Friday, April 27, 2007 10:09:16 PM
Kev/ Nick- This is from the 1997 filing
"Options
granted under the 1994 Employee Plan may also provide for the option holder to
receive an additional option (the "Reload Option") to purchase the number of
shares tendered by an optionee in exercising a stock option. The exercise price
of the Reload Option shall equal the fair market value of the Class A Common
Stock on the date of the grant of the Reload Option."
Summary of the 1994 Employee Plan and the 1997 Amendment
General. The 1994 Employee Plan, as currently in effect, permits the
Company to grant ISOs and NQSOs to salaried officers and other key employees.
The 1994 Employee Plan terminates on January 1, 2004 and no options may be
granted after the termination date. The 1994 Employee Plan covers a maximum of
2,000,000 shares of Class A Common Stock, which will be increased to a total of
3,000,000 shares if the 1997 Amendment is approved (subject to share adjustments
as described below), which may be either authorized and unissued shares of Class
A Common Stock or shares held in the Company's treasury. When an option lapses,
expires, terminates or is forfeited, the related shares of Class A Common Stock
may be available for distribution in connection with future options. Adjustments
may be made in the number of shares reserved under the 1994 Employee Plan, in
the option price and in the number of shares subject to stock options, in the
event of a merger, reorganization, consolidation, recapitalization or stock
dividend, and in the event of certain other changes described in the 1994
Employee Plan or any other changes in the Company's corporate structure that
affect the Class A Common Stock or has an effect similar to any of the
foregoing. No employee may be granted options covering, in the aggregate, more
than 100,000 shares of Class A Common Stock in any fiscal year of the Company
(subject to adjustment as provided above).
Because grants under the 1994 Employee Plan are discretionary, the Company
cannot now determine the number of options to be received by any particular
current executive officer, by all current executive officers as a group or by
non-executive officer employees or directors as a group. The number of such
options and awards shall be determined by the Compensation Committee, pursuant
to the terms of the 1994 Employee Plan. It is currently estimated that there are
40 employees eligible to participate in the 1994 Employee Plan. For information
concerning the ownership of options by the Named Executive Officers, see
"Executive Compensation" above.
Administration. The 1994 Employee Plan is administered by the Compensation
Committee. The Compensation Committee is comprised of directors who are
non-employee directors within the meaning of Rule 16b-3 promulgated under the
Exchange Act. The Compensation Committee has the sole and complete discretion,
subject to the terms of the 1994 Employee Plan, to (i) select the individuals
from among the eligible employees of the Company and its subsidiaries to whom
options may be granted, (ii) determine the type of options to be granted and the
terms and conditions of any options granted, and (iii) determine the number of
shares of common stock subject to each option granted. In addition, the
Compensation Committee is authorized to interpret the 1994 Employee Plan, to
make and rescind rules and regulations related thereto, and to make all
determinations necessary or advisable for the administration of the 1994
Employee Plan.
Stock Options. Stock options granted under the 1994 Employee Plan may be
either ISOs or NQSOs. The aggregate fair market value (determined as of the time
of the grant of an ISO) of the Class A Common Stock with respect to which ISOs
are exercisable for the first time by a single optionee during any calendar year
under the Plan and any other stock option plan of the Company may not exceed
$100,000.
The exercise price for stock options shall be determined by the
Compensation Committee and shall be set forth in an option agreement entered
into with the optionee, provided, however, that the exercise price for an option
shall not be less than the fair market value of a share of Class A Common Stock
on the date of grant (110% in the case of an ISO granted to a 10% or more
stockholder). On June 13, 1997, the closing sale price of the Class A Common
Stock, as reported by Nasdaq, was $1.375 per share.
The Compensation Committee is to specify the time or times at which such
options will be exercisable, except that the termination date for any stock
option shall not exceed 10 years from the date of grant (five years in the case
of an ISO granted to a 10% or more stockholder). Options may be exercised within
three months following the retirement of an optionee and within twelve months
following the death or disability of an optionee; provided, that no option may
be exercised following the period of exercisability set forth in the agreement
related thereto.
Stock options may be exercised by an optionee in whole or in part by giving
notice to the Company and the exercise price therefor may be paid by delivering
cash or shares of unrestricted common stock having a fair market value equal to
the cash exercise price of the options being exercised. Optionees may also
utilize a cashless exercise feature which will enable them to exercise their
options without a concurrent payment of the option price, provided that the
purchased option shares are immediately sold by a designated broker and the
option price is paid directly to the Company out of the sale proceeds. Options
granted under the 1994 Employee Plan may also provide for the option holder to
receive an additional option (the "Reload Option") to purchase the number of
shares tendered by an optionee in exercising a stock option. The exercise price
of the Reload Option shall equal the fair market value of the Class A Common
Stock on the date of the grant of the Reload Option.
Stock options are nontransferable other than by will or by the laws of
descent and distribution, and stock options are exercisable during the
optionee's lifetime only by the optionee.
Change of Control. In the event of a "Change of Control," as defined in the
1994 Employee Plan, all options outstanding shall be immediately and fully
exercisable and shall become fully vested.
