SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ] Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14a-12
Gentner Communications Corporation
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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[ ] Fee paid previously with preliminary materials.
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GENTNER COMMUNICATIONS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
October 10, 2001
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Gentner Communications Corporation (the "Company"), a Utah Corporation, will be
held on November 14, 2001, at 3:00 P.M. MST, at the Company's corporate offices
located at 1825 Research Way, Salt Lake City, Utah 84119 for the following
purposes:
1. To elect six members of the Company's Board of Directors;
2. To amend the Articles of Incorporation of the Company to change
the name of the Company from "Gentner Communications
Corporation" to "ClearOne Communications Inc.;"
3. To approve an amendment to the Company's 1998 Stock Option Plan
to increase the number of shares of Common Stock reserved for
issuance thereunder by 800,000;
4. To ratify the appointment of the Company's independent auditors;
and
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The Board of Directors recommends that an
affirmative vote be cast in favor of all nominees and for each of the proposals
listed in the proxy card.
Only the shareholders of record at the close of business on October 1,
2001 are entitled to notice of and to vote at the meeting and any adjournment
thereof.
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All shareholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if such shareholder has previously returned
a proxy.
FOR THE BOARD OF DIRECTORS
/s/ Frances M. Flood
-------------------------------------------------
Frances M. Flood, President and
Chief Executive Officer
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GENTNER COMMUNICATIONS CORPORATION
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
The enclosed Proxy is solicited on behalf of the Board of Directors of
Gentner Communications Corporation (the "Company") for use at the Company's
Annual Meeting of Shareholders ("Annual Meeting") to be held November 14, 2001
at 3:00 P.M. MST, or at any postponement or adjournment thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held at the above date and time at the
Company's offices located at 1825 Research Way, Salt Lake City, Utah 84119. The
telephone number at that address is (801) 975-7200.
These proxy solicitation materials were first mailed on or about October
10, 2001 to all shareholders entitled to vote at the Annual Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
Record Date and Shares Outstanding
Shareholders of record at the close of business on October 1, 2001 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting. On
the Record Date, _,___,___ shares of Common Stock were issued and outstanding.
Each shareholder will be entitled to one vote for each share of Common Stock
held on the record date.
Voting of Proxies
By completing and returning the accompanying proxy, the shareholder
authorizes Frances M. Flood, President and CEO, and James A. Valeo, Vice
President and General Counsel, as designated on the face of the proxy, to vote
all shares for the shareholder. All proxies that are properly signed and dated
will be voted as the shareholder directs. If no direction is given, executed
proxies will be voted FOR each of the nominees and listed proposals.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to James A. Valeo,
Secretary of the Company, a written notice of revocation, a duly executed proxy
bearing a later date or by attending the Annual Meeting and voting in person.
Solicitation
The cost of this solicitation will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers, and regular employees, without additional
compensation, personally or by telephone, facsimile, or telegram.
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Deadline for Receipt of Shareholder Proposals
The Company currently anticipates the Annual Meeting in 2002 will be
held on or about November 14, 2002. Any shareholder desiring to submit a
proposal for inclusion in the Company's proxy statement and form of proxy for
the Company's 2002 Annual Meeting of Shareholders should transmit such proposal
to the Secretary of the Company on or before June 10, 2002. For any other
proposal that a shareholder wishes to have considered at the Company's 2002
Annual Meeting, the shareholder must notify the Company of the proposal on or
before August 26, 2002. Proposals for which the Company receives notice after
that time will be considered untimely, and the persons serving as proxies will
have discretionary authority to vote on such matter at the meeting.
Vote Required for Approval
A quorum of the shares of the Company must be present at the Annual
Meeting in order for the shareholders to take official action. Under Utah law
and the Articles of Incorporation and Bylaws of the Company, a quorum will exist
if a majority of the shares issued by the Company and entitled to vote on a
matter at the Annual Meeting are present, in person or by proxy. Abstentions and
broker non-votes will be considered present at the Annual Meeting and will be
counted for purposes of determining whether a quorum exists, but abstentions and
broker non-votes will not be counted for purposes of determining the vote on any
matter currently proposed for action at the Annual Meeting. The election of
directors will be determined by plurality vote. The Board of Directors
recommends that an affirmative vote be cast in favor of all nominees and for
each of the proposals listed in the proxy card.
STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership
of the Common Stock of the Company as of September 1, 2001 by (i) each person
known to the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock of the Company, (ii) each director of the Company,
(iii) the Chief Executive Officer and each other executive officer of the
Company whose salary and bonus for the year ended June 30, 2001 exceeded
$100,000, and (iv) all executive officers and directors of the Company as a
group. Each person has sole investment and voting power with respect to the
shares indicated, subject to community property laws where applicable, except as
otherwise indicated below. The address for each beneficial owner is in care of
the Company, 1825 Research Way, Salt Lake City, Utah 84119.
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Amount of Percentage
Names of Beneficial Owners Beneficial Ownership(1) of Class(2)
-------------------------- --------------------- ---------
Edward Dallin Bagley 1,738,668(3) 20.2%
Frances M. Flood 296,913(4) 3.4%
Susie Strohm 169,729(5) 2.0%
Brad R. Baldwin 102,666(6) 1.2%
Curtis Hewitson 70,224(7) 0.8%
Tracy Bathurst 39,730(8) 0.5%
David J. Wiener 18,500(9) 0.2%
Randall J. Wichinski 18,200(10) 0.2%
Eugene W. Kuntz, Jr. 15,813(11) 0.2%
Harry Spielberg 5,000(12) 0.1%
Directors and Executive Officers
as a Group (11 people) 2,500,513(3-13) 29.0%
1 For each shareholder, the calculation of percentage of beneficial ownership
is based on 8,612,978 shares of Common Stock outstanding as of September 1,
2001 and shares of Common Stock subject to options held by the shareholder
that are currently exercisable or exercisable within 60 days of September 1,
2001.
2 The percentage ownership for any person is calculated assuming that all the
stock that could be acquired by that person within 60 days by option
exercise or otherwise, is in fact outstanding and that no other stockholder
has exercised a similar right to acquire additional shares.
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3 Director. Includes: 1,321,285 shares owned directly; options to purchase
5,000 shares that are exercisable within 60 days; 100,000 shares owned by a
corporation controlled by Mr. Bagley; 50 shares owned by Mr. Bagley's wife
as custodian for one of Mr. Bagley's daughters; and 312,333 shares held in
the Bagley Family Revocable Trust, of which Mr. Bagley is co-trustee.
Excludes: 50 shares owned by another of Mr. Bagley's daughters who is not a
member of his household. Mr. Bagley disclaims beneficial ownership of such
50 shares and fifty percent of the shares owned by the Bagley Family
Revocable Trust.
4 President, CEO and Director. Includes: 54,579 shares owned directly; options
to purchase 242,334 shares that are exercisable within 60 days.
5 Vice President. Includes: 31,265 shares owned directly; options to purchase
138,464 shares that are exercisable within 60 days.
6 Director. Includes: 67,666 shares owned directly; options to purchase 30,000
shares that are exercisable within 60 days; and 5,000 shares owned by Mr.
Baldwin's wife.
7 Vice President. Includes: 6,724 shares owned directly; options to purchase
63,500 shares that are exercisable within 60 days.
8 Vice President. Includes: 730 shares owned directly; options to purchase
39,000 shares that are exercisable within 60 days.
9 Director. Includes: 6,000 shares owned directly; options to purchase 12,500
shares that are exercisable within 60 days.
10 CFO and Director. Includes: 5,700 shares owned directly; options to purchase
12,500 shares that are exercisable within 60 days.
11 Vice President. Includes: 813 shares owned directly; options to purchase
15,000 shares that are exercisable within 60 days.
12 Director. Includes: 0 shares owned directly; options to purchase 5,000
shares that are exercisable within 60 days.
13 Includes: An additional 70 shares owned directly by one additional officer;
and options to purchase 25,000 shares that are exercisable within 60 days by
this officer.
