares for two years following the date the option was
granted nor within one year following the exercise of the option will normally
recognize a long term or mid-term capital gain or loss equal to the difference,
if any, between the sale price and the purchase price of the shares. If an
optionee satisfies such holding periods upon a sale of the shares, the Company
will not be entitled to any deduction for federal income tax purposes. If an
optionee disposes of shares within two years after the date of grant or within
one year from the date of exercise (a "disqualifying disposition"), the
difference between the fair market value of the shares on the determination date
(see discussion under "Nonstatutory Stock Options" below) and the option
exercise price (not to exceed the gain realized on the sale if the disposition
is a transaction with respect to which a loss, if sustained, would be
recognized) will be taxed as ordinary income at the time of disposition. Any
gain in excess of that amount will be a capital gain. If a loss is recognized,
there will be no ordinary income, and such loss will be a capital loss. A
capital gain or loss will be long term or mid-term if the optionee's holding
period is more than 12 months. Any ordinary income recognized by the optionee
upon the disqualifying disposition of the shares generally should be deductible
by the Company for federal income tax purposes, except to the extent such
deduction is limited by applicable provisions of the Code or the regulations
thereunder.
The difference between the option exercise price and the fair market value
of the shares on the determination date of an incentive stock option (see
discussion under "Nonstatutory Stock Options" below) is an adjustment in
computing the optionee's alternative minimum taxable income and may be subject
to an alternative minimum tax which is paid if such tax exceeds the regular tax
for the year. Special rules may apply with respect to certain subsequent sales
of the shares in a
21
disqualifying disposition, certain basis adjustments for purposes of computing
the alternative minimum taxable income on a subsequent sale of the shares and
certain tax credits which may arise with respect to optionees subject to the
alternative minimum tax.
NONSTATUTORY STOCK OPTIONS. Options not designated or qualifying as
incentive stock options will be nonstatutory stock options. Nonstatutory stock
options have no special tax status. An optionee generally recognizes no taxable
income as the result of the grant of such an option. Upon exercise of a
nonstatutory stock option, the optionee normally recognizes ordinary income in
the amount of the difference between the option exercise price and the fair
market value of the shares on the determination date (as defined below). If the
optionee is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. The "determination date" is the
date on which the option is exercised unless the shares are subject to a
substantial risk of forfeiture and are not transferable, in which case the
determination date is the earlier of (i) the date on which the shares are
transferable or (ii) the date on which the shares are not subject to a
substantial risk of forfeiture. If the determination date is after the exercise
date, the optionee may elect, pursuant to Section 83(b) of the Code, to have the
exercise date be the determination date by filing an election with the Internal
Revenue Service not later than 30 days after the date the option is exercised.
Upon the sale of stock acquired by the exercise of a nonstatutory stock option,
any gain or loss, based on the difference between the sale price and the fair
market value on the determination date, will be taxed as capital gain or loss.
A capital gain or loss will be long term or mid-term if the optionee's holding
period is more than 12 months. No tax deduction is available to the Company
with respect to the grant of a nonstatutory stock option or the sale of the
stock acquired pursuant to such grant. The Company generally should be entitled
to a deduction equal to the amount of ordinary income recognized by the optionee
as a result of the exercise of a nonstatutory stock option, except to the extent
such deduction is limited by applicable provisions of the Code or the
regulations thereunder.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes cast at the Annual Meeting
of Stockholders, at which a quorum is present and voting, either in person or by
proxy, is required for approval of this proposal. Abstentions will have the
same effect as a negative vote. Broker non-votes, on the other hand, will have
no effect on the outcome of the vote.
The Board of Directors believes that the amendments to increase in the
share reserve of the 1994 Option Plan and to increase the size of the
Re-election Grant are in the best interests of the stockholders and the Company
for the reasons stated above. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" APPROVAL OF THE INCREASE IN THE SHARE RESERVE OF THE
1994 STOCK OPTION PLAN AND THE INCREASE IN THE SIZE OF THE RE-ELECTION GRANT.
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected Coopers & Lybrand,
L.L.P.,PricewaterhouseCoopers,
LLP, as independent accountants to audit the financial statements of the Company
for the fiscal year ending December 31, 1998.1999. A representative of
Coopers & Lybrand, L.L.P.PricewaterhouseCoopers, LLP is expected to be present at the Annual Meeting with
the opportunity to make a statement if the representative desires to do so, and
is expected to be available to respond to appropriate questions.
The affirmative vote of a majority of the votes cast at the Annual Meeting
of Stockholders, at which a quorum is present and voting, either in person or by
proxy, is required for approval of this proposal. Abstentions and broker
non-votes will have no effect on the outcome of the vote. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF COOPERS &
LYBRAND, L.L.P.,PRICEWATERHOUSECOOPERS,
LLP, AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1998.
22
1999.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of stockholders intendedCompany has an advance notice provision in its bylaws for stockholder
business to be presented at annual meetings of stockholders. This provision
states that in order for stockholder business to be properly brought before a
meeting by a stockholder, such stockholder must have given timely notice in
writing to the Secretary of the Company. In order to be timely, a stockholder
proposal for the next Annual Meeting of the Stockholders of the Company must be
received byat the Company at
itsCompany's offices at 9855 Scranton Road, San Diego, California,
92121, not later than December 14, 199813, 1999.
Stockholder proposals to be included in the Company's proxy statement for
the next Annual Meeting of Stockholders of the Company must be received by the
Company not later than December 13, 1999 and satisfy the conditions established by
the SEC for stockholder proposals to be included in the Company's proxy
statement for that meeting.
23
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of proxy to vote the proxy on such matters in
accordance with their best judgment.
By Order of the Board of Directors
JAMES L. KEEFE
SECRETARY
April 16, 1998
2312, 1999
24
APPLIED DIGITAL ACCESS, INC.
AMENDED AND RESTATED
1994 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
This 1994 Stock Option/Stock Issuance Plan ("Plan") is intended to promote
the interests of Applied Digital Access, Inc., a California corporation (the
"Corporation"), by providing (i) key employees (including officers) of the
Corporation (or its parent or subsidiary corporations) who are responsible for
the management, growth and financial success of the Corporation (or its parent
or subsidiary corporations), (ii) Directors and (iii) consultants and other
independent contractors who provide valuable services to the Corporation (or its
parent or subsidiary corporations) with the opportunity to acquire a proprietary
or increase their proprietary interest in the Corporation as an incentive for
them to remain in the service of the Corporation (or its parent or subsidiary
corporations).
II. GENERAL
A. The Plan shall become effective on the first date on which shares of
the Corporation's common stock are registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). Such date is
hereby designated as the "Effective Date" of this Plan.
B. This Plan shall serve as the successor to the Corporation's 1988 Stock
Option Plan and the Restricted Stock Purchase Plan (together, the "Predecessor
Plans"), and no further option grants or share issuances shall be made under the
Predecessor Plans from and after the Effective Date. Each outstanding option or
share issuances under the Predecessor Plans immediately prior to the Effective
Date are hereby incorporated into this Plan and shall accordingly be treated as
outstanding options or share issuance under this Plan. However, each such
option or share issuance shall continue to be governed solely by the terms and
conditions of the instrument evidencing such grant or issuance, and, except as
otherwise expressly provided herein, no provision of this Plan shall affect or
otherwise modify the rights or obligations of the holders of such incorporated
options or shares with respect to their acquisition of shares of the
Corporation's common stock or otherwise modify the rights or obligations of the
holders of such options or shares.
C. For purposes of this Plan, the following provisions shall be
applicable in determining the parent and subsidiary corporations of the
Corporation:
Any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation
shall
be considered to be a PARENT of the Corporation, provided each such
corporation in the unbroken chain (other than the Corporation) owns,
at the time of the determination, stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the
Corporation shall be considered to be a SUBSIDIARY of the
Corporation, provided each such corporation (other than the
last corporation) in the unbroken chain owns, at the time of
the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
D. Neither the grant of options nor the issuance of any shares pursuant
to this Plan shall in any 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.
E. The holder of an option grant under this Plan shall have none of the
rights of a shareholder with respect to any shares subject to such option until
such individual shall have exercised the option, paid the exercise price for the
purchased shares and been issued a stock certificate for such shares.
III. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate components: the
Discretionary Option Grant Program specified in Article Two; the Automatic
Option Grant Program specified in Article Three; and the Stock Issuance Program
specified in Article Four. Under the Discretionary Option Grant Program,
eligible individuals may be granted options to purchase shares of the
Corporation's common stock at not less than 85% of the fair market value of such
shares on the grant date. Under the Automatic Option Grant Program,
non-employee Directors will automatically be granted options to purchase Common
Stock of the Corporation at 100% of the fair market value on the grant date.