Amendments. The Board of Directors may terminate, suspend or amend the 1994
Employee Plan, provided that such amendment, suspension, or termination may not
affect the validity of the then outstanding options, and provided further that
the Board may not, without the approval of stockholders (i) increase the maximum
number of shares which may be issued pursuant to the provisions of the 1994
Employee Plan, (ii) change the class of individuals eligible to receive options
under the 1994 Employee Plan, (iii) materially increase the benefits accruing to
participants under the 1994 Employee Plan, or (iv) extend the term of the 1994
Employee Plan.
Withholding Taxes. The 1994 Employee Plan provides that the Company may
deduct from any distribution to an employee an amount equal to all federal,
state and local income taxes or other amounts as may be required by law to be
withheld.
Federal Income Tax Consequences
The following general description of federal income tax consequences is
based upon current statutes, regulations and interpretations. This description
is not intended to address specific tax consequences applicable to individual
participants.
Incentive Stock Options. No regular income tax consequences result from the
grant of an ISO or the exercise of an ISO by the employee, provided the employee
continues to hold the stock acquired on the exercise of an ISO for the requisite
holding periods described below. The employee will be taxed only upon the sale
or disposition of the stock acquired under an ISO and the gain recognized at
that time will be long-term capital gain. The holding period requirements
necessary for ISO treatment are as follows: (i) such shares may not be disposed
of within two years from the date the ISO is granted, and (ii) such shares must
be held for at least one year from the date the shares are transferred to the
employee upon the exercise of the ISO. In addition, to receive ISO treatment,
the option holder generally must be an employee of the Company or a subsidiary
of the Company from the date the stock option is granted until three months
before the date of exercise.
If an employee disposes of stock acquired upon exercise of an ISO before
expiration of the applicable holding periods, the employee will be taxed at
ordinary income tax rates on the date of disposition measured by the lesser of:
(i) the fair market value of the stock on the date of exercise of the ISO minus
the option price or (ii) the amount realized on disposition minus the option
price, and the Company will receive a corresponding income tax deduction. In the
case of a sale where a loss, if sustained, would be recognized, the amount of
the optionee's income, and the amount of the Company's corresponding expense
deduction, will not exceed the difference between the sale price and the
adjusted basis of the shares.
The amount by which the fair market value of shares received upon exercise
of an ISO exceeds the option price constitutes an item of tax preference that
may be subject to the alternative minimum tax. If an employee is subject to the
alternative minimum tax as a result of the exercise of an ISO, for purposes of
calculating the gain on a disposition of the stock solely for purposes of the
alternative minimum tax, the amount treated as a preference item will be added
to his tax basis for the stock. Gain realized by an employee upon the
disposition of stock acquired through the exercise of an ISO is taxable in the
year of disposition, but such income is not subject to income tax withholding if
the requisite holding periods have been satisfied. If either of the holding
periods is not satisfied, however, the disposition of the stock may result in
taxable income to the employee as additional compensation which is subject to
withholding.
Non-Qualified Stock Options. With regard to NQSOs, the employee will
recognize ordinary income at the time of the exercise of the option in an amount
equal to the difference between the exercise price and the fair market value of
the shares received on the date of exercise. Such income will be subject to
withholding. When the employee disposes of shares acquired upon the exercise of
the option, any amount received in excess of the fair market value of the shares
on the date of exercise will be treated as long-term or short-term capital gain,
depending upon the holding period of the shares. If the amount received upon
sale is less than the fair market value of the shares on the date of exercise,
the loss will be treated as long-term or short-term capital loss, depending upon
the holding period of the shares.
Section 162(m) of the Code generally prohibits the Company from deducting
compensation of a "covered employee" to the extent the compensation exceeds
$1,000,000 per year. For this purpose, "covered employee" means the chief
executive officer of the Company and the four other highest compensated officers
of the Company. Certain performance-based compensation (including, under certain
circumstances, stock option compensation) will not be subject to, and will be
disregarded in applying, the $1,000,000 deduction limitation. It is the
Company's intention that options granted under the 1994 Employee Plan qualify as
"performance-based" compensation under Section 162(m).
Recommendation and Vote
An affirmative vote of the holders of a majority of shares of common stock
present in person or by proxy and entitled to vote at the Annual Meeting is
required to approve the 1997 Amendment. If no direction is given to the
contrary, all proxies received by the Board of Directors will be voted "FOR"
approval of the 1997 Amendment.
The Board of Directors recommends that the stockholders vote "FOR" approval
of the 1997 Amendment.
4. APPROVAL OF THE 1996 PERFORMANCE STOCK OPTION PLAN
The Board of Directors adopted on September 5, 1996, subject to approval by
the stockholders, the 1996 Performance Stock Option Plan (the "Performance
Plan"). The Performance Plan reserves 800,000 shares of Class A Common Stock to
be granted to employees of the Company or any of its subsidiaries, consultants
and others to purchase shares of the Company's Class A Common Stock. The
Performance Plan is designed to enable the Company to attract and retain the
best available personnel, to provide additional incentive to employees,
consultants and others, to promote the success of the Company and reward those
who are contributing to the success of the Company as it commercializes its
technology.