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PROPOSAL ONE -- ELECTION OF DIRECTORS
The Company currently has six directors. Six are nominated for
re-election at the Annual Meeting to serve until the next Annual Meeting of
Shareholders or until their respective successors are duly elected and
qualified. Unless otherwise instructed, the proxies will be voted for the
election of the six nominees named below. In the event any nominee is unable to
serve, the proxies will be voted for a substitute nominee, if any, to be
designated by the Board of Directors. The Board of Directors has no reason to
believe any nominee will be unavailable.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION OF THE
NOMINEES NAMED ABOVE TO THE BOARD OF DIRECTORS.
Nominees
The following individuals are currently directors of the Company:
Name Age Principal Occupation Since
---- --- -------------------- -----
Edward Dallin Bagley 63 Attorney 1994
Brad R. Baldwin 46 Attorney and Commercial 1988
Real Estate Agent
Frances M. Flood 45 Chairman of the Board of 1998
Directors, Chief
Executive Officer and
President
Harry Spielberg 50 Director of Cosentini 2001
Information Technologies'
Audiovisual Group
Randall J. Wichinski 48 Vice President and Chief 1999
Financial Officer
David Wiener 43 President and CEO of 2000
SoundTube Entertainment,
Inc.
Edward Dallin Bagley has been a Director of the Company since April
1994. Previously, Mr. Bagley served as a Director of the Company from April 1987
to July 1991. Mr. Bagley began practicing law in 1965. Mr. Bagley is currently a
director of Tunex International, NESCO, Inc., and Buyers Online.com. Mr. Bagley
received a Juris Doctorate in 1965 from the University of Utah College of Law.
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Brad R. Baldwin has been a Director of the Company since 1988. Mr.
Baldwin currently is an attorney licensed in Utah and is engaged in the
commercial real estate business with Colliers Commerce CRG in Salt Lake City.
From October 1, 1994 to January 30, 2000, Mr. Baldwin served as President and
Chief Executive Officer of Bank One, Utah, a commercial bank headquartered in
Salt Lake City, Utah. Mr. Baldwin received a Juris Doctorate in 1980 from the
University of Washington.
Frances M. Flood has been a Director of the Company since June of 1998.
Ms. Flood joined the Company in October 1996 as Vice-President of Sales and
Marketing. She was named President in December 1997, Chief Executive Officer in
June 1998 and Chairman of the Board in November 2000. Prior to joining the
Company, Ms. Flood was Area Director of Sales and Marketing for Ernst & Young,
LLP, an international accounting and consulting firm. Ms. Flood has over
twenty-five years experience in sales, marketing, change management,
international business and finance. Ms. Flood is currently a director of Mining
Services International and SoundTube Entertainment, Inc. Ms. Flood graduated
from Thomas Edison State College with a B.S./B.A. degree in Banking and Finance.
Harry Spielberg has been a Director of the Company since January 2001.
Since January 1996, Mr. Spielberg has been the Director of Cosentini Information
Technologies' Audiovisual Group, a division of the consulting engineering firm,
Cosentini Associates. Previously, Mr. Spielberg served as Vice President,
Engineering for Media Facilities Corp. and Barsky & Associates. Mr. Spielberg
received a Bachelor of Art degree in Psychology from the State University of New
York.
Randall J. Wichinski has been a Director of the Company since June 1999.
Since August 2001, Mr. Wichinski has been Vice President and Chief Financial
Officer of the Company. Prior to joining the Company, he served as the Senior
Tax Officer of Ohio National Financial Services. From April 1983 to March 1999,
Mr. Wichinski was employed at Ernst & Young LLP, an international accounting and
consulting firm, serving as a Tax Partner for ten years. He received a
bachelor's degree in 1977 and a Masters of Business Administration degree in
1982 from the University of Wisconsin-Madison.
David Wiener has been a Director of the Company since January 2000. Mr.
Wiener has served as President and CEO of SoundTube Entertainment, Inc., a
manufacturer of innovative commercial and consumer audio speakers, since January
1995. SoundTube Entertainment is a division of David Wiener Ventures, a product,
fashion and image development company founded by Mr. Wiener in 1982. Mr. Wiener
received his bachelor's degree in engineering, aerodynamics and art from
Hampshire College in Amherst, Massachusetts.
Director Compensation
All directors serve until their successors are elected and have
qualified. The Company pays each director $650 per month for services provided
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as a director. Directors who are also employees of the Company receive no
additional compensation for serving on the Board of Directors.
Committees of the Board of Directors
The Board of Directors has two committees: the Audit and Compensation
Committees. The Audit Committee is currently composed of Mr. Edward Dallin
Bagley, Mr. Brad R. Baldwin, Mr. Harry Spielberg and Mr. David Wiener. The
Compensation Committee is currently composed of Mr. Edward Dallin Bagley, Mr.
Brad R. Baldwin, Mr. Harry Spielberg and Mr. David Wiener. The Audit Committee
is authorized to review proposals of the Company's auditors regarding annual
audits and quarterly reviews, recommend the engagement or discharge of the
Company's auditors, review recommendations of such auditors concerning
accounting principles and the adequacy of internal controls and accounting
procedures and practices, to review the scope of the annual audit and quarterly
reviews, to approve or disapprove each professional service or type of service
other than standard auditing services to be provided by the auditors, and to
review and discuss the audited financial statements with the auditors. The
Compensation Committee makes recommendations to the Board of Directors regarding
remuneration of the executive officers and directors of the Company and
administers the incentive plans for directors, officers and key employees.
Meetings of the Board of Directors and Committees
The Board of Directors held six meetings during the last fiscal year.
The Audit Committee held four formal meetings during the last fiscal year. The
Compensation Committee held four formal meetings during the last fiscal year.
During the last fiscal year no incumbent director attended fewer than 75 percent
of all meetings.
Report of the Audit Committee
The Audit Committee oversees the Company's financial reporting process
on behalf of the Board of Directors. Management has the primary responsibility
for the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the Committee
reviewed the audited financial statements in the Annual Report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
with the Committee under generally accepted auditing standards. In addition, the
Committee has discussed with the independent auditors the auditors' independence
11
from management and the Company including the matters in the written disclosures
required by the Independence Standards Board and considered the compatibility of
nonaudit services with the auditors' independence.
The Committee discussed with the Company's independent auditors the
overall scope and plans for their audits. The Committee meets with the
independent auditors, with and without management present, to discuss the
results of their examinations, their evaluations of the Company's internal
controls, and the overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Annual Report on Form
10-K for the year ended June 30, 2001 for filing with the Securities and
Exchange Commission. The Committee and the Board have also recommended, subject
to shareholder approval, the selection of the Company's independent auditors.
With one exception, each member of the Audit Committee is an independent
director as defined in Rule 4200(a)(14) of the National Association of
Securities Dealers listing standards. The Board determined that David Wiener is
not independent because Frances Flood, President, CEO and Chairman of the Board
of the Company is also a member of the Board of Directors of SoundTube
Entertainment, Inc. David Wiener is President, CEO and a Director of SoundTube
Entertainment, Inc.
Finally, the Audit Committee has previously adopted a written Charter
that is included as Appendix A to this Proxy Statement.
Respectfully submitted by the members of the Audit Committee.
Edward Dallin Bagley
Brad R. Baldwin
Harry Spielberg
David Wiener
Filling of Vacancy on Board
The Board of Directors of the Company is considering enlarging the Board
of Directors to include one additional member and filling the vacancy created by
such action prior to the Annual Meeting. The bylaws of the Company provide that
the Company may have up to nine directors on the Board, with the size of the
Board determined by resolution of the Board. The Company currently has six
directors as described above in Proposal One. The bylaws of the Company require
that any director appointed by the Board to fill such a vacancy must be approved
by the shareholders of the Company at its next annual meeting. The bylaws also
provide that directors are elected and approved by a plurality vote of the
shareholders.
Under the Securities and Exchange Commission rules applicable to this
proxy statement, the Company cannot solicit proxies to vote for a director's
position if a nominee for that position is not named in the proxy statement.
Accordingly, because the Board has not, as of the date of this proxy statement,
determined to enlarge the Board, the Company is not soliciting proxies for votes
regarding any such possible seventh Board member. In the event that prior to the
Annual Meeting the Board does enlarge the Board and appoints another director to
fill the vacancy, that newly appointed director will be submitted to the
shareholders present in person at the Annual Meeting for approval by a plurality
vote.