Under the Stock Issuance Program, eligible individuals may be allowed to
purchase shares of the Corporation's common stock at discounts from the fair
market value of such shares of up to 15%. Such shares may be issued as
fully-vested shares or as shares to vest over time.
B. The provisions of Articles One and Five of the Plan, except as
otherwise expressly provided, shall apply to both the Discretionary Option Grant
Program, the Automatic Option Grant Program and the Stock Issuance Program and
shall accordingly govern the interests of all individuals in the Plan.
2
ADMINISTRATION OF THE PLAN
A. This Plan shall be administered by a committee ("Committee") of two
(2) or more non-employee Board members who assume full responsibility for the
administration of the Plan (the "Plan Administrator"). Members of the Committee
shall serve for such period of time as the Board may determine and shall be
subject to removal by the Board at any time.
B. The Plan Administrator shall have full power and authority (subject to
the express provisions of the Plan) to establish such rules and regulations as
it may deem appropriate for the proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding option grants or stock issuances as it may deem necessary or
advisable. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Plan or any outstanding option or stock
issuance.
C. Notwithstanding the above, the administration of the Automatic Option
Grant Program under Article Three shall be self executing in accordance with the
terms and conditions thereof and the Plan Administrator shall not exercise any
discretionary functions in respect to matters governed by Article Three.
V. OPTION GRANTS AND STOCK ISSUANCES
A. The persons eligible to receive stock issuances under the Stock
Issuance Program ("Participant") and/or option grants pursuant to the
Discretionary Option Grant Program ("Optionee") are as follows:
1. Officers and other key employees of the Corporation (or its
parent or subsidiary corporations) who render services which contribute to the
management, growth and financial success of the Corporation (or its parent or
subsidiary corporations);
2. Those consultants or other independent contractors who provide
valuable services to the Corporation (or its parent or subsidiary corporations).
B. The individuals who will receive option grants under the Automatic
Option Grant Program are (i) those individuals who are elected, re-elected or
appointed as non-employee Board members on or after the Effective Date of this
Plan, provided they have not otherwise been in the prior employ of the
Corporation (or any parent or subsidiary corporation) within the preceding
two-year period.
Except for option grants under the Automatic Option Grant Program,
non-employee members of the Board shall NOT be eligible to participate in the
Discretionary Option Grant or Stock Issuance Programs under the Plan or in any
other stock option, stock purchase, stock bonus or other stock plan of the
Corporation (or its parent or subsidiary corporations).
C. The Plan Administrator shall have full authority to determine,
(i) with respect to the option grants made under the Discretionary Option Grant
Program, which eligible individuals are to receive option grants, the number of
shares to be covered by each such grant, whether the granted option is to be an
incentive stock option ("Incentive Option") which satisfies the
3
requirements of Section 422 of the Internal Revenue Code or a non-statutory
option not intended to meet such requirements, the time or times at which and
the circumstances under which each granted option is to become exercisable and
the maximum term for which the option may remain outstanding, and (ii) with
respect to stock issuances under the Stock Issuance Program, the number of
shares to be issued to each Participant, the vesting schedule and conditions to
vesting (if any) to be applicable to the issued shares, and the consideration to
be paid by the individual for such shares. The Plan Administrator shall have no
discretion with regard to the Automatic Option Grant Program. The Plan
Administrator shall not have the discretion to affect in material fashion any
option grants or the terms of any option under the Automatic Option Grant
Program.
D. Notwithstanding any other provision of this Plan, no individual shall
be granted options to acquire more than one million (1,000,000) shares of stock
hereunder.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of the Corporation's Common Stock shall be available for
issuance under the Plan and shall be drawn from either the Corporation's
authorized but unissued shares of Common Stock or from reacquired shares of
Common Stock, including shares repurchased by the Corporation on the open
market. The maximum number of shares of Common Stock which may be issued over
the term of the Plan shall not exceed 4,100,000 shares (including (i) shares
issued under the Predecessor Plans and (ii) shares reserved for issuance under
the options granted under the Predecessor Plans), subject to adjustment from
time to time in accordance with the provisions of this Section VI.
B. Should one or more outstanding options under this Plan (including
outstanding options under the Predecessor Plans incorporated into this Plan)
expire or terminate for any reason prior to exercise in full (including any
option cancelled in accordance with the cancellation-regrant provisions of
Section III of Article Two of the Plan), then the shares subject to the portion
of each option not so exercised shall be available for subsequent option grant
or share issuance under this Plan. Shares subject to any option or portion
thereof surrendered or cancelled in accordance with Section I.D of Article Five
and all shares issuances under the Plan, whether or not such shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan or otherwise surrendered for cancellation, shall reduce on a
share-for-share basis the number of shares of the same class of Common Stock
available for subsequent option grant or stock issuance under the Plan. In
addition, should the exercise price of an outstanding 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 outstanding
option 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.
C. In the event any change is made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares, conversion or other change affecting the
outstanding Common Stock, or any class of Common Stock as a class, without the
Corporation's receipt of consideration, then appropriate adjustments shall be
made to (i) the number and/or class of shares issuable under the Plan, (ii) the
4
number and/or class of shares and price per share in effect under each
outstanding option under this Plan (including outstanding options incorporated
into this Plan from the Predecessor Plans). 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.
Common Stock issuable under the Discretionary Option Grant Program or the Stock
Issuance Program may be subject to such restrictions on transfer, repurchase
rights or such other restrictions as determined by the Plan Administrator.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted to Employees of the Corporation or its parent or subsidiary
corporations pursuant to this Article Two shall be authorized by action of the
Plan Administrator and may, at the Plan Administrator's discretion, be either
Incentive Options or non-statutory options. Individuals who are not Employees
of the Corporation or its parent or subsidiary corporations may only be granted
non-statutory options. Each granted option shall be evidenced by one or more
instruments in the form approved by the Plan Administrator; PROVIDED, however,
that each such instrument shall comply with the terms and conditions specified
below. Each instrument evidencing an Incentive Option shall, in addition, be
subject to the applicable provisions of Section II of this Article Two.
A. OPTION PRICE.
1. IN GENERAL. The option price per share shall be fixed by the
Plan Administrator. In no event, however, shall the price for any share be less
than eighty-five percent (85%) of the fair market value of that share on the
date of the option grant.
2. 10% SHAREHOLDER. If any individual to whom an option is granted
is the owner of stock (as determined under Section 424(d) of the Internal
Revenue Code) possessing 10% or more of the total combined voting power of all
classes of stock of the Corporation or any one of its parent or subsidiary
corporations, then the option price per share shall not be less than one hundred
and ten percent (110%) of the fair market value per share of Common Stock on the
grant date.
3. HOW PAYABLE. The option price shall become immediately due upon
exercise of the option and, subject to the provisions of Article Five,
Section III and the instrument evidencing the grant, shall be payable in one of
the following alternative forms specified below:
(a) full payment in cash or check drawn to the Corporation's
order;
5
(b) full payment in shares of Common Stock held for at least six
(6) months and valued at fair market value on the Exercise Date (as such term is
defined below);
(c) full payment in a combination of shares of Common Stock held
for at least six (6) months and valued at fair market value on the Exercise Date
and cash or check; or
(d) full payment through a broker-dealer sale and remittance
procedure pursuant to which the Optionee (i) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate option
price payable for the purchased shares plus all applicable Federal and State
income and employment taxes required to be withheld by the Corporation in
connection with such purchase and (ii) shall provide written directives to the
Corporation to deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale transaction.
For purposes of this subparagraph (iii), the Exercise Date shall be
the date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure is utilized
in connection with the exercise of the option, payment of the option price for
the purchased shares must accompany such notice.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under this
Article Two shall have such term as may be fixed by the Plan Administrator, be
exercisable at such time or times and during such period, and on such
conditions, as is determined by the Plan Administrator and set forth in the
stock option agreement evidencing the grant. No such option, however, shall
have a maximum term in excess of ten (10) years from the grant date and no
option granted to a 10% shareholder shall have a maximum term in excess of five
(5) years from the grant date. During the lifetime of the Optionee, the option
(together with any related stock appreciation right) shall be exercisable only
by the Optionee and shall not be assignable or transferable by the Optionee
otherwise than by will or by the laws of descent and distribution following the
Optionee's death.
C. TERMINATION OF SERVICE.
1. Except to the extent otherwise provided pursuant to Section V of
this Article Two, the following provisions shall govern the exercise period
applicable to any outstanding options under this Article Two which are held by
the Optionee at the time of his or her cessation of Service or death.