Under the terms of the Performance Plan, the Company is authorized to grant
options that qualify as incentive stock options or ISOs under Section 422 of the
Internal Revenue Code and non-qualified options or NQSOs to employees of the
Company or any of its subsidiaries, to consultants and others to purchase shares
of the Company's capital stock. The options pursuant to the Performance Plan are
a matter of separate inducement and are not in lieu of any salary or other
compensation for services. The following summary of certain features of the
Performance Plan is qualified in its entirety by reference to the full text of
the Performance Plan, a copy of which will be furnished to any stockholder, upon
written request of such stockholder directed to Mr. James Stokes Hatch,
Secretary, 480 Pleasant Street, Lee, Massachusetts 01238.
Summary of the Performance Plan
General. The Performance Plan permits the Company to grant ISOs and NQSOs
to employees, consultants and others. The Performance Plan is designed to create
specific incentives to achieve specifically defined performance benchmarks by
providing certain key personnel with options that will vest upon the occurrence
of such specifically defined performance benchmarks. The Performance Plan
terminates at the close of business on September 5, 1996, unless sooner
terminated by action of the Compensation Committee, or the Board of Directors if
there is no Compensation Committee. The Performance Plan covers a maximum of
800,000 shares of the authorized Class A Common Stock, which may be either
authorized and unissued shares of Class A Common Stock or shares of Class A
Common Stock held in the Company's treasury, or both, at the discretion of the
Company. When any outstanding option or portion thereof expires, is canceled, is
forfeited or is otherwise terminated for any reason without having been
exercised or payment having been made in respect of the entire option, the
related shares of Class A Common Stock may be available for distribution in
connection with other options granted under the Performance Plan. Adjustments
may be made in the number of shares reserved under the Performance Plan, in the
option price and in the number of shares subject to stock options and shares of
the Company may be appropriately substituted for new shares in the event of any
stock dividend, stock split, combination or exchange of shares, recapitalization
or other change in the capital structure of the Company, corporate separation or
division, sale by the Company of all or a substantial portion of its assets,
rights offering, merger, consolidation, reorganization or partial complete
liquidation, or any other corporate transaction or event having an effect
similar to any of the foregoing.
Because grants under the Performance Plan are discretionary, the Company
cannot now determine the number of options to be received by any particular
person. The number of such options shall be determined by the Compensation
Committee, or the Board of Directors if there is no Compensation Committee,
pursuant to the terms of the Performance Plan. It is currently estimated that 10
employees are eligible to participate in the Performance Plan.
Administration. The Performance Plan is administered by the Compensation
Committee, or the Board of Directors if there is no Compensation Committee. The
Compensation Committee is comprised of no fewer than two members of the Board of
Directors, who are non-employee directors within the meaning of Rule 16b-3
promulgated under the Exchange Act. The Compensation Committee has the sole and
complete discretion, subject to the terms of the Performance Plan, to (i) select
employees of the Company, consultants, and others as recipients of options; (ii)
determine the number and type of options to be granted; (iii) determine the
terms and conditions of any options granted; (iv) adopt, alter and repeal such
administrative rules, guidelines and practices governing the Performance Plan as
it shall deem advisable; (v) interpret the terms and provisions of the
Performance Plan and any option granted and any agreements relating thereto; and
(vi) otherwise supervise the administration of the Performance Plan.
Stock Options. Stock options granted under the Performance Plan may be
either ISOs or NQSOs. If the aggregate fair market value (determined as of the
time of the grant of an ISO) of shares with respect to which ISOs are
exercisable for the first time by a single optionee during any calendar year
under the Performance Plan and any other stock option plan of the Company and
any parent or any subsidiary of the Company exceeds $100,000, any options which
otherwise qualify as Incentive Options, to the extent of the excess, will be
treated as NQSOs.
The exercise price for stock options shall be determined by the
Compensation Committee, or the Board of Directors if there is no Compensation
Committee, and shall be set forth in an option agreement entered into with the
optionee, provided, however, that the exercise price for an option shall not be
less than the fair market value of a share of Class A Common Stock on the date
of grant (110% in the case of an ISO granted to a 10% or more stockholder). On
June 13, 1997, the closing sale price of the Class A Common Stock, as reported
by Nasdaq, was $1.375 per share.
The Compensation Committee is to specify the time or times at which such
options will be exercisable, except that the termination date for any stock
option shall not exceed 10 years from the date of grant (five years in the case
of an ISO granted to a 10% or more stockholder). Options may be exercised within
three months following the retirement of an optionee and within twelve months
following the death or disability of an optionee, provided, that no option may
be exercised following the period of exercisability set forth in the agreement
related thereto. Except as otherwise determined by the Compensation Committee if
an optionee voluntarily terminates his or her employment, or is discharged, any
option granted under the Performance Plan shall be canceled and the optionee
shall have no further rights to exercise any such option and all of the
optionee's rights shall terminate as of the effective date of such termination
of employment.