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Executive Officers
Officers are elected to serve, subject to the discretion of the Board of
Directors, until their successors are appointed. The executive officers of the
Company are as follows:
Name Age Position
---- --- --------
Frances M. Flood 45 President and Chief Executive Officer
Tracy Bathurst 37 Vice President of Technology - Research
Curtis Hewitson 37 Vice President of Human Resources
Eugene W. Kuntz, Jr. 38 Vice President of Technology - Development
Susie S. Strohm 41 Vice President of Finance and Controller
James A. Valeo 40 Vice President of Strategic Operations and
General Counsel
Randall J. Wichinski 48 Vice President and Chief Financial Officer
For the biography of Ms. Flood, see "Directors."
Tracy Bathurst was named Vice President of Technology - Research in
April 2000. He has been with Gentner since September 1988, serving in various
roles in engineering and engineering management. He is responsible for
technology development for the organization. Prior to joining the Company, Mr.
Bathurst worked in the cable television and telecommunications industries for
over five years. Mr. Bathurst holds a Bachelor of Science degree from Southern
Utah University.
Curtis Hewitson was named Vice President of Human Resources for Gentner
Communications in November 1998. He has been with Gentner since December 1994
serving in Human Resources. He is responsible for all aspects of Human Resources
and office administration. Prior to joining the Company, Mr. Hewitson worked in
the telecommunications industry for nine years. In 1989, Mr. Hewitson received a
Bachelor of Science degree from the University of Utah.
Eugene W. Kuntz, Jr. has been with Gentner Communications since November
1999. Mr. Kuntz was named Vice President of Technology - Development in January
2001. He is responsible for all engineering development projects and
manufacturing activities for the organization. From 1987 to November 1999, Mr.
Kuntz was a manager of research and development at Computer Sciences Corporation
in Clearfield, Utah. Mr. Kuntz holds a Bachelor of Science degree in Electrical
Engineering from Montana State University and a Masters of Business
Administration degree from Utah State University.
Susie S. Strohm became Vice President of Finance in 1997 and was named
CFO during 1998, a post she held until August 2001. In August 2001, Ms. Strohm
became the Company's controller and continues as its Vice President of Finance.
In February 1996, Ms. Strohm joined the Company as its Controller. She is
responsible for all the Company's accounting, financial and tax planning,
financial and management reporting, and Securities and Exchange Commission
13
filings. Prior to joining the Company, Ms. Strohm was the Controller for
Newspaper Agency Corporation in Salt Lake City, Utah. She graduated from the
University of Utah with a Bachelor of Science degree in Accounting, and received
her Masters of Business Administration degree from Westminster College.
James A. Valeo joined Gentner Communications as its Vice President of
Strategic Operations and General Counsel in October 2000. Prior to joining the
Company, from 1996 to 2000 he practiced law with the law firm of Jones Waldo
Holbrook & McDonough in Salt Lake City, Utah, focusing on mergers and
acquisitions, corporate finance, and general corporate law. Earlier, Mr. Valeo
worked for two law firms in Washington, D.C. Mr. Valeo received a Bachelor of
Arts degree from New York University in 1982, and a Juris Doctorate degree from
Boston University in 1986.
For the biography of Mr. Wichinski, see "Directors."
Executive Compensation
Summary Compensation
The following table sets forth, for each of the Company's last three
fiscal years, the compensation of the Chief Executive Officer of the Company and
the other previously named executive officers of the Company whose total salary
and bonus for the year ended June 30, 2001 exceeded $100,000, for services
rendered in all capacities to the Company during such fiscal years.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
------------------------------------ -----------
Compensation
Awards
------------------------
Payouts
Securities
Other Restric- Under- All
Annual ted lying Other
Compen- Stock Options LTIP Compen-
Name and Position Year Salary Bonus sation Awards /SARS Payoutssation(1)
----------------- ---- ------ ----- ------ ------ ----- --------------
Frances M. Flood Fiscal
CEO & President 2001 $160,000 $58,400 None None None None $2,056
Fiscal
2000 $160,333 $73,700 None None 50,000 None $1,802
Fiscal
1999 $104,912 $66,064 None None None None $2,022
Tracy Bathurst Fiscal
Vice President(2) 2001 $100,000 $18,500 None None None None $1,850
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Fiscal
2000 $93,073 $5,000 None None 50,000 None $1,765
Curtis Hewitson Fiscal
Vice President 2001 $80,002 $13,600 None None None None $2,179
Fiscal
2000 $73,574 $31,400 None None 50,000 None $1,841
Fiscal
1999 $60,000 $10,278 None None None None $1,800
Eugene W. Kuntz, Jr. Fiscal
Vice President(3) 2001 $92,502 $9,500 None None 30,000 None $1,850
Susie Strohm Fiscal
Vice President 2001 $110,000 $37,000 None None None None $2,316
Fiscal
2000 $100,167 $55,538 None None 50,000 None $1,976
Fiscal
1999 $72,716 $44,414 None None None None $1,721
1 This amount reflects the Company's contributions to the deferred
compensation (401(k)) plan.
2 Mr. Bathurst was not an executive officer until fiscal year 2000.
3 Mr. Kuntz was not an executive officer until fiscal year 2001.
Stock Options/SARS
The following table sets forth the stock option and SAR grants to the
named executive officers for the last fiscal year:
OPTION/SAR GRANTS IN FISCAL YEAR ENDED JUNE 30, 2001
(INDIVIDUAL GRANTS)
Number of Percent of
Securities Total Options
Underlying /SARs Granted Exercise
Options/SARs to Employees or Base Expiration
Name and Position Granted (#) in Fiscal Year Price ($/Sh) Date
----------------- ----------- -------------- ------------ ----
Eugene W. Kuntz, Jr. 30,000 6% $12.50 12/01/2010
These underlying options will vest in total ("cliff vest") at the end of
six years from the date of grant. However, vesting of all or a portion of these
options may be accelerated if certain targeted earnings per share goals are met.
15
Aggregated Stock Option/SAR Exercises
The following table sets forth the aggregated stock options and SARs
exercised by the named executive officers in fiscal 2001 and the year-end value
in-the-money of unexercised options and SARs:
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR ENDED JUNE 30, 2001
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Shares
Acquired Value Exercisable/ Exercisable/
Name and Position on Exercise (#) Realized ($) Unexercisable Unexercisable(1)
----------------- --------------- ------------ ------------- --------------
Frances M. Flood 0 $0 176,334/146,000 $1,655,344/$828,750
Tracy Bathurst 0 $0 19,750/80,250 $174,140/$182,085
Curtis Hewitson 0 $0 35,750/99,250 $294,619/$399,069
Eugene W. Kuntz, Jr. 0 $0 2,500/57,500 $0/$0
Susie Strohm 0 $0 99,464/119,000 $902,607/$564,724
1 This value was calculated based on the closing stock price of $10.60 on June
30, 2001.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has provided the following report:
Committee's Responsibilities - The Committee sets the overall
compensation principles for the Company, subject to annual review. In
consultation with the CEO, it establishes the individual compensation levels for
Company executives. None of the members of the committee is a current or former
employee of the Company.
Executive Compensation Policy - Gentner Communications Corporation's
compensation goals are as follows:
o To attract and retain quality talent
16
o To use incentive compensation to reinforce strategic performance
objectives
o To align the interest of the executives with the interests of the
shareholders such that risks and rewards of strategic decisions are
shared
All compensation is tax deductible for the Company, except for the
compensation that qualifies for incentive stock option tax treatment.
Base Compensation - The Committee believes that base compensation needs
to be competitive with market rates, and makes salary decisions in coordination
with the CEO. The fiscal 2001 base pay rates of the four executive officers
increased 5.5% from fiscal 2000 base pay rates. The CEO's base pay did not
change from fiscal 2000 to fiscal 2001.
Quarterly/Annual Bonus Plan - The fiscal year 2001 annual bonus plan was
developed to reward executives based on meeting or exceeding certain internal
financial objectives that were created by the executive team. The Committee
believed in fiscal 2001 that executive base pay was compensation for achieving
publicly stated targets. The financial objectives were established in the
beginning of the fiscal year and were based on the Company's profitability.
Objectives were established for each fiscal quarter, together with an annual
objective. If a quarterly objective was met, a bonus was paid for that quarter.