(a) Should an Optionee's Service terminate for any reason
(including death or permanent disability as defined in Section 22(e)(3) of the
Internal Revenue Code) while the holder of one or more outstanding options under
the Plan, then none of those options shall (except to the extent otherwise
provided pursuant to Section V of this Article Two) remain exercisable beyond
the later of (i) the limited post-Service period designated by the Plan
Administrator at the time of the option grant and set forth in the option
agreement; or (ii) (A) ninety (90) days from the date of termination if
termination was caused by other than the death or disability (as defined in
Section 22(e)(3) of the Internal Revenue Code) of such Optionee
6
or (B) twelve (12) months from the date of termination if termination was caused
by death or disability of Optionee.
(b) Any option granted to an Optionee under this Article Two and
exercisable in whole or in part on the date of the Optionee's 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,
PROVIDED AND ONLY IF such exercise occurs prior to the EARLIER of (i) the first
anniversary of the date of the Optionee's death or (ii) the specified expiration
date of the option term. Upon the occurrence of the earlier event, the option
shall terminate and cease to be exercisable.
(c) Under no circumstances, however, shall any such option be
exercisable after the specified expiration date of the option term.
(d) During the limited post-Service period of exercisability,
the option may not be exercised for more than the number of shares for which the
option is exercisable on the date the Optionee's Service terminates. Upon the
expiration of such limited exercise period or (if earlier) upon the expiration
of the option term, the option shall terminate and cease to be exercisable.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to permit one or more options held by the Optionee
under this Article Two to be exercised, during the limited period of
exercisability provided under subparagraph (1) above, not only with respect to
the number of shares for which each such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
subsequent installments of purchasable shares for which the option would
otherwise have become exercisable had such cessation of Service not occurred.
3. For purposes of the foregoing provisions of this Section I.C of
Article Two (and for all other purposes under the Plan):
(a) The Optionee shall (except to the extent otherwise
specifically provided in the applicable option or issuance agreement) be deemed
to remain in the SERVICE of the Corporation for so long as such individual
renders services on a periodic basis to the Corporation (or any parent or
subsidiary corporation) in the capacity of an Employee, a non-employee member of
the Board or an independent consultant or advisor.
(b) The Optionee shall be considered to be an EMPLOYEE for so
long as he or she remains in the employ of the Corporation or one or more parent
or subsidiary corporations, subject to the control and direction of the employer
entity not only as to the work to be performed but also as to the manner and
method of performance.
7
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article two. Incentive Options May only be
granted to individuals who Are Employees of the Corporation. Options which are
specifically designated as "non-statutory" options when issued under the plan
shall NOT be subject to such terms and conditions.
A. OPTION PRICE. The option price per share of any share of Common Stock
Subject to an incentive option shall in no event be less than one hundred
percent (100%) of the fair market value of such share of Common Stock on the
grant date.
B. DOLLAR LIMITATION. The aggregate fair market value (determined as of
the respective date or dates of grant) of the Common Stock for which one or more
options granted to any Employee after December 31, 1986 under this Plan (or any
other option plan of the Corporation or its parent or subsidiary corporations)
may for the first time become exercisable as incentive stock options under the
Federal tax laws during any one calendar year shall not exceed the sum of One
Hundred Thousand Dollars ($100,000). To the extent the Employee holds two 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 Under the Federal tax laws shall be applied on the basis of
the order in which such options are granted.
C. Except as modified by the preceding provisions of this Section II, The
provisions of Articles One, Two and Five of the Plan shall apply to all
Incentive Options granted hereunder.
III. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected Optionees, the cancellation
of any or all outstanding options under this Article Two (including outstanding
options under the Predecessor Plans incorporated into this Plan) and to grant in
substitution new options under this Article Two covering the same or different
numbers of shares of Common Stock but having an option price for each share
which is not less than (i) eighty-five percent (85%) of the fair market value of
such share on the new grant date or (ii) one hundred percent (100%) of such fair
market value in the case of an Incentive Option.
IV. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this
Section IV, one or more Optionees under the Discretionary Option Grant Program
may be granted the right, exercisable upon such terms and conditions as the Plan
Administrator may establish, to surrender all or part of an unexercised option
under this Article Two in exchange for a distribution from the Corporation in an
amount equal to the excess of (i) 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 (ii) the aggregate
option price payable for such vested shares.
8
B. No surrender of an option shall be effective hereunder unless it is
approved by the Plan Administrator. If the surrender is so approved, then the
distribution to which the Optionee shall accordingly become entitled under this
Section IV may be made in shares of any class 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.
C. If the surrender of an option is rejected by the Plan Administrator,
then the Optionee shall retain whatever rights the Optionee had under the
surrendered option (or surrendered portion thereof) on the option surrender date
and may exercise such rights at any time prior to the LATER of (i) five (5)
business days after the receipt of the rejection notice or (ii) the last day on
which the option is otherwise exercisable in accordance with the terms of the
instrument evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the date of the option grant.
D. One or more officers of the Corporation subject to the short-swing
profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under this Article Two. Upon the
occurrence of a Hostile Take-Over (as defined in Section II.B of Article Five)
effected at any time when the Corporation's outstanding Common Stock is
registered under Section 12(g) of the 1934 Act, each outstanding option with
such a limited stock appreciation right in effect for at least six (6) months
shall automatically be cancelled, to the extent such option is at the time
exercisable for fully-vested shares of Common Stock. 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 vested shares of Common
Stock at the time subject to the cancelled option (or cancelled portion of such
option) over (ii) the aggregate exercise price payable for such shares. The
cash distribution payable upon such cancellation shall be made within five (5)
days following the consummation of the Hostile Take-Over. Neither the approval
of the Plan Administrator nor the consent of the Board shall be required in
connection with such option cancellation and cash distribution. The balance of
the option (if any) shall continue to remain outstanding and exercisable in
accordance with the terms of the instrument evidencing such grant.
E. The shares of Common Stock subject to any option surrendered or
cancelled for an appreciation distribution pursuant to this Section IV shall NOT
be available for subsequent option grant under the Plan.
V. EXTENSION OF EXERCISE PERIOD
The Plan Administrator shall have full power and authority to extend the
period of time for which any option granted under this Article Two is to remain
exercisable following the Optionee's cessation of Service or death from the
limited period in effect under Section I.C.1 of this Article Two to such greater
period of time as the Plan Administrator shall deem appropriate; PROVIDED,
however, that in no event shall such option be exercisable after the specified
expiration date of the option term.
9
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. GRANT OF OPTIONS. Option grants will be made automatically to each
non-employee Board member who has not otherwise been in the prior employ of the
Corporation during the preceding two years, on the Effective Date and each time
such person is elected, re-elected, appointed or reappointed to the Board after
the Effective Date. Each such person shall automatically be granted a
nonstatutory option to purchase (i) 7,500 on the Effective Date if such person
is a non-employee Board member on such Date ("Effective Date Grants");
(ii) 15,000 shares if such person is first elected or appointed as a
non-employee Board member after the Effective Date on the date of such first
election or appointment ("First Election Grants"); and (iii) 10,000 shares to
each such person each time he or she is reelected to the Board during or after
May 1997 on the date of such reelection ("Reelection Grants"). The number of
shares granted pursuant to this Automatic Grant Program shall be subject to
periodic adjustment pursuant to the applicable provisions of Section VI.C of
Article One."
B. EXERCISE PRICE. The exercise price per share of each automatic option
grant made under this Article Three shall be equal to one hundred percent (100%)
of the fair market value per share of Common Stock on the grant date.
C. PAYMENT. The exercise price shall be payable in one of the
alternative forms specified below:
1. Full payment in cash or check drawn to the Corporation's order;
2. Full payment in shares of Common Stock held for at least six (6)
months and valued at fair market value on the Exercise Date (as such term is
defined below);
3. Full payment in a combination of shares of Common Stock held for
at least six (6) months and valued at fair market value on the Exercise Date and
cash or check; or
4. Full payment through a broker-dealer sale and remittance
procedure pursuant to which the non-employee Board member (A) shall provide
irrevocable written instructions to a designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to cover the
aggregate option price payable for the purchased shares plus all applicable
Federal and state income taxes required to be withheld by the Corporation in
connection with such purchase and (B) shall provide written directives to the
Corporation to deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale transaction.