Stock options may be exercised by an optionee in whole or in part by giving
written notice to the Secretary of the Company and the exercise price therefor
may be paid by delivering cash or shares of unrestricted Class A Common Stock
having a fair market value equal to the cash exercise price of the options being
exercised. If the Company in its sole discretion establishes other cashless
exercise features optionees may also exercise their options without a concurrent
payment of the option price, provided that the purchased option shares are
immediately sold by a designated broker and the option price is paid directly to
the Company out of the sale proceeds.
Stock options are nontransferable other than by will or by the laws of
descent and distribution, and stock options are exercisable during the
optionee's lifetime only by the optionee.
Change of Control. In the event of a "Change of Control," as defined in the
Performance Plan, all options outstanding shall be immediately and fully
exercisable during the remaining term thereof, shall become fully vested and
shall remain so, whether or not the optionee to whom such options have been
granted remains an employee of the company or its subsidiaries.
Amendments. The Compensation Committee may terminate, suspend or amend the
Performance Plan, provided that such amendment, suspension, or termination may
not affect the validity of the then outstanding options, and provided further
that the Compensation Committee may not, without the approval of stockholders
(i) increase the total number of shares which may be issued under the
Performance Plan, (ii) modify the provisions of the Performance Plan relating to
eligibility, (iii) materially increase the benefits accruing to participants
under the Performance Plan, or (iv) extend the maximum period of the Performance
Plan.
Withholding Taxes. The Performance Plan provides that the Company may
deduct from any distribution to an employee, consultant or other an amount equal
to all federal, state and local income taxes or other amounts as may be required
by law to be withheld.
Federal Income Tax Consequences
The following general description of federal income tax consequences is
based upon current statutes, regulations and interpretations. This description
is not intended to address specific tax consequences applicable to individual
participants.
Incentive Stock Options. No regular income tax consequences result from the
grant of an ISO or the exercise of an ISO by the employee, provided the employee
continues to hold the stock acquired on the exercise of an ISO for the requisite
holding periods described below. The employee will be taxed only upon the sale
or disposition of the stock acquired under an ISO and the gain recognized at
that time will be long-term capital gain. The holding period requirements
necessary for ISO treatment are as follows: (i) such shares may not be disposed
of within two years from the date the ISO is granted, and (ii) such shares must
be held for at least one year from the date the shares are transferred to the
employee upon the exercise of the ISO. In addition, to receive ISO treatment,
the option holder generally must be an employee of the Company or a subsidiary
of the Company from the date the stock option is granted until three months
before the date of exercise.
If an employee disposes of stock acquired upon exercise of an ISO before
expiration of the applicable holding periods, the employee will be taxed at
ordinary income tax rates on the date of disposition measured by the lesser of:
(i) the fair market value of the stock on the date of exercise of the ISO minus
the option price or (ii) the amount realized on disposition minus the option
price, and the Company will receive a corresponding income tax deduction. In the
case of a sale where a loss, if sustained, would be recognized, the amount of
the optionee's income, and the amount of the Company's corresponding expense
deduction, will not exceed the difference between the sale price and the
adjusted basis of the shares.
The amount by which the fair market value of shares received upon exercise
of an ISO exceeds the option price constitutes an item of tax preference that
may be subject to the alternative minimum tax. If an employee is subject to the
alternative minimum tax as a result of the exercise of an ISO, for purposes of
calculating the gain on a disposition of the stock solely for purposes of the
alternative minimum tax, the amount treated as a preference item will be added
to his tax basis for the stock. Gain realized by an employee upon the
disposition of stock acquired through the exercise of an ISO is taxable in the
year of disposition, but such income is not subject to income tax withholding if
the requisite holding periods have been satisfied. If either of the holding
periods is not satisfied, however, the disposition of the stock may result in
taxable income to the employee as additional compensation which is subject to
withholding.
Non-Qualified Stock Options. With regard to NQSOs, the employee will
recognize ordinary income at the time of the exercise of the option in an amount
equal to the difference between the exercise price and the fair market value of
the shares received on the date of exercise. Such income will be subject to
withholding. When the employee disposes of shares acquired upon the exercise of
the option, any amount received in excess of the fair market value of the shares
on the date of exercise will be treated as long-term or short-term capital gain,
depending upon the holding period of the shares. If the amount received upon
sale is less than the fair market value of the shares on the date of exercise,
the loss will be treated as long-term or short-term capital loss, depending upon
the holding period of the shares
Section 162(m) of the Code generally prohibits the Company from deducting
compensation of a "covered employee" to the extent the compensation exceeds
$1,000,000 per year. For this purpose, "covered employee" means the chief
executive officer of the Company and the four other highest compensated officers
of the Company. Certain performance-based compensation (including, under certain
circumstances, stock option compensation) will not be subject to, and will be
disregarded in applying, the $1,000,000 deduction limitation. It is the
Company's intention that options granted under the Performance Plan qualify as
"performance-based" compensation under Section 162(m).