If a quarterly objective was not met, then no bonus was paid. Executives were
not allowed to make up a missed quarterly bonus based on subsequent performance.
A significant portion of the bonus pool was set aside for annual financial
objectives. A single quarterly objective was made and a bonus paid for that
quarter. The annual internal financial objective was not met, and no annual
bonus was paid to any executive, including the CEO.
Long-Term Incentive Compensation - The Compensation Committee uses
employee stock options for long-term executive compensation as a means of
achieving the compensation goals previously described. Options are granted under
the Company's 1998 Stock Option Plan (the "Plan"). The Compensation Committee,
in consultation with the CEO determines the number of options granted to each
executive. Factors bearing on the number of options granted to an executive
include his or her position, individual performance, and contribution to the
Company's overall performance.
Option grants under the Plan permit a recipient to purchase shares of
Company stock at a fixed price (the market price on the date the option is
granted). Options typically vest over five (5) years, and the number of shares
vesting in a given year is contingent on the Company achieving particular
earnings goals in each year. An executive's unvested options will cliff vest six
years after grant. In order to exercise vested options an executive must remain
with the Company (including a 90 day period following termination).
Employment and Severance Agreements - The Company has not entered into
Employment Agreements with any of its executives. All officers of the Company
are employed at will and can be terminated without cause. All employees of the
Company have signed Confidentiality Agreements to keep certain information
confidential.
17
The preceding Compensation Committee Report and the Company Stock
Performance Graph (set forth below) will not be incorporated by reference into
any of the Company's filings, past or future, that may be made pursuant to the
U.S. Securities laws.
Respectfully submitted by the members of the Compensation Committee.
Edward Dallin Bagley
Brad Baldwin
Harry Spielberg
David Wiener
Compensation Committee Interlocks
The Compensation Committee is made up of all external board members.
During fiscal 2001 Randy Wichinski was an external board member. On August 23,
2001, he joined the Company as its Vice President and Chief Financial Officer,
so as of the date of this report, he is no longer on the Compensation Committee.
The Company's Compensation Committee is currently comprised of Messrs.
Bagley, Baldwin, Spielberg, and Wiener. Frances Flood is a member of the board
of directors of Sound Tube Entertainment, Inc. Mr. Wiener is a member of the
board of directors of Sound Tube entertainment and the Company's Compensation
Committee.
STOCK PERFORMANCE GRAPH
The following graph sets forth the cumulative total shareholder return
(assuming reinvestment of dividends) to Gentner Communications Corporation's
shareholders during the five-year period ended June 30, 2001, as well as an
overall stock market index (Nasdaq Composite Index) and Gentner Communications
Corporation's peer group index (Goldman Sachs Technology Index):
[graph omitted]
18
The stock performance assumes $100 was invested on July 1, 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Gentner Research Ltd. ("GRL"), is a related limited partnership, formed
on August 1985, in which the Company is the general partner and Edward Dallin
Bagley and, among other unrelated parties, certain members of his family, are
the limited partners. In 1987 and 1988, GRL sold to the Company proprietary
interests in the VRC-1000 (now VRC-2000), VRC-1000 Modem (now VRC-2000) and
Digital Hybrid in exchange for royalty payments. Royalty expense recognized by
the Company for the years ending June 30, 2001, 2000, and 1999 was $3,600,
$16,000 and $39,900, respectively. GRL was dissolved on February 20, 2001 after
consent to dissolution and liquidation was received by a majority of the
partners of GRL. The product line, which incorporated the proprietary interest,
was deemed no longer integral to the product segment of the Company's business.
The following directors and/or executive officers and members of their immediate
families have purchased the following interests in GRL:
Edward Dallin Bagley (Director)................... 10.42%
The Bagley Family Revocable Trust................. 5.21%
Robert O. Baldwin (father of Brad Baldwin)........ 10.42%
The Company has also formed a second related limited partnership,
Gentner Research II, Ltd. ("GR2L"), also in which it acts as general partner. In
fiscal year 1997, GR2L sold proprietary interest in the GSC3000 to the Company
in exchange for royalty payments. Royalty expense related to product sales with
GR2L for the years ending June 30, 2001, 2000, and 1999 was $90,793, $106,084
and $82,989. GR2L was dissolved on May 21, 2001 after the completion of the sale
of the remote control portion of the RFM/Broadcast division to Burk Technology.
The Company paid $178,516 to GR2L in 2001, representing its royalty on the gain
on the sale of the remote control product line. The following directors and/or
executive officers and members of their immediate families have purchased the
following interests in GR2L:
Brad R. Baldwin (Director)........................ 3.19%
Robert O. Baldwin (father of Brad Baldwin)........ 9.58%
Edward D. Bagley (Director)....................... 6.39%
The Bagley Family Revocable Trust................. 6.39%
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of a registered class of the Company's equity securities to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes of ownership of equity securities of the Company. Officers,
directors and greater than 10% shareholders are required to furnish the Company
with copies of all Section 16(a) forms they file.
19
To the Company's knowledge, the persons described above have filed all
applicable Section 16(a) requirements during the preceding fiscal year, except
that the following Forms were filed late: Mr. Valeo's Form 4 relating to a grant
of stock options in November 2000 and Mr. Bagley's Form 4 relating to an open
market purchase of stock in October 2000.
20
PROPOSAL TWO - AMEND THE ARTICLES OF INCORPORATION OF
THE COMPANY TO CHANGE THE NAME OF THE COMPANY TO
CLEARONE COMMUNICATIONS INC.
The Board of Directors proposes and recommends to the shareholders that they
approve an amendment to the Company's Articles of Incorporation to change the
Company's name from "Gentner Communications Corporation" to [ ].
The Board unanimously approved both this amendment and the submission of the
amendment to the Company's shareholders for consideration. If the name change is
approved, the Company intends to continue using the "Gentner" name including in
marketing certain of its products (provided that the Company may discontinue the
use of the "Gentner" name at any time). The shareholders' approval of this
proposal to change the name of the Company also grants to the officers of the
Company the individual authority to take actions that may be required implement
the name change. These actions include, but are not limited to, the filing of
formal Articles of Amendment to the Articles of Incorporation on behalf of the
Company with the Division of Corporations of the State of Utah. The affirmative
vote of the holders of a majority of the Company's Common Stock issued and
outstanding as of the Record Date will be required to approve the name change
and the amendment of the Company's Articles of Incorporation. The change of name
to [ ] will become effective upon the filing of an amendment to the
Company's Articles of Incorporation, and will be implemented promptly by the
Company.
In the event that the proposal is approved, it will NOT be necessary for
shareholders to request new share certificates for their stock in Gentner;
current share certificates will continue to be honored the Company's transfer
agent. The Company has reserved a new trading symbol [ ] with NASDAQ for the
Company's shares.
THE BOARD OF DIRECTORS UNAMIMOUSLY RECOMMENDS A VOTE FOR AMENDMENT OF THE
COMPANY'S ARTICLES OF INCORPORATION
21
PROPOSAL THREE -- AMENDMENT OF 1998 STOCK OPTION PLAN
TO INCREASE BY 800,000 THE NUMBER OF SHARES AVAILABLE
FOR ISSUANCE THEREUNDER
Since 1998, the Company has provided stock options under the Company's
1998 Stock Option Plan (the "Plan"), which Plan was approved by the Shareholders
of the Company at the Company's annual meeting held on November 18, 1998. A copy
of the 1998 Plan is available to any shareholder by making written request to
the Company's Secretary. The Company believes that granting stock options as an
incentive to its employees is highly valuable in promoting increased stockholder
value. Management believes that stock options are one of the prime ways to
attract and retain key employees to the Company and to motivate participants to
increase shareholder value. In addition, stock options are considered a
competitive necessity in the industries in which the Company competes.
The Company currently grants options to employees upon initial hire, in
the discretion of management and the Compensation Committee, and periodically to
key employees or in recognition of achievement of certain performance criteria.
From 1998 to the end of the 2001 fiscal year, the number of Company employees
increased from 143 to 193.
As a result of the increase in number of employees, and the desire to
give further incentive to and retain current employees and officers in today's
highly competitive and tight labor market, only [________] options remain
available for grant under the 1998 Plan as of September 28, 2001, not including
the 800,000 shares subject to stockholder approval at this Annual Meeting.