For purposes of this Section I.C of Article Three, the Exercise Date shall
be the date on which written notice of the option exercise is delivered to the
Corporation, and the fair market value per share of Common Stock on any relevant
date shall be determined in accordance with the
10
provisions of Section II.A of Article Five. Except to the extent the sale and
remittance procedure is utilized in connection with the exercise of the option,
payment of the option price for the purchased shares must accompany such notice.
D. OPTION TERM. Each automatic grant under this Article Three shall have
a maximum term of ten (10) years measured from the automatic grant date.
E. EXERCISABILITY. Each Effective Date Grant shall become exercisable in
a series of forty-eight (48) equal monthly installments during the optionee's
period of service on the Board, with the first such installment to become
exercisable one month after the automatic grant date. Each First Election Grant
shall become exercisable as to twenty-five percent of the shares (25%) one year
from the automatic grant date, and in a series of thirty-six (36) equal monthly
installments during the optionee's period of service on the Board, with the
first of such installment to become exercisable one year and one month after the
automatic grant date. Each Reelection Grant shall become exercisable one year
from the automatic grant date. No option shall become exercisable for any
additional option shares following the optionee's cessation of Board service for
any reason.
F. NON-TRANSFERABILITY. During the lifetime of the optionee, each
automatic option grant, together with the limited stock appreciation right
pertaining to such option, if any, shall be exercisable only by the optionee and
shall not be assignable or transferable by the optionee other than a transfer of
the option effected by will or by the laws of descent and distribution following
optionee's death.
G. EFFECT OF TERMINATION OF BOARD MEMBERSHIP.
Should the optionee cease to serve as a Board member for any reason
(other than death) while holding one or more automatic option grants under this
Article Three, then such optionee shall have a six (6) month period following
the date of such cessation of Board membership in which to exercise each such
option for any or all of the shares of Common Stock for which the option is
exercisable at the time of such cessation of Board service. Each such option
shall immediately terminate and cease to be outstanding, at the time of such
cessation of Board service, with respect to any shares for which the option is
not otherwise at that time exercisable.
Should the optionee die while serving as a member of the Board or
within six (6) months after cessation of Board service, then each outstanding
automatic option grant held by the optionee at the time of death may
subsequently be exercised, for any or all of the shares of Common Stock for
which the option is exercisable at the time of the optionee's cessation of Board
service (less any option shares subsequently purchased by the optionee prior to
death), by the personal representative of the optionee's estate or by the person
or persons to whom the option is transferred pursuant to the optionee's will or
in accordance with the laws of descent and distribution. Any such exercise must
occur within twelve (12) months after the date of the optionee's death.
However, each such automatic option grant shall immediately terminate and cease
to be outstanding, at the time of the optionee's cessation of Board service,
with respect to any option shares for which it is not otherwise at such time
exercisable.
11
In no event shall any automatic grant under this Article Three remain
exercisable after the specified expiration date of the ten (10)-year option
term. Upon the expiration of the applicable exercise period in accordance with
subparagraphs 1 and 2 above or (if earlier) upon the expiration of the ten (10)
year option term, the automatic grant shall terminate and cease to be
outstanding for any unexercised shares for which the option was exercisable at
the time of the optionee's cessation of Board service.
II. LIMITED STOCK APPRECIATION RIGHT.
A. Upon the occurrence of a Hostile Take-Over (as defined in Section II.B
of Article Five), each non-employee Board member holding an automatic option
grant which has been outstanding under this Article Three for a period of at
least six (6) months shall have the unconditional right (exercisable for a
thirty (30)-day period following such Hostile Take-Over) to surrender such
option in return for 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 option is otherwise
at the time exercisable for such shares) over (ii) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five (5)
days following the option surrender date. Neither the approval of the Plan
Administrator nor the consent of the Board shall be required in connection with
such option surrender and cash distribution.
B. The shares of Common Stock subject to each option surrendered in
connection with the Hostile Take-Over shall NOT be available for subsequent
issuance under this Plan.
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate purchases without any intervening stock option
grants. The issued shares shall be evidenced by a Stock Issuance Agreement
("Issuance Agreement") that complies with the terms and conditions of this
Article Four.
A. CONSIDERATION. Shares of Common Stock shall be issued under the Plan
for one or more of the following items of consideration, which the Plan
Administrator may deem appropriate in each individual instance:
1. Cash or cash equivalents (such as a personal check or bank draft)
paid the Corporation;
2. In common stock of the Corporation valued at fair market value on
the date of issuance;
12
3. A promissory note payable to the Corporation's order in one or
more installments, which may be subject to cancellation in whole or in part upon
terms and conditions established by the Plan Administrator;
4. Past services rendered to the Corporation or any parent or
subsidiary corporation;
5. Any combination of the above approved by the Plan Administrator.
Shares may, in the absolute discretion of the Plan Administrator, be
issued for consideration with a value less than one-hundred percent (100%) of
the fair market value of such shares, but in no event less than eighty-five
percent (85%) of such fair market value. Notwithstanding the foregoing, in the
case of 10% shareholders, Shares must be issued at one hundred percent (100%) of
fair market value of such shares.
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under this Article Four may, in the
absolute discretion of the Plan Administrator, be fully and immediately vested
upon issuance or may vest in one or more installments over the Participant's
period of Service (as such term is defined in Section I.C.3 of Article Two);
provided, that such vesting must be at a rate of at least 20% per year over no
more than five years from the date such shares are issued. The elements of the
vesting schedule applicable to any unvested shares of Common Stock issued under
the Plan, namely:
(a) the Service period to be completed by the Participant or the
performance objectives to be achieved by the Corporation,
(b) the number of installments in which the shares are to vest,
(c) the interval or intervals (if any) which are to lapse
between installments,
(d) any conditions or contingencies to vesting, and
(e) the effect which death, disability or other event designated
by the Plan Administrator is to have upon the vesting schedule, shall be
determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued.
2. The Participant shall have full shareholder rights with respect
to any shares of Common Stock issued to him or her under this Article Four,
whether or not his or her interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to receive any regular
cash dividends paid on such shares. Any new, additional or different shares of
stock or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to
his or her unvested shares by reason of any stock dividend, stock split,
reclassification of Common Stock or other similar change in the
13
Corporation's capital structure or by reason of any Corporate Transaction under
Section I of this Article Four shall be issued, subject to (i) the same vesting
requirements applicable to his or her unvested shares and (ii) such escrow
arrangements as the Plan Administrator shall deem appropriate.
3. Should the Participant cease to remain in Service while holding
one or more unvested shares of Common Stock under this Article Four, 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. The Corporation shall repay to the Participant the cash consideration
paid for the surrendered shares and shall cancel the principal balance of any
outstanding purchase-money note of the Participant to the extent attributable to
such surrendered shares. The surrendered shares may, at the Plan
Administrator's discretion, be retained by the Corporation as Treasury Shares or
may be retired to authorized but unissued share status.
4. The Plan Administrator may in its discretion elect to waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
II. TRANSFER RESTRICTIONS/SHARE ESCROW
A. Unvested shares under this Article Four may, in the Plan
Administrator's discretion, be held in escrow by the Corporation until the
Participant's interest in such shares vests or may be issued directly to the
Participant with restrictive legends on the certificates evidencing such
unvested shares. To the extent an escrow arrangement is utilized, the unvested
shares and any securities or other assets issued with respect to such shares
(other than regular cash dividends) shall be delivered in escrow to the
Corporation to be held until the Participant's interest in such shares (or other
securities or assets) vests. Alternatively, if the unvested shares are issued
directly to the Participant, the restrictive legend on the certificates for such
shares shall read substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND
ARE ACCORDINGLY SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS
AND TO (II) CANCELLATION OR REPURCHASE IN THE EVENT THE
REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN INTEREST)
CEASES TO REMAIN IN THE CORPORATION'S SERVICE. SUCH
TRANSFER RESTRICTIONS AND THE TERMS AND CONDITIONS OF SUCH
CANCELLATION OR REPURCHASE ARE SET FORTH IN A STOCK ISSUANCE
AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER
(OR HIS/HER PREDECESSOR IN
14
INTEREST) DATED __________, 19__, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION."
B. The Participant shall have no right to transfer any unvested shares of
Common Stock issued to him or her under this Article Four. For purposes of this
restriction, the term "transfer" shall include (without limitation) any sale,
pledge, assignment, encumbrance, gift, or other disposition of such shares,
whether voluntary or involuntary. Upon any such attempted transfer, the
unvested shares shall immediately be cancelled, and neither the Participant nor
the proposed transferee shall have any rights with respect to those shares.