"Options
granted under the 1994 Employee Plan may also provide for the option holder to
receive an additional option (the "Reload Option") to purchase the number of
shares tendered by an optionee in exercising a stock option. The exercise price
of the Reload Option shall equal the fair market value of the Class A Common
Stock on the date of the grant of the Reload Option."
Summary of the 1994 Employee Plan and the 1997 Amendment
General. The 1994 Employee Plan, as currently in effect, permits the
Company to grant ISOs and NQSOs to salaried officers and other key employees.
The 1994 Employee Plan terminates on January 1, 2004 and no options may be
granted after the termination date. The 1994 Employee Plan covers a maximum of
2,000,000 shares of Class A Common Stock, which will be increased to a total of
3,000,000 shares if the 1997 Amendment is approved (subject to share adjustments
as described below), which may be either authorized and unissued shares of Class
A Common Stock or shares held in the Company's treasury. When an option lapses,
expires, terminates or is forfeited, the related shares of Class A Common Stock
may be available for distribution in connection with future options. Adjustments
may be made in the number of shares reserved under the 1994 Employee Plan, in
the option price and in the number of shares subject to stock options, in the
event of a merger, reorganization, consolidation, recapitalization or stock
dividend, and in the event of certain other changes described in the 1994
Employee Plan or any other changes in the Company's corporate structure that
affect the Class A Common Stock or has an effect similar to any of the
foregoing. No employee may be granted options covering, in the aggregate, more
than 100,000 shares of Class A Common Stock in any fiscal year of the Company
(subject to adjustment as provided above).
Because grants under the 1994 Employee Plan are discretionary, the Company
cannot now determine the number of options to be received by any particular
current executive officer, by all current executive officers as a group or by
non-executive officer employees or directors as a group. The number of such
options and awards shall be determined by the Compensation Committee, pursuant
to the terms of the 1994 Employee Plan. It is currently estimated that there are
40 employees eligible to participate in the 1994 Employee Plan. For information
concerning the ownership of options by the Named Executive Officers, see
"Executive Compensation" above.
Administration. The 1994 Employee Plan is administered by the Compensation
Committee. The Compensation Committee is comprised of directors who are
non-employee directors within the meaning of Rule 16b-3 promulgated under the
Exchange Act. The Compensation Committee has the sole and complete discretion,
subject to the terms of the 1994 Employee Plan, to (i) select the individuals
from among the eligible employees of the Company and its subsidiaries to whom
options may be granted, (ii) determine the type of options to be granted and the
terms and conditions of any options granted, and (iii) determine the number of
shares of common stock subject to each option granted. In addition, the
Compensation Committee is authorized to interpret the 1994 Employee Plan, to
make and rescind rules and regulations related thereto, and to make all
determinations necessary or advisable for the administration of the 1994
Employee Plan.
Stock Options. Stock options granted under the 1994 Employee Plan may be
either ISOs or NQSOs. The aggregate fair market value (determined as of the time
of the grant of an ISO) of the Class A Common Stock with respect to which ISOs
are exercisable for the first time by a single optionee during any calendar year
under the Plan and any other stock option plan of the Company may not exceed
$100,000.
The exercise price for stock options shall be determined by the
Compensation Committee and shall be set forth in an option agreement entered
into with the optionee, provided, however, that the exercise price for an option
shall not be less than the fair market value of a share of Class A Common Stock
on the date of grant (110% in the case of an ISO granted to a 10% or more
stockholder). On June 13, 1997, the closing sale price of the Class A Common
Stock, as reported by Nasdaq, was $1.375 per share.
The Compensation Committee is to specify the time or times at which such
options will be exercisable, except that the termination date for any stock
option shall not exceed 10 years from the date of grant (five years in the case
of an ISO granted to a 10% or more stockholder). Options may be exercised within
three months following the retirement of an optionee and within twelve months
following the death or disability of an optionee; provided, that no option may
be exercised following the period of exercisability set forth in the agreement
related thereto.
Stock options may be exercised by an optionee in whole or in part by giving
notice to the Company and the exercise price therefor may be paid by delivering
cash or shares of unrestricted common stock having a fair market value equal to
the cash exercise price of the options being exercised. Optionees may also
utilize a cashless exercise feature which will enable them to exercise their
options without a concurrent payment of the option price, provided that the
purchased option shares are immediately sold by a designated broker and the
option price is paid directly to the Company out of the sale proceeds. Options
granted under the 1994 Employee Plan may also provide for the option holder to
receive an additional option (the "Reload Option") to purchase the number of
shares tendered by an optionee in exercising a stock option. The exercise price
of the Reload Option shall equal the fair market value of the Class A Common
Stock on the date of the grant of the Reload Option.
Stock options are nontransferable other than by will or by the laws of
descent and distribution, and stock options are exercisable during the
optionee's lifetime only by the optionee.
Change of Control. In the event of a "Change of Control," as defined in the
1994 Employee Plan, all options outstanding shall be immediately and fully
exercisable and shall become fully vested.