Proposed Amendment
At the Annual Meeting, the stockholders are requested to approve an
amendment to the 1998 Plan to increase the number of shares reserved for
issuance thereunder by 800,000 shares, resulting in an aggregate of 2,500,000
shares reserved for issuance thereunder. The amendment to increase the number of
shares reserved under the 1998 Plan is proposed in order to give the Board of
Directors and the Compensation Committee of the Board of Directors greater
flexibility to grant stock options. The Company believes that granting stock
options motivates high levels of performance and provides an effective means of
recognizing employee contributions to the success of the Company. The Company
believes that this policy is of great value in recruiting and retaining highly
qualified technical and other key personnel, who are in great demand, as well as
rewarding and encouraging current employees. The Board of Directors believes
that the ability to grant options will be important to the future success of the
Company by allowing it to accomplish these objectives.
Summary of the Plan
Effective June 10, 1998, the Board of Directors approved the 1998 Stock
Option Plan (the "Plan") for the Company. The Plan was subsequently approved by
the shareholders of the Company at the 1998 Annual Meeting of Shareholders, held
22
on November 18, 2001. The purpose of the Plan is to provide stock option
incentives to directors, officers, other employees, consultants and advisors of
the Company (or any future subsidiary or parent company of the Company).
Described below are the material features of the Plan.
General
The Plan provides for the grant of ISOs qualified under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") and non-qualified
stock options ("NSOs"). The Plan can be administered either by the Board of
Directors or one or more committees of the Board of Directors (the
"Administrator"). Option grants are made at the discretion of the Administrator
and may be made to Company officers, directors, employees, and other persons as
determined by the Administrator. Presently, there are eight (8) executive
officers, four (4) non-employee directors, and 180 non-executive employees of
the Company employed by the Company, all of whom (as well as all future
employees) are eligible to participate in the Plan. The Plan will terminate upon
the earlier of June 10, 2008, or the date on which all shares available under
the Plan have been issued.
The Plan currently provides that a maximum of 1,700,000 shares of Common
Stock may be issued under the Plan (subject to adjustment in the event of stock
splits or other changes in the Common Stock as provided in the Plan). To the
extent that options granted under the Plan (i) expire or terminate for any
reason prior to exercise, or (ii) are cancelled and replaced by the
Administrator, the shares of Common Stock underlying such options will again be
available for award under the Plan.
Current shares issued under the Plan were registered with the Securities
and Exchange Commission ("SEC") on Form S-8 on May 12, 1999, to allow the public
sale of the shares issued pursuant to the Plan. If the amendment to increase the
number of shares by 800,000 is approved by the shareholders, those shares will
be "restricted" as defined under Securities and Exchange Commission ("SEC") Rule
144, until such time as the Company registers such shares under the Securities
Act of 1933. It is the Company's present intention to file a registration
statement on Form S-8 to allow the public sale of the shares issued pursuant to
the Plan. Cash proceeds from the exercise of option grants will be used for
general corporate purposes.
The Company's Board of Directors has determined that the Plan will
replace the Company's 1990 Stock Option Plan (the "1990 Plan") and no additional
option grants will be made under the 1990 Plan. All options issued under the
1990 Plan will remain outstanding subject to the terms and conditions of the
1990 Plan.
23
The Administrator
As mentioned above, the Administrator of the Plan can be the Board of
Directors or one or more committees of the Board of Directors. Such committee,
if it grants options to officers and directors of the Company, must be made up
of two or more "non-employee directors" (as defined under SEC Rule 16(b)(3)).
Currently, the Board of Directors has delegated authority to administer the Plan
to the Company's Compensation Committee. The Administrator has full authority
and discretion in the administration of the Plan, including adopting rules for
administration of the Plan and determining the designation of those persons
receiving option grants, the type of option granted, the number of shares to be
covered by options, the exercise price, and other options terms. The
Administrator's decisions in the administration of the Plan are final and
binding on all persons for all purposes.
Option Terms
The Company may grant ISOs under the Plan only to employees of the
Company. Such grants must be at an exercise price per share not less than 100%
of the fair market value of the Common Stock at the date of the grant (110% for
optionees holding 10% or more of the Company's Common Stock). The Plan limits
grants of ISOs that may be exercised by the holder during any calendar year to
$100,000 in market value. For optionees holding more than 10% of the Company's
Common Stock, ISOs must expire within five years from the date of grant. ISOs
are exercisable during a recipient's lifetime only by such recipient and are
transferable only upon death by will or the laws of descent and distribution.
The Company may grant NSOs under the Plan to directors, employees,
consultants and advisors. Such NSOs are not subject to the requirements of the
Code and, therefore, may not contain the same restrictions as ISOs issued under
the Plan. NSOs must, however, have an exercise price not lower than the fair
market value of the Common Stock on the date of grant. Additionally, no option,
either ISO or NSO, may have a term of more than 10 years from the date of grant.
The exercise price for options may be paid to the Company in cash, or at
the discretion of the Administrator, in shares of Common Stock, payments over
time, or through a sale and remittance procedure implemented by the Company with
a brokerage firm. Generally, an option right may be exercised only by the holder
within three months after his or her termination of employment (twelve months if
termination is due to disability). An option generally may be exercised no later
than twelve months following an active employee's death. Also, an option usually
is terminated immediately upon termination of an employee for material
misconduct. These general rules regarding exercise following termination may be
varied by the Administrator, but in no event may an option be exercised later
than the date of expiration of the option.
NSOs are transferable, in whole or in part, only (i) during the
recipient's lifetime if a transfer is made in connection with the recipient's
estate plan to one or more members of the recipient's immediate family (spouse
and children) or to a trust established exclusively for the benefit of one or
24
more such immediate family members, or (ii) by will or the laws of descent and
distribution following the recipient's death.
Options may or may not be subject to a vesting schedule, whereby the
options become exercisable by the recipient in portions. Such vesting may be
based on the passing of time, performance goals, or some other criteria
determined by the Administrator. Generally, such vesting may be accelerated by
the Administrator in its discretion in the event of a major corporation
transaction (such as a merger or sale of all assets) or certain changes in
control of the Company.
Amendments
The Board of Directors can increase the number of shares that may be
awarded under the Plan, subject in certain instances to approval by the
shareholders. The Administrator may otherwise amend the Plan at any time and in
any manner, subject to the rights of the holders of outstanding options as
specified in their option agreements.
Federal Income Tax Consequences of the 1998 Stock Option Plan
The following describes the general federal income tax consequences of
the option grants for grant recipients and the Company. A recipient will not
realize any income at the time an ISO is granted nor upon exercise of an ISO.
However, the difference between the option exercise price and the Common Stock's
fair market value at the time of exercise will be taken into account for
purposes of the recipient's alternative minimum income tax, if any.
Upon the subsequent disposition of shares of Common Stock acquired by
the exercise of an ISO more than (i) two years after the ISO is granted and (ii)
one year after the transfer of shares of Common Stock upon the exercise of such
option, the recipient will realize capital gain or loss upon such disposition.
The option exercise price will be the recipient's basis for determining the gain
or loss. If the subsequent disposition of stock occurs before the special
holding requirements describe above are met, the recipient generally will
recognize ordinary income upon such disposition equal to the excess of the fair
market value of the shares at the time the option was exercised over the
exercise price.
A recipient will not realize any income at the time an NSO is granted.
Upon the recipient's exercise of an NSO, the difference between the fair market
value of the Common Stock at the time of exercise and the option price will be
ordinary income to the employee.
At the time the recipient realizes ordinary income from the exercise of
an NSO, the Company will be entitled to a tax deduction in the same amount as
the ordinary income realized by the recipient. No such deduction or other tax
consequence is applicable to the Company upon grant or exercise of an ISO.
The foregoing is only a summary of the effect of federal income taxation
upon a recipient with respect to the grant and exercise of options under the
Plan. This summary does not purport to be complete and does not discuss the
income tax laws of any state or foreign country in which an employee may reside.