However, the Participant shall have the right to make a gift of unvested shares
acquired under the Plan to his or her spouse or issue, including adopted
children, or to a trust established for such spouse or issue, provided the donee
of such shares delivers to the Corporation a written agreement to be bound by
all the provisions of the Plan and the Issuance Agreement applicable to the
gifted shares.
ARTICLE FIVE
MISCELLANEOUS
I. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. Each outstanding option which is assumed in connection with a
Corporate Transaction or is otherwise to continue in effect following a
Corporate Transaction (as defined below) shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply and pertain to the number
and class of securities which would be issuable, in consummation of such
Corporate Transaction, to an actual holder of the same number of shares of
Common Stock as are subject to such option immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the option price
payable per share, provided the aggregate option price payable for such
securities shall remain the same. Appropriate adjustments shall also be made to
the class and number of securities available for issuance under the Plan
following the consummation of such Corporate Transaction.
B. In the event of any Corporate Transaction (as defined below) the
exercisability of each option grant at the time outstanding under this Plan
which is not continued under paragraph A hereof shall automatically accelerate
so that each such option shall, immediately prior to the specified effective
date for the Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of such shares. Upon the consummation
of the Corporate Transaction, all option grants under this Plan shall terminate
and cease to be outstanding. The Plan Administrator may, in its discretion,
extend the provisions of this Paragraph B to options outstanding under the
Predecessor Plans.
15
C. A Corporate Transaction means:
1. a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which
is to change the State of the Corporation's incorporation,
2. the sale, transfer or disposition of all or substantially all of
the assets of the Corporation in liquidation or dissolution of the
Corporation, or
3. any reverse merger in which the Corporation is the surviving
entity but in which the holders of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities (as measured immediately prior to such merger)
transfer ownership of those securities to person or persons not otherwise
part of the transferor group.
D. Except as otherwise provided by the Plan Administrator in agreements
governing the grant of discretionary option grants or stock issuances, in
connection with any Change in Control of the Corporation, the exercisability of
each option grant at the time outstanding under this Plan shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for the Change in Control, become fully exercisable with respect
to the total number of shares of Common Stock at the time subject to such option
and may be exercised for all or any portion of such shares. Similarly, all
unvested shares issued under the Plan shall automatically vest immediately prior
to the effective date of the Change in Control. For purposes of this Article
Five, a Change in Control shall be deemed to occur in the event:
1. 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) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's shareholders which the Board does not recommend such
shareholders to accept; or
2. There is a change in the composition of the Board over a period
of twenty-four (24) consecutive months or less such that a majority of the Board
members (rounded up to the next whole number) cease, by reason of one or more
proxy contests for the election of Board members, to be comprised of individuals
who either (A) have been Board members continuously since the beginning of such
period or (B) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members described in
clause (A) who were still in office at the time such election or nomination was
approved by the Board.
The provisions of this Paragraph D shall apply to option grants and/or stock
issuances under the Predecessor Plans only to the extent expressly extended
thereto by the Plan Administrator.
16
II. CERTAIN DEFINITIONS
A. FAIR MARKET VALUE. The fair market value of a share of Common Stock
shall be determined in accordance with the following provisions:
1. If shares of the Class of Common Stock to be valued are not at
the time listed or admitted to trading on any national stock exchange but is
traded on the NASDAQ National Market System, the fair market value shall be the
closing selling price per share of a share of that class on the date in
question, as such price is reported by the National Association of Securities
Dealers through the NASDAQ National Market System or any successor system. If
there is no reported closing selling price for the series on the date in
question, then the closing selling price on the last preceding date for which
such quotation exists shall be determinative of fair market value.
2. If shares of the class of common stock to be valued are at the
time listed or admitted to trading on any national stock exchange, then the fair
market value of a share of that class shall be the closing selling price per
share 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 reported sale of a share of the class on such exchange on the date
in question, then the fair market value shall be the closing selling price on
the exchange on the last preceding date for which such quotation exists.
3. If shares of the series of common stock to be valued at the time
are neither listed nor admitted to trading on any stock exchange nor traded on
the NASDAQ National Market System, then the fair market value shall be
determined by the Plan Administrator after taking into account such factors as
the Plan Administrator shall deem appropriate, which may include independent
professional appraisals, in a manner consistent with the provisions of Section
260.140.50 of the Rules of the California Corporations Commissioner.
B. HOSTILE TAKE-OVER. A HOSTILE TAKE-OVER shall be deemed to occur in
the event (i) 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) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of
1934, as amended) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
shareholders which the Board does not recommend such shareholders to accept.
C. TAKE-OVER PRICE. The Take-Over Price per share shall be deemed to be
equal to the GREATER of (a) the fair market value per share on the option
surrender date, as determined pursuant to the valuation provisions of
Section II.A of this Article Five, or (b) the highest reported price per share
paid by the tender offeror in effecting such Hostile Take-Over.
17
III. LOANS OR GUARANTEE OF LOANS
A. The Plan Administrator may, in its discretion, assist any Optionee or
Participant (including an Optionee or Participant who is an officer of the
Corporation) in the exercise of one or more options granted to such Optionee
under the Article Two Discretionary Option Grant Program or the purchase of one
or more shares issued to such Participant under the Article Four Stock Issuance
Program, including the satisfaction of any Federal and State income and
employment tax obligations arising therefrom by (i) authorizing the extension of
a loan from the Corporation to such Optionee or Participant or (ii) permitting
the Optionee or Participant to pay the option price or purchase price for the
purchased Common Stock in installments over a period of years. The terms of any
loan or installment method of payment (including the interest rate and terms of
repayment) will be upon such terms as the Plan Administrator specifies in the
applicable option or issuance agreement or otherwise deems appropriate under the
circumstances. Loans and installment payments may be granted with or without
security or collateral (other than to individuals who are consultants or
independent contractors, in which event the loan must be adequately secured by
collateral other than the purchased shares). However, the maximum credit
available to the Optionee or Participant may not exceed the option or purchase
price of the acquired shares (less the par value of such shares) plus any
Federal and State income and employment tax liability incurred by the Optionee
or Participant in connection with the acquisition of such shares.
B. The Plan Administrator may, in its absolute discretion, determine that
one or more loans extended under this financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator may deem appropriate.
IV. TAX WITHHOLDING
A. The Company's obligation to deliver shares or cash upon the exercise
of stock options or stock appreciation rights granted under the Discretionary
Option Grant Program or the Automatic Option Grant Program or upon direct
issuance under the Stock Issuance Program 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 and upon such terms and
conditions as it may deem appropriate (including the applicable safe-harbor
provisions of SEC Rule 16b-3) provide any or all holders of outstanding option
grants under the Discretionary Option Grant Program with the election to have
the Company withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such options, a portion of such shares with an aggregate fair
market value equal to the designated percentage (up to 100% as specified by the
optionee) of the Federal and State income taxes ("Taxes") incurred in connection
with the acquisition of such shares. In lieu of such direct withholding, one or
more option holders may also be granted the right to deliver shares of Common
Stock to the Company in satisfaction of such Taxes. The withheld or delivered
shares shall be valued at the Fair Market Value on the applicable determination
date for such Taxes or such other date required by the applicable safe-harbor
provisions of SEC Rule 16b-3.
18
V.
AMENDMENT OF THE PLAN AND AWARDS
A. Except as herein provided, the Board has complete and exclusive power
and authority to amend or modify the Plan (or any component thereof) in any or
all respects whatsoever. No amendment or modification may adversely affect the
rights and obligations of an Optionee with respect to options at the time
outstanding under the Plan, nor adversely affect the rights of any Participant
with respect to Common Stock issued under the Plan prior to such action, unless
the Optionee or Participant consents to such amendment. In addition, the Board
may not, without the approval of the Corporation's shareholders, amend the Plan
to (i) materially increase the maximum number of shares issuable under the Plan
(except for permissible adjustments under Article One, Section VI) or (ii)
materially modify the eligibility requirements for participation in the Plan or
materially increase the benefits accruing to Optionees or Participants under the
Plan.
B. Notwithstanding Article Five, Section V.A, neither the provisions of
the Automatic Option Grant Program nor the options outstanding under Article
Three may be amended at intervals more frequently than once every six (6)
months, other than to the extent necessary to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act or any rules
thereunder.
C. (i) Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program and (ii) shares of Common Stock may be
issued under the Stock Issuance Program, which are in both instances in excess
of the number of shares then available for issuance under the Plan, provided any
excess shares actually issued under the Option Grant Program or the Stock
Issuance Program are held in escrow until shareholder approval is obtained for a
sufficient increase in the number of shares available for issuance under the
Plan. If such shareholder approval is not obtained within twelve (12) months
after the date the first such excess option grants or excess share issuances are
made, then (I) any unexercised excess options shall terminate and cease to be
exercisable and (II) the Corporation shall promptly refund the purchase price
paid for any excess shares actually issued under the Plan and held in escrow,
together with interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow.