Amendments. The Board of Directors may terminate, suspend or amend the 1994
Employee Plan, provided that such amendment, suspension, or termination may not
affect the validity of the then outstanding options, and provided further that
the Board may not, without the approval of stockholders (i) increase the maximum
number of shares which may be issued pursuant to the provisions of the 1994
Employee Plan, (ii) change the class of individuals eligible to receive options
under the 1994 Employee Plan, (iii) materially increase the benefits accruing to
participants under the 1994 Employee Plan, or (iv) extend the term of the 1994
Employee Plan.
Withholding Taxes. The 1994 Employee Plan provides that the Company may
deduct from any distribution to an employee an amount equal to all federal,
state and local income taxes or other amounts as may be required by law to be
withheld.
Federal Income Tax Consequences
The following general description of federal income tax consequences is
based upon current statutes, regulations and interpretations. This description
is not intended to address specific tax consequences applicable to individual
participants.
Incentive Stock Options. No regular income tax consequences result from the
grant of an ISO or the exercise of an ISO by the employee, provided the employee
continues to hold the stock acquired on the exercise of an ISO for the requisite
holding periods described below. The employee will be taxed only upon the sale
or disposition of the stock acquired under an ISO and the gain recognized at
that time will be long-term capital gain. The holding period requirements
necessary for ISO treatment are as follows: (i) such shares may not be disposed
of within two years from the date the ISO is granted, and (ii) such shares must
be held for at least one year from the date the shares are transferred to the
employee upon the exercise of the ISO. In addition, to receive ISO treatment,
the option holder generally must be an employee of the Company or a subsidiary
of the Company from the date the stock option is granted until three months
before the date of exercise.
If an employee disposes of stock acquired upon exercise of an ISO before
expiration of the applicable holding periods, the employee will be taxed at
ordinary income tax rates on the date of disposition measured by the lesser of:
(i) the fair market value of the stock on the date of exercise of the ISO minus
the option price or (ii) the amount realized on disposition minus the option
price, and the Company will receive a corresponding income tax deduction. In the
case of a sale where a loss, if sustained, would be recognized, the amount of
the optionee's income, and the amount of the Company's corresponding expense
deduction, will not exceed the difference between the sale price and the
adjusted basis of the shares.
The amount by which the fair market value of shares received upon exercise
of an ISO exceeds the option price constitutes an item of tax preference that
may be subject to the alternative minimum tax. If an employee is subject to the
alternative minimum tax as a result of the exercise of an ISO, for purposes of
calculating the gain on a disposition of the stock solely for purposes of the
alternative minimum tax, the amount treated as a preference item will be added
to his tax basis for the stock. Gain realized by an employee upon the
disposition of stock acquired through the exercise of an ISO is taxable in the
year of disposition, but such income is not subject to income tax withholding if
the requisite holding periods have been satisfied. If either of the holding
periods is not satisfied, however, the disposition of the stock may result in
taxable income to the employee as additional compensation which is subject to
withholding.
Non-Qualified Stock Options. With regard to NQSOs, the employee will
recognize ordinary income at the time of the exercise of the option in an amount
equal to the difference between the exercise price and the fair market value of
the shares received on the date of exercise. Such income will be subject to
withholding. When the employee disposes of shares acquired upon the exercise of
the option, any amount received in excess of the fair market value of the shares
on the date of exercise will be treated as long-term or short-term capital gain,
depending upon the holding period of the shares. If the amount received upon
sale is less than the fair market value of the shares on the date of exercise,
the loss will be treated as long-term or short-term capital loss, depending upon
the holding period of the shares.
Section 162(m) of the Code generally prohibits the Company from deducting
compensation of a "covered employee" to the extent the compensation exceeds
$1,000,000 per year. For this purpose, "covered employee" means the chief
executive officer of the Company and the four other highest compensated officers
of the Company. Certain performance-based compensation (including, under certain
circumstances, stock option compensation) will not be subject to, and will be
disregarded in applying, the $1,000,000 deduction limitation. It is the
Company's intention that options granted under the 1994 Employee Plan qualify as
"performance-based" compensation under Section 162(m).
Recommendation and Vote
An affirmative vote of the holders of a majority of shares of common stock
present in person or by proxy and entitled to vote at the Annual Meeting is
required to approve the 1997 Amendment. If no direction is given to the
contrary, all proxies received by the Board of Directors will be voted "FOR"
approval of the 1997 Amendment.
The Board of Directors recommends that the stockholders vote "FOR" approval
of the 1997 Amendment.
4. APPROVAL OF THE 1996 PERFORMANCE STOCK OPTION PLAN
The Board of Directors adopted on September 5, 1996, subject to approval by
the stockholders, the 1996 Performance Stock Option Plan (the "Performance
Plan"). The Performance Plan reserves 800,000 shares of Class A Common Stock to
be granted to employees of the Company or any of its subsidiaries, consultants
and others to purchase shares of the Company's Class A Common Stock. The
Performance Plan is designed to enable the Company to attract and retain the
best available personnel, to provide additional incentive to employees,
consultants and others, to promote the success of the Company and reward those
who are contributing to the success of the Company as it commercializes its
technology.