Awards Under the Stock Option Plan
The options have a term of a minimum of seven years and an exercise
price set on the date of a recipients date of employment or the date the grant
is approved by the Administrator. Each option vests (becomes exercisable)
annually with respect to a percentage of one-fifth (1/5) of the total option
25
shares upon the Company's achieving annual increases in earnings per share
("EPS") in the five fiscal years 2001-2006, as set forth on the schedule below.
The schedule set forth below will be adjusted with new annual EPS targets for
successive years over time. The annual increase in EPS and the number of Options
to become exercisable will be determined by the Administrator within forty-five
(45) days of the end of the fiscal year and shall be determined based on the
Company's audited financial statements for such fiscal year. For purposes of
determining EPS, the Administrator may, in its discretion, exclude or otherwise
adjust annual EPS due to the occurrence of an extraordinary event during the
fiscal year. Extraordinary events shall include the merger of the Company, the
Company's acquisition of all or substantially all assets or stock of another
company, the sale of all or substantially all assets or stock of the Company to
a third party, and other extraordinary transactions that are outside the
ordinary course of business. As of September 28, 2001, stock options for
__________ shares of Common Stock were outstanding under the Plan.
----------------------------------------------
Annual EPS
----------------------------------------------
Fiscal Year From To %
---------------- ------- ------- ------
2001 $0.4200 $0.4399 50%
----------------------------------------------
$0.4400 $0.4599 60%
----------------------------------------------
$0.4600 $0.4799 70%
----------------------------------------------
$0.4800 $0.4999 80%
----------------------------------------------
$0.5000 $0.5199 90%
----------------------------------------------
>$0.5200 100%
----------------------------------------------
2002 $0.6400 $0.6899 50%
----------------------------------------------
$0.6900 $0.7399 60%
----------------------------------------------
$0.7400 $0.7899 70%
----------------------------------------------
$0.7900 $0.8399 80%
----------------------------------------------
$0.8400 $0.8899 90%
----------------------------------------------
>$0.8900 100%
----------------------------------------------
2003 $1.0500 $1.1299 50%
----------------------------------------------
$1.1300 $1.2099 60%
----------------------------------------------
$1.2100 $1.2899 70%
----------------------------------------------
$1.2900 $1.3699 80%
----------------------------------------------
$1.3700 $1.4499 90%
----------------------------------------------
>$1.4500 100%
----------------------------------------------
2004 $1.5000 $1.5499 50%
----------------------------------------------
$1.5500 $1.5999 60%
----------------------------------------------
$1.6000 $1.6499 70%
----------------------------------------------
$1.6500 $1.6999 80%
----------------------------------------------
$1.7000 $1.7499 90%
----------------------------------------------
>$1.7500 100%
----------------------------------------------
2005 $1.8000 $1.8399 50%
----------------------------------------------
$1.8400 $1.8799 60%
----------------------------------------------
$1.8800 $1.9199 70%
----------------------------------------------
$1.9200 $1.9599 80%
----------------------------------------------
$1.9600 $1.9999 90%
----------------------------------------------
$2.0000 100%
----------------------------------------------
26
Based on the closing price of the Company's Common Stock on NASDAQ as of
September 28, 2001, the total market value of the __________ shares underlying
outstanding grants under the Plan is $__________.
A copy of the Plan is included in the exhibits to the Company's 1998
Form 10-KSB filed with the Securities and Exchange Commission ("SEC"). Such
report can be inspected and copies made at the public reference facilities of
the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of
the Form 10-KSB can also be obtained by searching the "EDGAR Archives" for the
Company's name on the SEC's web page at http://www.sec.gov. or by request to the
Company.
Required Vote and Board of Directors' Recommendation
The affirmative vote of a majority of the outstanding shares of the
Company present in person or represented by proxy and entitled to vote at the
Annual Meeting is required for approval of the proposed amendment to the 1998
Plan. The effect of an abstention is the same as a vote against approval of the
amendment. Should such stockholder approval not be obtained, then the 1998 Plan
will remain unchanged, and option grants and direct stock issuances will
continue to be made pursuant to the provisions of the 1998 Plan in effect prior
to the amendment summarized in this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF THIS PROPOSAL,
INCREASING THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER THE COMPANY'S STOCK
OPTION PLAN
27
PROPOSAL FOUR - RATIFICATION OF THE APPOINTMENT
OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young, LLP, as independent
auditors for the Company for the current fiscal year, and recommends that the
shareholders vote for ratification of such appointment. Ernst & Young, LLP, has
served as the Company's independent auditors since 1990. Fees for the last
fiscal year were annual audit fees of $70,800, audit related services of
$34,800, and all other nonaudit services of $18,800.
Neither Ernst & Young nor any of its members have ever had any direct or
indirect financial interest in the Company or been connected with the Company as
promoter, underwriter, voting trustee, director, officer, or employee. It is
anticipated that a representative of Ernst & Young will attend the Annual
Meeting and will be available to respond to questions. It is not anticipated
that the representative will make any statement or presentation, although the
representative will have an opportunity to do so if he desires.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF THE INDEPENDENT AUDITORS.
OTHER MATTERS
The Board of Directors knows of no other matter to be presented for
action at the Annual Meeting. If any other matters properly come before the
meeting, it is the intention of the persons named in the enclosed proxy to vote
the shares they represent as the Board of Directors may recommend.
It is important that your stock be represented at the meeting,
regardless of the number of shares which you hold. You are, therefore, urged to
execute and return the accompanying proxy in the postage-prepaid envelope
enclosed for that purpose at your earliest convenience.
FOR THE BOARD OF DIRECTORS
/s/ Frances M. Flood
--------------------------------------------
Frances M. Flood, President
and Chief Executive Officer
Salt Lake City, Utah
October 10, 2001
28
APPENDIX A
Gentner Communications Corporation
Audit Committee Charter
The following shall be the principal recurring processes of the audit committee
in carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the committee may supplement them as
appropriate.
o The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board and the audit committee, as representatives of the
Company's shareholders. The committee shall have the ultimate authority and
responsibility to evaluate and, where appropriate, recommend the replacement
of the independent auditors. The committee shall discuss with the auditors
their independence from management and the Company and the matters included
in the written disclosures required by the Independence Standards Board.
Annually, the committee shall review and recommend to the board the
selection of the Company's independent auditors, subject to shareholders'
approval.
o The committee shall discuss with the independent auditors the overall scope
and plans for their respective audits including the adequacy of staffing and
compensation. Also, the committee shall discuss with management and the
independent auditors the adequacy and effectiveness of the accounting and
financial controls, including the Company's system to monitor and manage
business risk, and legal and ethical compliance programs. Further, the
committee shall meet separately with the independent auditors, with and
without management present, to discuss the results of their examinations.
o The committee shall review the interim financial statements with management
and the independent auditors prior to the filing of the Company's Quarterly
Report on Form 10-Q. Also, the committee shall discuss the results of the
quarterly review and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards. The chair of the committee may represent the entire committee for
the purposes of this review.
o The committee shall review with management and the independent auditors the
financial statements to be included in the Company's Annual Report on Form
10-K (or the annual report to shareholders if distributed prior to the
filing of Form 10-K), including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of significant
judgments, and the clarity of the disclosures in the financial statements.
Also, the committee shall discuss the results of the annual audit and any
other matters required to be communicated to the committee by the
independent auditors under generally accepted auditing standards.
29
GENTNER COMMUNICATIONS CORPORATION
1998 STOCK OPTION PLAN
ARTICLE 1.
GENERAL PROVISIONS
------------------
1.1. PURPOSE OF THE PLAN
This 1998 Stock Option Plan (the "Plan") is intended to promote
the interests of Gentner Communications Corporation, a Utah corporation, (the
"Corporation") by providing eligible persons with the opportunity to acquire or
increase their proprietary interest in the Corporation as an incentive for them
to remain in the Service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms
in the attached Appendix.