VI. EFFECTIVE DATE AND TERM OF PLAN
A. This Plan, as successor to the Company's Predecessor Plans, shall
become effective as of the Effective Date, and no further option grants shall be
made under the Option Plan nor shall any further shares be issued under the
Stock Plan from and after such Effective Date. If shareholder approval of this
Plan is not obtained within twelve months after the date this Plan is adopted by
the Board, then each option granted under this Plan from and after the Effective
Date shall terminate without ever becoming exercisable for the option shares and
all shares issued hereunder shall be repurchased by the Corporation at the
purchase price paid, together with interest (at the applicable Short Term
Federal Rate). However, in the event such shareholder approval is not obtained,
the Predecessor Plans shall continue in effect in accordance with the terms and
provisions last approved by the Corporation's shareholders, and all
19
outstanding options and unvested stock issuances under the Predecessor Plans
shall remain in full force and effect in accordance with the instruments
evidencing such options and issuances.
B. Each outstanding option and share issuance under the Predecessor Plans
immediately prior to the Effective Date of this Plan are hereby incorporated
into this Plan and shall accordingly be treated as an outstanding option or
share issuance under this Plan. However, each such option or share issuance
shall continue to be governed solely by the terms and conditions of the
instrument evidencing such grant or issuance, and except as otherwise expressly
provided in this Plan, no provision of this Plan shall affect or otherwise
modify the rights or obligations of the holders of such options or shares with
respect to their acquisition of shares of Common Stock, or otherwise modify the
rights or obligations of the holders of such options or shares.
C. The sale and remittance procedure authorized for the exercise of
outstanding options under this Plan shall be available for all options granted
under this Plan on or after the Effective Date and for all non-statutory options
outstanding under the Option Plan and incorporated into this Plan. The Plan
Administrator may also allow such procedure to be utilized in connection with
one or more disqualifying dispositions of Incentive Option shares effected after
the Effective Date, whether such Incentive Options were granted under this Plan
or the Option Plan.
D. The Plan shall terminate upon the EARLIER of (i) the tenth anniversary
of the Effective Date or (ii) the date on which all shares available for
issuance under the Plan shall have been issued or cancelled pursuant to the
exercise, surrender or cash-out of the options granted under the Discretionary
Option Grant Program or the issuance of shares (whether vested or unvested)
under the Stock Issuance Program. If the date of termination is determined
under clause (i) above, then all option grants and unvested stock issuances
outstanding on such date shall thereafter continue to have force and effect in
accordance with the provisions of the instruments evidencing such grants or
issuances.
VII. USE OF PROCEEDS
Cash proceeds received by the Company from the sale of shares under the
Plan shall be used for general corporate purposes.
VIII. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under the
Discretionary Option Grant Program, the issuance of any shares under the Stock
Issuance Program, and the issuance of Common Stock upon the exercise or
surrender of the option grants made hereunder shall be subject to the
Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options granted under it, and
the Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under this Plan unless and until there shall have been compliance with all
applicable requirements of Federal
20
and State securities laws, including the filing and effectiveness of the Form
S-8 registration statement for the shares of Common Stock issuable under the
Plan, and all applicable listing requirements of any securities exchange on
which stock of the same class is then listed.
IX. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor any
action taken by the Plan Administrator hereunder, nor any provision of the Plan
shall be construed so as to grant any individual the right to remain in the
employ or service of the Corporation (or any parent or subsidiary corporation)
for any period of specific duration, and the Corporation (or any parent or
subsidiary corporation retaining the services of such individual) may terminate
such individual's employment or service at any time and for any reason, with or
without cause.
X. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the Plan may
not be assigned, encumbered or otherwise transferred by any Optionee or
Participant.
B. The provisions of the Plan shall inure to the benefit of, and be
binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Participants and Optionees, the
legal representatives of their respective estates, their respective heirs or
legatees and their permitted assignees.
21
APPLIED DIGITAL ACCESS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE
ThisArticle VI of the Applied Digital Access, Inc. 1998 Employee Stock
Purchase Plan (the "Plan") is intended to provide Qualifying Employees with the opportunity to
acquire a proprietary interest in the Company by accumulating amounts for the
Employee's Account through payroll deductions and the periodic application of
such amounts to the purchase of shares of the Company's Common Stock.
II. DEFINITIONS
For purposes of plan administration, the following terms shall have
the meanings indicated:
ACT shall mean the Securities Act of 1933 (as amended).
ACCOUNT means the amount held for the benefit of a Participant
hereunder which Account will be increased by any payroll deductions from the
Participant and will be decreased by amounts applied to the purchase of shares
or refunded to or for the benefit of the Participant hereunder.
BOARD means the Company's Board of Directors.
CODE means the Internal Revenue Code of 1986, as amended from time
to time.
COMMON STOCK means shares of the Company's Common Stock.
COMPANY means Applied Digital Access, Inc., a Delaware corporation,
and any successor corporation thereto.
CORPORATE AFFILIATE means any company which is a parent or
subsidiary corporation of the Company (as determined in accordance with Code
Section 424), including any parent or subsidiary corporation which becomes such
after the Effective Date.
EFFECTIVE DATE means May 21, 1998. However, for any Corporate
Affiliate which becomes a Participating Company in the Plan after the first day
of the initial option period, a subsequent Effective Date shall be designated
with respectamended in its entirety to participation by its Qualifying Employees.
EMPLOYEE means any person treatedread as an employee (including an
officer or a director who is also an employee) in the records of a Participating
Company; provided, however, that neither service as a director nor payment of a
directors' fee shall be sufficient to constitute employment for purposes of the
Plan.
1
ENTRY DATE means the date on which a Participant first joins the
option period in effect under the Plan.
PARTICIPANT means any Qualifying Employee of a Participating Company
who has enrolled and is actively participating in the Plan.
PARTICIPATING COMPANY means the Company and any Corporate Affiliate
designated from time to time by the Board.
QUALIFYING EMPLOYEE means any Employee who is engaged, on a
regularly-scheduled basis of more than twenty (20) hours per week and more than
five (5) months per calendar year; provided, however, that neither of the
following may be a Qualifying Employee, provided that no person who owns (within
the meaning of Code Section 424(d)) or holds outstanding options or other rights
to purchase stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or any of its
Corporate Affiliates shall be a Qualifying Employee.
QUARTER means a calendar quarter and (except for the first Quarter
of the initial option period or as otherwise designated by the Plan
Administrator), each Quarter shall begin on the first business day of the
Quarter and shall end on the last business day of such Quarter. The first
Quarter of the initial option period under this Plan shall commence on the
Effective Date and shall end on June 30, 1998.
REGULAR COMPENSATION means the basic earnings paid to a Participant
by Participating Companies plus (i) any pre-tax contributions made by the
Participant to any Code Section 401(k) salary deferral plan or any Code
Section 125 cafeteria benefit program (now existing or hereafter established),
(ii) commissions, and (iii) bonuses payable to pursuant to any formal bonus plan
which has been approved and adopted by the Board. Regular Compensation shall
not include (I) overtime payments, profit-sharing distributions and other
incentive-type payments or (II) contributions (other than Code Section 401(k) or
Code Section 125 contributions) made on the Participant's behalf under any
employee benefit or welfare plan (now existing or hereafter established).
SERVICE means the period during which an individual remains a
Qualifying Employee and all periods of Service shall be measured from such
individual's most recent date of hire by the Company or such Corporate
Affiliate.
III. ADMINISTRATION
The Plan shall be administered by a committee comprised of two (2)
or more non-employee Board members appointed from time to time by the Board (the
"Plan Administrator"). The Plan Administrator shall have full authority to
administer the Plan, including authority to interpret and construe any provision
of the Plan. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Plan.
2
IV. OPTION PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive option periods during the term of the Plan
until the maximum number of shares of Common Stock available for issuance under
the Plan shall have been issued.
B. The initial option period will begin on the Effective Date and
will end on the last business day in June 1999. Subsequent option periods will
commence on or about July 1 of each year and will end on the next following
June 30.
C. Each Participant will have purchase rights as set forth in
Article VII for each option period, the purchase price for which shall be
collected through payroll deductions and which purchase rights shall be
exercised in successive installments each Quarter within the option period.
D. The acquisition of Common Stock through participation in the
Plan for any option period shall neither limit nor require the acquisition of
Common Stock by the Participant in any subsequent option period.