Under the terms of the Performance Plan, the Company is authorized to grant
options that qualify as incentive stock options or ISOs under Section 422 of the
Internal Revenue Code and non-qualified options or NQSOs to employees of the
Company or any of its subsidiaries, to consultants and others to purchase shares
of the Company's capital stock. The options pursuant to the Performance Plan are
a matter of separate inducement and are not in lieu of any salary or other
compensation for services. The following summary of certain features of the
Performance Plan is qualified in its entirety by reference to the full text of
the Performance Plan, a copy of which will be furnished to any stockholder, upon
written request of such stockholder directed to Mr. James Stokes Hatch,
Secretary, 480 Pleasant Street, Lee, Massachusetts 01238.
Summary of the Performance Plan
General. The Performance Plan permits the Company to grant ISOs and NQSOs
to employees, consultants and others. The Performance Plan is designed to create
specific incentives to achieve specifically defined performance benchmarks by
providing certain key personnel with options that will vest upon the occurrence
of such specifically defined performance benchmarks. The Performance Plan
terminates at the close of business on September 5, 1996, unless sooner
terminated by action of the Compensation Committee, or the Board of Directors if
there is no Compensation Committee. The Performance Plan covers a maximum of
800,000 shares of the authorized Class A Common Stock, which may be either
authorized and unissued shares of Class A Common Stock or shares of Class A
Common Stock held in the Company's treasury, or both, at the discretion of the
Company. When any outstanding option or portion thereof expires, is canceled, is
forfeited or is otherwise terminated for any reason without having been
exercised or payment having been made in respect of the entire option, the
related shares of Class A Common Stock may be available for distribution in
connection with other options granted under the Performance Plan. Adjustments
may be made in the number of shares reserved under the Performance Plan, in the
option price and in the number of shares subject to stock options and shares of
the Company may be appropriately substituted for new shares in the event of any
stock dividend, stock split, combination or exchange of shares, recapitalization
or other change in the capital structure of the Company, corporate separation or
division, sale by the Company of all or a substantial portion of its assets,
rights offering, merger, consolidation, reorganization or partial complete
liquidation, or any other corporate transaction or event having an effect
similar to any of the foregoing.
Because grants under the Performance Plan are discretionary, the Company
cannot now determine the number of options to be received by any particular
person. The number of such options shall be determined by the Compensation
Committee, or the Board of Directors if there is no Compensation Committee,
pursuant to the terms of the Performance Plan. It is currently estimated that 10
employees are eligible to participate in the Performance Plan.
Administration. The Performance Plan is administered by the Compensation
Committee, or the Board of Directors if there is no Compensation Committee. The
Compensation Committee is comprised of no fewer than two members of the Board of
Directors, who are non-employee directors within the meaning of Rule 16b-3
promulgated under the Exchange Act. The Compensation Committee has the sole and
complete discretion, subject to the terms of the Performance Plan, to (i) select
employees of the Company, consultants, and others as recipients of options; (ii)
determine the number and type of options to be granted; (iii) determine the
terms and conditions of any options granted; (iv) adopt, alter and repeal such
administrative rules, guidelines and practices governing the Performance Plan as
it shall deem advisable; (v) interpret the terms and provisions of the
Performance Plan and any option granted and any agreements relating thereto; and
(vi) otherwise supervise the administration of the Performance Plan.
Stock Options. Stock options granted under the Performance Plan may be
either ISOs or NQSOs. If the aggregate fair market value (determined as of the
time of the grant of an ISO) of shares with respect to which ISOs are
exercisable for the first time by a single optionee during any calendar year
under the Performance Plan and any other stock option plan of the Company and
any parent or any subsidiary of the Company exceeds $100,000, any options which
otherwise qualify as Incentive Options, to the extent of the excess, will be
treated as NQSOs.
The exercise price for stock options shall be determined by the
Compensation Committee, or the Board of Directors if there is no Compensation
Committee, and shall be set forth in an option agreement entered into with the
optionee, provided, however, that the exercise price for an option shall not be
less than the fair market value of a share of Class A Common Stock on the date
of grant (110% in the case of an ISO granted to a 10% or more stockholder). On
June 13, 1997, the closing sale price of the Class A Common Stock, as reported
by Nasdaq, was $1.375 per share.
The Compensation Committee is to specify the time or times at which such
options will be exercisable, except that the termination date for any stock
option shall not exceed 10 years from the date of grant (five years in the case
of an ISO granted to a 10% or more stockholder). Options may be exercised within
three months following the retirement of an optionee and within twelve months
following the death or disability of an optionee, provided, that no option may
be exercised following the period of exercisability set forth in the agreement
related thereto. Except as otherwise determined by the Compensation Committee if
an optionee voluntarily terminates his or her employment, or is discharged, any
option granted under the Performance Plan shall be canceled and the optionee
shall have no further rights to exercise any such option and all of the
optionee's rights shall terminate as of the effective date of such termination
of employment.