1.2. ADMINISTRATION OF THE PLAN
a. The Plan shall be administered by the Board or, to the extent
required under applicable Stock Exchange requirements or if desired by the
Board, a committee of the Board. If administered by committee, the Primary
Committee shall have sole and exclusive authority to administer the Plan with
respect to Section 16 Insiders; committee authority to administer the Plan with
respect to all other persons may be vested in either the Primary Committee or a
Secondary Committee, as determined by the Board.
b. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may terminate the functions of any
Secondary Committee at any time and delegate all powers and authority previously
delegated to such committee to the Primary Committee. To the extent committee
administration is no longer required by applicable law, regulation or Stock
Exchange requirement, the Board may also terminate the functions of any
committee at any time and reassume all powers and authority previously delegated
to such committee.
c. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Plan and to make such determinations under, and issue such
interpretations of, the provisions of the Plan and any outstanding options
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the Plan under
its jurisdiction or any option thereunder.
30
d. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants under the Plan.
e. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to the
provisions of the Plan) to determine which eligible persons are to receive
option grants, the time or times when such option grants are to be made, the
number of shares to be covered by each such grant, the status of the granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times at which each option is to become exercisable, the vesting schedule (if
any) applicable to the option shares, the acceleration of such vesting schedule,
and all other terms and conditions of the option grants.
1.3. ELIGIBILITY
The following persons shall be eligible to participate in the
Plan:
a. Employees,
b. non-employee members of the Board or the board of directors of
any Parent or Subsidiary, and
c. consultants and other independent advisors who provide
Services to the Corporation or any Parent or Subsidiary.
1.4. STOCK SUBJECT TO THE PLAN
a. The stock issuable under the Plan shall be shares of
authorized but unissued 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 1,700,000 shares,
which number of shares may be changed from time to time in accordance with
Article 3.4 below.
b. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
2.4. However, should the Exercise Price be paid with shares of Common Stock or
should shares of Common Stock otherwise issuable under the Plan be withheld by
the Corporation in satisfaction of the withholding taxes incurred in connection
with the exercise of an option 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, and not by the net number of
shares of Common Stock issued to the holder of such option.
c. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
31
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities for which any one
person may be granted options per calendar year, and (iii) the number and/or
class of securities and the Exercise Price in effect under each outstanding
option in order to prevent the dilution or enlargement of benefits thereunder.
The adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
ARTICLE 2.
OPTION GRANT PROGRAM
--------------------
2.1. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of Article
2.2 of the Plan, below.
a. Exercise Price
--------------
(1) The Exercise Price shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the Grant Date.
(2) The Exercise Price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Article 3.1, and
the documents evidencing the option, be payable in one or more of the forms
specified below:
(a) cash or check made payable to the Corporation,
(b) a promissory note payable to the Corporation, but
only to the extent authorized by the Administrator pursuant to
Section 12 of the Plan,
(c) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market Value on
the Exercise Date, but only upon prior written approval of the Plan
Administrator, or
(d) upon the prior written approval of the Plan
Administrator, and to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written
instructions to (a) a Corporation-designated brokerage firm to
effect the immediate sale of the Purchased Shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate Exercise Price
payable for the Purchased Shares plus all applicable federal, state
and local income and employment taxes required to be withheld by
the Corporation by reason of such exercise and (b) the Corporation
to deliver the certificates for the Purchased Shares directly to
such brokerage firm in order to complete the sale.
32
Except to the extent such sale and remittance procedure is
utilized, payment of the Exercise Price for the Purchased Shares must be made on
the Exercise Date.
b. Exercise and Term of Options. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the Grant Date.
c. Effect of Termination of Service
(1) The following provisions shall govern the exercise of
any options held by the Optionee at the time of cessation of Service:
(a) Any option outstanding at the time of the
Optionee's cessation of Service for any reason except death,
Permanent Disability or Misconduct shall remain exercisable for a
three (3) month period thereafter, provided no option shall be
exercisable after the Expiration Date.
(b) Any option outstanding at the time of the
Optionee's cessation of Service due to death or Permanent
Disability shall remain exercisable for a twelve (12) month period
thereafter, provided no option shall be exercisable after the
Expiration Date. Subject to the foregoing, any option exercisable
in whole or in part by the Optionee at the time of death may be
exercised subsequently 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.
(c) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(d) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more
than the number of shares for which the option is exercisable on
the date of the Optionee's cessation of Service; the option shall,
immediately upon the Optionee's cessation of Service, terminate and
cease to be outstanding to the extent the option is not otherwise
at that time exercisable. Upon the expiration of the applicable
exercise period or (if earlier) upon the Expiration Date, the
option shall terminate and cease to be outstanding for any shares
for which the option has not been exercised.
(2) The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(a) extend the period of time for which the option is
to remain exercisable following the Optionee's cessation of Service
33
from the period otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the Expiration Date, and/or
(b) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to
the number of shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but
also with respect to one or more additional shares that would have
vested under the option had the Optionee continued in Service.
d. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the Exercise Price, and become a
holder of record of the Purchased Shares.
e. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options may be exercised only by the Optionee, and shall not
be assignable or transferable except by will or the laws of descent and
distribution following the Optionee's death. Non-Statutory Options may be
assigned or transferred in whole or in part only (i) during the Optionee's
lifetime if in connection with the Optionee's estate plan to one or more members
of the Optionee's immediate family (spouse and children) or to a trust
established exclusively for the benefit of one or more such immediate family
members, or (ii) by will or the laws of descent and distribution following the
Optionee's death. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
2.2. INCENTIVE OPTIONS
The terms specified below shall apply to all Incentive Options.
Except as modified by the provisions of this Article 2.2, all the provisions of
this Plan shall apply to Incentive Options. Options specifically designated as
Non-Statutory Options when issued under the Plan shall not be subject to the
terms of this Article 2.2.
a. Eligibility. Incentive Options may only be granted to
Employees.
b. Exercise Price. The Exercise Price shall not be less than one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
Grant Date.
c. Dollar Limitation. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied in the
order in which such options are granted.
34
d. 10% Stockholder. If an Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the Exercise Price shall not be less than one
hundred ten percent (110%) of the Fair Market Value per share of Common Stock on
the Grant Date, and the option term shall not exceed five (5) years measured
from the Grant Date.
e. Holding Period. Shares purchased pursuant to an option shall
cease to qualify for favorable tax treatment as Incentive Option Shares if and
to the extent Optionee disposes of such shares within two (2) years of the Grant
Date or within one (1) year of Optionee's purchase of said shares.
2.3. CORPORATE TRANSACTION/CHANGE IN CONTROL
a. In the event of any Corporate Transaction, and subject to the
terms set forth in an Optionee's Stock Option Grant, the Board of Directors
shall have the sole authority to elect that each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, shall become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for any or all of those shares as fully-vested shares of Common
Stock. The Board may exercise its discretion to accelerate the vesting of
options whether or not (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation or parent thereof
or to be replaced with a comparable option to purchase shares of the capital
stock of the successor corporation or parent thereof, (ii) such option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing on the unvested option shares at the time of the
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to such option, except to the extent that the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
b. The Plan Administrator's discretion under Article 2.3.a. above
shall be exercisable either at the time the option is granted or at any time
while the option remains outstanding, whether or not those options are to be
assumed or replaced in the Corporate Transaction. The Plan Administrator shall
also have the discretion to grant options which do not accelerate whether or not
such options are assumed in connection with a Corporate Transaction.
c. If the Board of Directors elects the automatic acceleration of
some or all of the outstanding options upon the occurrence of a Corporate
Transaction, all such outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof) immediately following the consummation of the Corporate
Transaction.
d. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities that would have been
issuable to the Optionee in consummation of such Corporate Transaction had the
option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
35
such Corporate Transaction, (ii) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same and (iii) the maximum number of securities
and/or class of securities for which any one person may be granted stock
options.
e. The Plan Administrator shall have the discretion, exercisable
at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of any options assumed or
replaced in a Corporate Transaction that do not otherwise accelerate at that
time in the event the Optionee's Service should subsequently terminate by reason
of an Involuntary Termination within eighteen (18) months following the
effective date of such Corporate Transaction. Any options so accelerated shall
remain exercisable for shares until the earlier of (i) the expiration of the
option term or (ii) the expiration of the one (1)-year period measured from the
effective date of the Involuntary Termination.
f. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options upon the occurrence of a Change in Control or (ii) condition
any such option acceleration upon the subsequent Involuntary Termination of the
Optionee's Service within a specified period (not to exceed eighteen (18)
months) following the effective date of such Change in Control. Any options
accelerated in connection with a Change in Control shall remain fully
exercisable until the Expiration Date or sooner termination of the option term.
g. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the federal tax laws.
h. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
ARTICLE 3.