V. ELIGIBILITY AND PARTICIPATION
A. Each Qualifying Employee shall be eligible to participate in an
option period under the Plan in accordance with the following provisions:
- A Qualifying Employee with at least three (3) months of
Service on the Effective Date or the first day of any subsequent
option period may enter that option period on the Effective Date or
such first day, respectively, by enrolling in accordance with
Section V.C below.
- A Qualifying Employee who was not previously eligible to
enter an option period may enter that option period on the first day
of the Quarter next following the date such Qualifying Employee has at
least three (3) months of Service by enrolling in accordance with
Section V.C below.
B. A Qualifying Employee who does not enroll for an option period
on the first date such Qualifying Employee is permitted to enroll hereunder may
not subsequently enroll in that option period.
C. To enroll in the Plan, a Qualifying Employee must complete the
enrollment forms prescribed by the Plan Administrator and file such forms with
the Plan Administrator (or its designate) on or before the date such Qualifying
Employee is first permitted to enter the Option Period.
D. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan may be any multiple
of one percent (1%) of the Regular Compensation paid to the Participant during
each Quarter of the option period, up to maximum of fifteen percent (15%) of
Regular Compensation. The deduction rate so authorized
3
shall continue in effect for the remainder of the option period, except to the
extent such rate is changed in accordance with the following guidelines:
- The Participant may, at any time during a Quarter, reduce
the rate of payroll deduction. Such reduction shall become effective
as soon as possible after filing of the requisite reduction form with
the Plan Administrator (or its designate), but the Participant may not
effect more than one such reduction during the same Quarter.
- The Participant may, prior to the commencement of any new
Quarter within the option period, increase or decrease the rate of
payroll deduction for the new Quarterly by filing the appropriate form
with the Plan Administrator (or its designate). The new rate shall
become effective as of the first day of the next Quarter.
Payroll deductions will automatically cease upon the
termination of the Participant's purchase right in accordance with the
applicable provisions of Section VII below.
VI.follows:
"VI. STOCK SUBJECT TO PLAN
A. The maximum number of shares of Common Stock which may be issued
under the Plan shall be 300,000600,000 shares of Common Stock (subject to adjustment
under Section VI.B below).
B. In the event any change is made to the Company's outstanding
Common Stock by reason of any stock dividend, stock split, combination of
shares or other change affecting such outstanding Common Stock as a class
without receipt of consideration, then appropriate adjustments shall be made
by the Plan Administrator to (i) the class and maximum number shares issuable
over the term of the Plan, (ii) the class and maximum number of shares
purchasable per Participant during any one option period and (iii) the class
and number of shares and the price per share in effect under each purchase
right at the time outstanding under the Plan. Such adjustments shall be
designed to preclude the dilution or enlargement of rights and benefits under
the Plan.
VII. PURCHASE RIGHTS
Each Participant in a particular option period shall have"
IN WITNESS WHEREOF, the right
to purchase sharesundersigned Secretary of Common Stock in a series of successive quarterly
installments during such option period onApplied Digital Access,
Inc. certifies that the terms and conditions set forth
below (the "Purchase Rights"). Each Participant shall execute a purchase
agreement embodying such terms and conditions and such other provisions (not
inconsistent with the Plan) as the Plan Administrator may require.
4
PURCHASE PRICE. The Purchase Rights shall be exercised at the end
of each Quarter at a purchase price equal to eighty-five percent (85% of the
LOWER of (i) the fair market value per share of the Common Stock on the
Participant's Entry Date or (ii) the fair market value per share of the Common
Stock on the last business day of the Quarter. However, for each Participant
whose Entry Date is other than the first day of the option period, the amount
determined under clause (i) shall not be less than the fair market value of the
Common Stock on the first day of such option period.
VALUATION. For purposes of determining the fair market value per
share of Common Stock on any relevant date, the following procedures shall be in
effect:
- If, as of any date, there is a public market for the
Common Stock, then the fair market value shall be the closing selling
price on that date, as officially quoted on the Nasdaq National Market
System (or such other national or regional securities exchange
constituting the primary market for the Common Stock), or if there is
no quoted selling price for such date, then the closing selling price
on the next preceding day for which there does exist such a quotation.
- If there is the no public market for the Common Stock,
then the fair market value of the Common Stock on such date shall be
determined by the Plan Administrator after taken into account such
factors as the Plan Administrator deems appropriate.
NUMBER OF PURCHASABLE SHARES. The number of shares purchasable
by a Participant each Quarter shall be the number of whole shares obtained by
dividing the amount in Participant's Account at the end of such Quarter by the
purchase price in effect for the Quarter.
Notwithstanding the above, no Participant shall have the right
to purchase shares of Common Stock to the extent that, immediately after the
grant, such Participant would own (within the meaning of Code Section 424(d)) or
hold outstanding options or other rights to purchase, stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or any of its Corporate Affiliates.
PAYMENT. Payment for the Common Stock purchased under the Plan
shall be effected by means of the Participant's authorized payroll deductions.
Such deductions shall begin on the first pay day coincident with or immediately
following the Participant's Entry Date into the option period and shall (unless
sooner terminated by the Participant) continue through the pay day ending with
or immediately prior to the last day of the option period. The amounts so
collected shall be credited to the Participant's Account under the Plan but no
interest shall be paid on the balance from time to time outstanding in such
Account. The amounts collected from a Participant may be commingled with the
general assets of the Company and may be used for general corporate purposes.
5
TERMINATION OF PURCHASE RIGHT. The following provisions shall
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the last
five (5) business days of the Quarter, terminate his/her outstanding purchase
right under the Plan by filing the prescribed notification form with the Plan
Administrator (or its designate). No further payroll deductions shall be
collected from the Participant with respect to the terminated purchase right,
and any payroll deductions collected for the current Quarter shall at the
Participant's election, be immediately refunded or held for the purchase of
shares on the end of the Quarter. If no such election is made, then such funds
shall be refunded as soon as possible after the close of such Quarter.
(ii) After the termination of purchase rights for an option
period, the Participant may not subsequently rejoin that option period. In
order to resume participation in any subsequent option period, such individual
must re-enroll in the Plan for that option period.
(iii) If a Participant ceases to be a Qualifying Employee
for any reason whatsoever during an option period then all payroll deductions
shall terminate and all funds held in the Participant's Account will be promptly
paid to the Participant or the Participant's legal representative. No further
purchases of shares hereunder shall occur after the Participant has ceased to be
a Qualifying Employee.
STOCK PURCHASE. Subject to the limitations set forth herein,
funds held in a Participant's Account at the end of a Quarter (and which are not
required to be refunded hereunder) shall be applied to the purchase of whole
shares of Common Stock for the Participant on the last business day of the
Quarter at the purchase price in effect for such Quarter. Any payroll
deductions not applied to such purchase because they are not sufficient to
purchase a whole share shall be held for the purchase of Common Stock in the
next Quarter. Any payroll deductions not applied to the purchase of Common
Stock for any other reason shall be promptly refunded to the Participant.
PRORATION OF PURCHASE RIGHTS. If the total number of shares of
Common Stock which would otherwise be purchased hereunder on any date exceed the
number of shares then available for issuance under the Plan, the Plan
Administrator shall make a pro-rata allocation of the available shares to
Participants on a uniform and nondiscriminatory basis.
RIGHTS AS STOCKHOLDER. A Participant shall have no stockholder
rights with respect to the shares subject to his/her outstanding purchase right
until the shares are actually purchased on the Participant's behalf in
accordance with the applicable provisions of the Plan. No adjustments shall be
made for dividends, distributions or other rights for which the record date is
prior to the date of such purchase.
A Participant shall be entitled to receive, as soon as
practicable after purchase hereunder, a stock certificate for the number of
shares purchased for the Participant. Such certificate may, upon the
Participant's request, be issued in the names of the Participant and his/her
spouse as community property or as joint tenants with right of survivorship.
6
ASSIGNABILITY. No purchase right granted under the Plan shall
be assignable or transferable by the Participant other than by will or by the
laws of descent and distribution following the Participant's death, and during
the Participant's lifetime the purchase right shall be exercisable only by the
Participant.