Stock options may be exercised by an optionee in whole or in part by giving
written notice to the Secretary of the Company and the exercise price therefor
may be paid by delivering cash or shares of unrestricted Class A Common Stock
having a fair market value equal to the cash exercise price of the options being
exercised. If the Company in its sole discretion establishes other cashless
exercise features optionees may also exercise their options without a concurrent
payment of the option price, provided that the purchased option shares are
immediately sold by a designated broker and the option price is paid directly to
the Company out of the sale proceeds.
Stock options are nontransferable other than by will or by the laws of
descent and distribution, and stock options are exercisable during the
optionee's lifetime only by the optionee.
Change of Control. In the event of a "Change of Control," as defined in the
Performance Plan, all options outstanding shall be immediately and fully
exercisable during the remaining term thereof, shall become fully vested and
shall remain so, whether or not the optionee to whom such options have been
granted remains an employee of the company or its subsidiaries.
Amendments. The Compensation Committee may terminate, suspend or amend the
Performance Plan, provided that such amendment, suspension, or termination may
not affect the validity of the then outstanding options, and provided further
that the Compensation Committee may not, without the approval of stockholders
(i) increase the total number of shares which may be issued under the
Performance Plan, (ii) modify the provisions of the Performance Plan relating to
eligibility, (iii) materially increase the benefits accruing to participants
under the Performance Plan, or (iv) extend the maximum period of the Performance
Plan.
Withholding Taxes. The Performance Plan provides that the Company may
deduct from any distribution to an employee, consultant or other an amount equal
to all federal, state and local income taxes or other amounts as may be required
by law to be withheld.
Federal Income Tax Consequences
The following general description of federal income tax consequences is
based upon current statutes, regulations and interpretations. This description
is not intended to address specific tax consequences applicable to individual
participants.
Incentive Stock Options. No regular income tax consequences result from the
grant of an ISO or the exercise of an ISO by the employee, provided the employee
continues to hold the stock acquired on the exercise of an ISO for the requisite
holding periods described below. The employee will be taxed only upon the sale
or disposition of the stock acquired under an ISO and the gain recognized at
that time will be long-term capital gain. The holding period requirements
necessary for ISO treatment are as follows: (i) such shares may not be disposed
of within two years from the date the ISO is granted, and (ii) such shares must
be held for at least one year from the date the shares are transferred to the
employee upon the exercise of the ISO. In addition, to receive ISO treatment,
the option holder generally must be an employee of the Company or a subsidiary
of the Company from the date the stock option is granted until three months
before the date of exercise.
If an employee disposes of stock acquired upon exercise of an ISO before
expiration of the applicable holding periods, the employee will be taxed at
ordinary income tax rates on the date of disposition measured by the lesser of:
(i) the fair market value of the stock on the date of exercise of the ISO minus
the option price or (ii) the amount realized on disposition minus the option
price, and the Company will receive a corresponding income tax deduction. In the
case of a sale where a loss, if sustained, would be recognized, the amount of
the optionee's income, and the amount of the Company's corresponding expense
deduction, will not exceed the difference between the sale price and the
adjusted basis of the shares.
The amount by which the fair market value of shares received upon exercise
of an ISO exceeds the option price constitutes an item of tax preference that
may be subject to the alternative minimum tax. If an employee is subject to the
alternative minimum tax as a result of the exercise of an ISO, for purposes of
calculating the gain on a disposition of the stock solely for purposes of the
alternative minimum tax, the amount treated as a preference item will be added
to his tax basis for the stock. Gain realized by an employee upon the
disposition of stock acquired through the exercise of an ISO is taxable in the
year of disposition, but such income is not subject to income tax withholding if
the requisite holding periods have been satisfied. If either of the holding
periods is not satisfied, however, the disposition of the stock may result in
taxable income to the employee as additional compensation which is subject to
withholding.
Non-Qualified Stock Options. With regard to NQSOs, the employee will
recognize ordinary income at the time of the exercise of the option in an amount
equal to the difference between the exercise price and the fair market value of
the shares received on the date of exercise. Such income will be subject to
withholding. When the employee disposes of shares acquired upon the exercise of
the option, any amount received in excess of the fair market value of the shares
on the date of exercise will be treated as long-term or short-term capital gain,
depending upon the holding period of the shares. If the amount received upon
sale is less than the fair market value of the shares on the date of exercise,
the loss will be treated as long-term or short-term capital loss, depending upon
the holding period of the shares
Section 162(m) of the Code generally prohibits the Company from deducting
compensation of a "covered employee" to the extent the compensation exceeds
$1,000,000 per year. For this purpose, "covered employee" means the chief
executive officer of the Company and the four other highest compensated officers
of the Company. Certain performance-based compensation (including, under certain
circumstances, stock option compensation) will not be subject to, and will be
disregarded in applying, the $1,000,000 deduction limitation. It is the
Company's intention that options granted under the Performance Plan qualify as
"performance-based" compensation under Section 162(m).
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