MISCELLANEOUS
-------------
3.1. FINANCING
a. The Plan Administrator may permit any Optionee to pay the
option Exercise Price by delivering a promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. Promissory notes may be authorized with or without security
or collateral. In all events, the maximum credit available to the Optionee may
not exceed the sum of (i) the aggregate option Exercise Price payable for the
Purchased Shares plus (ii) the amount of any federal, state and local income and
employment tax liability incurred by the Optionee in connection with the option
exercise.
36
b. The Plan Administrator may, in its discretion, determine that
one or more such promissory notes shall be subject to forgiveness by the
Corporation in whole or in part upon such terms as the Plan Administrator may
deem appropriate.
3.2. TAX WITHHOLDING
a. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options under the Plan shall be subject to the satisfaction
of all applicable federal, state and local income and employment tax withholding
requirements.
b. The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options under the Plan with the right to use shares
of Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of their options. Such right may be
provided to any such holder in either or both of the following formats:
(1) Stock Withholding: The election to have the
Corporation withhold, from the shares of Common Stock otherwise issuable
upon the exercise of such Non-Statutory Option, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of
the Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
(2) Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised, one or
more shares of Common Stock previously acquired by such holder (other
than in connection with the option exercise triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not
to exceed one hundred percent (100%)) designated by the holder.
3.3. EFFECTIVE DATE AND TERM OF THE PLAN
a. The Plan shall become effective on the Plan Effective Date.
However, no shares shall be issued under the Plan pursuant to Incentive Options
until the Plan is approved by the Corporation's stockholders. If such
stockholder approval is not obtained within twelve (12) months after the Plan
Effective Date, then all Incentive Options previously granted under this Plan
shall automatically convert into Non-Statutory Options.
b. The Plan shall terminate upon the earliest of (i) June 10,
2008, (ii) the date on which all shares available for issuance under the Plan
shall have been issued, or (iii) the termination of all outstanding options in
connection with a Corporate Transaction. Upon such Plan termination, all
outstanding options shall continue to have force and effect in accordance with
the provisions of the documents evidencing such options.
37
3.4. AMENDMENT OF THE PLAN
a. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects, or to cancel any
grants made thereunder; provided, however, that no such amendment, modification,
or cancellation shall adversely affect any rights and obligations with respect
to options at the time outstanding under the Plan unless each affected Optionee
consents to such amendment, modification, or cancellation. In addition,
amendments to the Plan shall be subject to approval of the Corporation's
stockholders to the extent required by applicable laws, regulations, or Nasdaq
or Stock Exchange requirements.
b. Options to purchase shares of Common Stock may be granted
under the Plan that are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued are held in escrow until there is obtained Board approval (and
shareholder approval if required by applicable laws, regulations, or Stock
Exchange requirements) of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan.
3.5. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
3.6. REGULATORY APPROVALS
a. The implementation of the Plan, the granting of any option
under the Plan, and the issuance of any shares of Common Stock upon the exercise
of any option shall be subject to the Corporation's obtaining all approvals and
permits required by regulatory authorities having jurisdiction over the Plan and
the options granted under it, and the shares of Common Stock issued pursuant to
the Plan.
b. No shares of Common Stock shall be issued or delivered under
the Plan unless and until there shall have been compliance with all applicable
requirements of federal and state securities laws and all applicable listing
requirements of any stock exchange (or the Nasdaq market, if applicable) on
which Common Stock is then listed for trading.
3.7. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate such person's Service at any
time for any reason, with or without cause.
CURRENT WITH ALL AMENDMENTS THROUGH AUGUST 7, 2000
38
APPENDIX
--------
The following definitions shall be in effect under the Plan and
the Plan Documents:
0.1. Board shall mean the Corporation's Board of Directors.
2. Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person
or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders, which the Board
does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who
either (A) have been Board members continuously since the beginning of
such period or (B) have been elected or nominated for election as Board
members during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time the Board
approved such election or nomination.
3. Code shall mean the Internal Revenue Code of 1986, as amended.
4. Common Stock shall mean the Corporation's common stock.
5. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
6. Eligible Director shall mean a non-employee Board member eligible to
participate in the Plan.
7. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
39
of the employer entity as to both the work to be performed and the manner and
method of performance.
8. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.
9. Exercise Price shall mean the exercise price per share as specified
in the Stock Option Grant.
10. Expiration Date shall mean the date on which the option expires as
specified in the Stock Option Grant.
11. Fair Market Value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is traded at the time on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as such
price is reported by the National Association of Securities Dealers on
the Nasdaq National Market or any successor system. If there is no
closing selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) If the Common Stock is not listed on any Stock
Exchange nor traded on the Nasdaq National Market, 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.
(iv) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is sold in the initial
public offering pursuant to the Underwriting Agreement.
12. Grant Date shall mean the date on which the option is granted to
Optionee as specified in the Stock Option Grant.
13. Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.
40
14. Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge
by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A)
a change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
participation in corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without the individual's consent.
15. Market Stand Off shall mean the market stand off restriction on
disposition of the Purchased Shares as identified under such title in the Stock
Option Exercise Notice and Purchase Agreement.
16. Misconduct shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee or other person in the Service of the Corporation (or any Parent
or Subsidiary).
17. 1933 Act shall mean the Securities Act of 1933, as amended.
18. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
19. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.
20. Optionee shall mean any person to whom an option is granted under
Plan.
21. Option Shares shall mean the number of shares of Common Stock
subject to the option as specified in the Stock Option Grant.
22. Owner shall mean Optionee and all subsequent holders of the
Purchased Shares who derive their claim of ownership through a Permitted
Transfer from Optionee.
23. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one or the other corporations
in such chain.
41
24. Permanent Disability or Permanently Disabled shall mean the
inability of the Optionee to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
25. Permitted Transfer shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Optionee obtains the Corporation's prior
written consent to such transfer, (ii) a transfer of title to the Purchased
Shares effected pursuant to Optionee's will or the laws of intestate succession
following Optionee's death, or (iii) a transfer to the Corporation in pledge as
security for any purchase-money indebtedness incurred by Optionee in connection
with the acquisition of the Purchased Shares.
26. Plan Administrator shall mean the particular entity, whether the
Board or a committee of the Board, which is authorized to administer the Plan
with respect to one or more classes of eligible persons, to the extent such
entity is carrying out its administrative functions under the Plan with respect
to the persons under its jurisdiction.
27. Plan Documents shall mean the Plan, the Stock Option Grant, and
Stock Option Exercise Notice and Purchase Agreement, collectively.
28. Plan Effective Date shall mean , the date on which
the Plan was adopted by the Board.
29. Primary Committee shall mean the committee of two (2) or more
non-employee Board members (as defined in the regulations to Section 16 of the
1934 Act) appointed by the Board to administer the Plan with respect to Section
16 Insiders.
30. Purchased Shares shall mean the shares purchased upon exercise of
the Option.
31. Recapitalization shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other charge
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
32. Reorganization shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation is
not the surviving entity;
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets;
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to a person or persons
different from the persons holding those securities immediately prior
to the merger; or
42
(iv) any transaction effected primarily to change the
state in which the Corporation is incorporated or to create a holding
company structure.
33. SEC shall mean the Securities Exchange Commission.
34. Secondary Committee shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Plan with respect to eligible
persons other than Section 16 Insiders.
35. Section 16 Insider shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
36. Service shall mean the performance of services to the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
37. Stock Exchange shall mean either the American Stock Exchange, the
New York Stock Exchange, another regional stock exchange, or the Nasdaq market
as established by the National Association of Securities Dealers.
38. Stock Option Exercise Notice and Purchase Agreement shall mean the
agreement of said title in substantially the form of Exhibit A to the Stock
Option Grant, pursuant to which Optionee gives notice of his intent to exercise
the option and purchase Shares.
39. Stock Option Grant shall mean the Stock Option Grant document,
pursuant to which Optionee has been informed of the basic terms of the option
granted under the Plan.
40. Subsidiary shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
41. Taxes shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options in connection
with the exercise of those options.
42. 10% Stockholder shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
43