CHANGE IN OWNERSHIP. Should the Company or its stockholders
enter into an agreement to dispose of all or substantially all of the assets or
outstanding capital stock of the Company by means of:
(i) a sale, merger or other reorganization in which the
Company will not be the surviving corporation (other than a reorganization
effected primarily to change the State in which the Company is incorporated), or
(ii) a reverse merger in which the Company is the
surviving corporation but in which more than 50% of the Company's outstanding
voting stock is transferred to holders different from those who hold the stock
immediately prior to the reverse merger,
then all outstanding purchase rights under the Plan shall
automatically be exercised immediately prior to the consummation of such sale,
merger, reorganization or reverse merger by applying the amounts in each
Participant's Account to the purchase of whole shares of Common Stock at
eighty-five percent (85%) of the LOWER of (i) the fair market value of the
Common Stock on the Participant's Entry Date into the option period in which
such transaction occurs or (ii) the fair market value of the Common Stock
immediately prior to the consummation of such transaction. However, the
applicable share limitations of Articles VII and VIII shall continue to apply to
any such purchase, and the clause (i) amount above shall not, for any
Participant whose Entry Date for the option period is other than the start date
of such option period, be less than the fair market value of the Common Stock on
such start date.
The Company shall use its best efforts to provide at least
ten (10)-days advance written notice of the occurrence of any such sale, merger,
reorganization or reverse merger, and Participants shall following the receipt
of such notice, have the right to terminate their outstanding purchase rights in
accordance with the applicable provisions of this Article VII.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (I) rights to purchase Common
Stock accrued under any other purchase right outstanding under this Plan and
(II) similar rights accrued under other employee stock purchase plans (within
the meaning of Section 423 of the Code) of the Company or its Corporate
Affiliates, would otherwise permit such Participant to purchase more than
$25,000 worth of stock of the Company or any Corporate Affiliate (determined on
the basis of the fair market value of such stock on the date or dates such
rights are granted to the Participant) for each calendar year such rights are at
any time outstanding.
7
B. For purposes of applying such accrual limitations, the right to
acquire Common Stock pursuant to each purchase right outstanding under the Plan
shall accrue as follows:
(i) The right to acquire Common Stock under each such
purchase right shall accrue in a series of successive quarterly installments as
and when the purchase right first becomes exercisable for each quarterly
installment on the last business day of each Quarter for which the right remains
outstanding.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant has
already accrued in the same calendar year the right to acquire $25,000 worth of
Common Stock (determined on the basis of the fair market value on the date or
dates of grant) pursuant to one or more purchase rights held by the Participant
during such calendar year.
(iii) If by reason of such accrual limitations, any
purchase right of a Participant does not accrue for a particular Quarter, then
the payroll deductions which the Participant made during that Quarter with
respect to such purchase right shall be promptly refunded.
C. In the event there is any conflict between the provisions of
this Article VIII and one or more provisions of the Plan or any instrument
issued thereunder, the provisions of this Article VIII shall be controlling.
IX. STATUS OF PLAN UNDER FEDERAL TAX LAWS
The Plan is designed to qualify as an employee stock purchase plan
under Code Section 423.
X. AMENDMENT AND TERMINATION
A. The Board may alter, amend, suspend or discontinue the Plan
following the close of any Quarter. Anforegoing amendment to the 1998 Employee Stock
Purchase Plan must be approved
by the stockholders of the Company within twelve (12) months of the adoption of
such amendment if such amendment would authorize the sale of more shares than
are authorized for issuance under the Plan or would change the definition of the
corporations that may be designatedwas duly adopted by the Board as Participating Companies.
B. The Company shall have the right, exercisable in the sole
discretion of the Plan Administrator, to terminate all outstanding purchase
rights under the Plan immediately following the close of any Quarter. Should
the Company elect to exercise such right, then the Plan shall terminate in its
entirety. No further purchase rights shall thereafter be granted or exercised,
and no further payroll deductions shall thereafter be collected, under the Plan.
8Directors on March 12, 1999.
/s/ James L. Keefe
-----------------------------------
(James L. Keefe)
Secretary
XI. GENERAL PROVISIONS
A. The issuance of shares under the Plan shall be subject to
compliance with all applicable requirements of federal, state and foreign law
with respect to such securities. A Purchase Right may not be exercised if the
issuance of shares upon such exercise would constitute a violation of any
applicable federal, state or foreign securities laws or other law or regulations
or the requirements of any securities exchange or market system upon which the
Common Stock may then be listed. In addition, no Purchase Right may be
exercised unless (a) a registration statement under the Act shall at the time of
exercise of the Purchase Right be in effect with respect to the shares issuable
upon exercise of the Purchase Right, or (b) in the opinion of legal counsel to
the Company, the shares issuable upon exercise of the Purchase Right may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Act. The inability of the Company to obtain
from any regulatory body having jurisdiction the authority, if any, deemed by
the Company's legal counsel to be necessary to the lawful issuance and sale of
any shares under the Plan shall relieve the Company of any liability in respect
of the failure to issue or sell such shares as to which such requisite authority
shall not have been obtained. As a condition to the exercise of a Purchase
Right, the Company may require the Participant to satisfy any qualifications
that may be necessary or appropriate, to evidence compliance with any applicable
law or regulation, and to make any representation or warranty with respect
thereto as may be requested by the Company.
B. The Plan shall continue in effect until the earlier of its
termination by the Plan Administrator or the date on which all of the shares of
Common Stock available for issuance under the Plan have been issued.
C. All costs and expenses incurred in the administration of the
Plan shall be paid by the Company.
D. Neither the action of the Company in establishing the Plan, nor
any action taken under the Plan by the Board or the Plan Administrator, nor any
provision of the Plan itself shall be construed so as to grant any person the
right to remain in the employ of the Company or any Corporate Affiliate for any
period, and such person's employment may be terminated at any time, with or
without cause.
9
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PROXY APPLIED DIGITAL ACCESS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Peter P. SavageDonald L. Strohmeyer and James L. Keefe, and
each of them, with full power of substitution to represent the undersigned
and to vote all of the shares of stock in Applied Digital Access, Inc. (the
"Company") which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of the Company to be held at the Company in San Diego,
California on Thursday,Wednesday, May 21, 199812, 1999 at 9:00 a.m., local time, and at any
adjournment thereof (1) as hereinafter specified upon the proposals listed on
the reverse side and as more particularly described in the Company's Proxy
Statement, receipt of which is hereby acknowledged, and (2) in their
discretion upon such other matters as may properly come before the meeting.
The shares represented hereby shall be voted as specified. If no specification
is made, such shares shall be votedTHE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO SPECIFICATION
IS MADE, SUCH SHARES SHALL BE VOTED FOR proposalsPROPOSALS 1, 2, 3 and 4.AND 3.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
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Please mark
your votes as /X/
indicated in
this example /X/
A vote FOR the following proposals is recommended by the Board of Directors:
FOR all nominees listed WITHHOLD AUTHORITY
below (except for indicated to vote for all nominees
to the contrary below). listed below.
1. ELECTION OF DIRECTORS FOR WITHHELD
Nominee: Kenneth E. OlsonDIRECTORS: / / / /
Nominee:Nominees: Gary D. Cuccio,
John F. Malone, Kenneth E. Olson, Christopher B. Paisley,
/ / / /
Nominee: Peter P. Savage, / / / /
Nominee: Edward F. Tuck / / / /
FOR AGAINST ABSTAINDonald L. Strohmeyer.
INSTRUCTION: TO WITHHOLD AUTHORITY to vote for any individual nominee(s)
write that nominee's(s') name in the space provided below:
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2. To approve the adoption ofamendment to the Company's 1998 / / / / / / Employee Stock
Purchase Plan and the
authorization of shares to be reserved for
issuance thereunder.
3. To approve the amendment of the Company's FOR AGAINST ABSTAIN
1994 Stock Option/Stock Issuance Plan to / / / / / / increase the number of shares reserved for issuance
thereunder by 300,000 and to
increase the automatic annual grants to
non-employee directors from 3,000 to
10,000 shares.
4.300,000.
FOR AGAINST ABSTAIN
/ / / / / /
3. To approve the selection of Coopers & FOR AGAINST ABSTAIN
Lybrand L.L.P.PricewaterhouseCoopers LLP as the
Company's / / / / / / independent public accountants for the year ending
December 31, 1998.1999.
FOR AGAINST ABSTAIN
/ / / / / /
Even if you are planning to attend the meeting in person, you are urged to
sign and mail the Proxy in the return envelope so that your stock may be
represented at the meeting.
Sign exactly as your name(s) appears on your stock certificates. If shares
of stock stand on record in the names of two or more persons or in the name
of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the above Proxy. If shares of stock are held of
record by a corporation, the Proxy should be executed by the President or
Vice President and the Secretary or Assistant Secretary, and the corporate
seal should be affixed thereto. Executors or administrators or other
fiduciaries who execute the above Proxy for a deceased stockholder should
give their title. Please date the Proxy.
Signature(s) Date
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