EXHIBIT (d)(5)
PROSPECTUS
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT
WE HAVE REGISTERED UNDER THE
SECURITIES ACT OF 1933
CAPSTONE TURBINE CORPORATION
6,200,000 SHARES OF COMMON STOCK
ISSUABLE UNDER THE CAPSTONE TURBINE CORPORATION
AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN
This Prospectus relates to 6,200,000 shares of common stock, par value $0.001
per share, of Capstone Turbine Corporation (the "Company" or "Capstone") that
may be issuable under the Capstone Turbine Corporation Amended and Restated 2000
Equity Incentive Plan (the "Plan") from time to time. The Plan authorizes the
grant of incentive stock options to our employees and non-qualified stock
options, stock purchase rights, stock bonus rights and stock bonuses to our
employees and consultants. The Plan also authorizes the grant of non-qualified
stock options to our independent non-employee directors. Incentive stock options
are intended to be "incentive stock options," as that term is defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). The Company
is the issuer of the common stock under the Plan. The outstanding common stock
of the Company is listed on the Nasdaq National Market.
The main features of the Plan are summarized in this Prospectus. However, if
there are any inconsistencies between this Prospectus and the Plan or the terms
of any option or other award, the Plan and the terms of the option or other
award will always control.
This Prospectus does not cover resales of shares acquired under the Plan.
Under Section 4(1) of the Securities Act of 1933, as amended (the "Securities
Act"), employees who are not our officers or directors ordinarily may publicly
resell shares acquired under the Plan without registering these shares. Our
officers or directors usually must comply with Rule 144 or register the
securities to publicly resell shares acquired under the Plan.
Neither the Securities and Exchange Commission (the "Commission") nor any
state securities commission has approved or disapproved these securities, or
determined if this Prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
You should rely only on the information contained in this document or that we
have referred to you. We have not authorized anyone to provide you with
information that is different. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions which permit such offers and
sales. The information contained in this Prospectus is accurate only as of the
date of this Prospectus.
Copies of the Plan and additional information about the Plan can be obtained
by mailing a written request to: Capstone Turbine Corporation, 21211 Nordhoff
Street, Chatsworth, California 91311, attention: Secretary; (818) 734-5300.
June 1, 2003
TABLE OF CONTENTS
PAGE
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AVAILABLE INFORMATION....................................................... 1
INCORPORATION BY REFERENCE OF CERTAIN DOCUMENTS............................. 2
SUMMARY OF THE PLAN......................................................... 3
FEDERAL INCOME TAX CONSEQUENCES ASSOCIATED WITH THE PLAN.................... 10
AVAILABLE INFORMATION
The Company is subject to the disclosure requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance with
such requirements files reports, proxy statements and other information with the
Commission. You may read and copy any reports, proxy statements and other
information we file at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The Commission also maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements,
and other information regarding the Company, and the Company maintains an
Internet site (http://www.capstoneturbine.com) with additional information about
the Company. The common stock is quoted on the Nasdaq National Market (symbol:
CPST). Additional updating information with respect to the common stock may be
provided in the future to grantees by means of appendices to this Prospectus or
delivery of other documents.
The Company has filed with the Commission two Registration Statements on Form
S-8, one filed on July 6, 2000 (Registration No. 333-40868) and one filed on
November 13, 2002 (Registration No. 333-101201) (including all amendments to
each, collectively referred to herein as the "Registration Statement") with
respect to the securities offered hereby. This Prospectus is a part of that
Registration Statement. As allowed by the Commission's rules, this Prospectus
does not contain all the information you can find in the Registration Statement
or the exhibits to the Registration Statement.
1
INCORPORATION BY REFERENCE OF CERTAIN DOCUMENTS
The Commission allows us to "incorporate by reference" information into this
Prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the Commission. The
information incorporated by reference is deemed to be part of this Prospectus,
except for any information superseded by information in this Prospectus. Any
statement contained in a document which is incorporated by reference in this
Prospectus is automatically updated and superseded if information contained in
this Prospectus, or information that we later file with the Commission, modifies
or replaces this information. This Prospectus incorporates by reference the
documents described below that we have previously filed with the Commission.
These documents contain important information about us and our finances.
- - Capstone's Annual Report on Form 10-K for the year ended December 31, 2002,
filed with the Commission on March 31, 2003;
- - Capstone's Quarterly Report on Form 10-Q for the quarter ended March 31,
2003, filed with the Commission on May 15, 2003;
- - the description of Capstone's common stock contained in the Registration
Statement on Form 8-A, filed with the Commission on June 22, 2000; and
- - all documents filed by us with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the filing of a post-effective amendment which indicates that all
securities offered under the Plan have been sold or which deregisters all
securities then remaining unsold.
To receive a free copy of any of the documents incorporated by reference in
this Prospectus (other than exhibits, unless they are specifically incorporated
by reference in the documents) or a copy of this Prospectus, as amended or
supplemented from time to time, or any other documents that constitute part of
the Prospectus or which Rule 428(b) requires us to deliver, call or write:
Capstone Turbine Corporation
Attention: Secretary
21211 Nordhoff Street
Chatsworth, California 91311
Telephone number (818) 734-5300
2
SUMMARY OF THE PLAN
The purposes of the Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to our employees, directors and consultants and to promote the success
of the Company's business.
The Plan authorizes the grant to our employees of options that qualify as
"incentive stock options" under Section 422 of the Code. The Plan also
authorizes the grant of non-qualified stock options, stock purchase rights,
stock bonus rights and stock bonuses to our employees and consultants, and
authorizes the grant of non-qualified stock options to our independent
non-employee directors.
The Employee Retirement Income Security Act of 1974 does not govern the Plan.
In addition, the Plan does not qualify under Section 401(a) of the Code.
Because this is a summary, it does not contain all the information that may
be important to you. You may obtain a copy of the Plan and additional
information about the Plan, without charge, by request to us:
Capstone Turbine Corporation
Attention: Secretary
21211 Nordhoff Street
Chatsworth, California 91311
Telephone number (818) 734-5300
SECURITIES SUBJECT TO THE PLAN
Under the terms of the Plan, the aggregate number of shares of common stock
subject to options, stock purchase rights or stock bonus rights is 6,200,000,
plus the number of shares previously authorized and remaining available under
our 1993 Incentive Stock Plan, as amended (the "1993 Plan") as of the closing of
our initial public offering on July 5, 2000 and any shares covered by options
granted under the 1993 Plan that are forfeited or expire unexercised after the
closing of our initial public offering.
No more than 3,700,000 shares may be issued upon exercise of incentive stock
options granted under the Plan. In addition, the number of shares which may be
subject to options, stock purchase rights or stock bonus rights granted under
the Plan to any individual in any calendar year may not exceed 3,000,000 shares.
Shares subject to expired or canceled options or rights under the Plan will
be available for future grant or sale under the Plan. In addition, if shares are
delivered to the Company by a holder or withheld by the Company in payment of
the exercise price or tax withholding upon the exercise of an option, stock
purchase right or stock bonus right or upon the grant of a stock bonus, such
shares may again be optioned, granted or awarded under the Plan. If shares of
any restricted stock granted under the Plan are repurchased by the Company at
their original purchase price, such shares will be available for future grant
under the Plan. No shares may be optioned, granted or awarded under the Plan,
however, if such action would cause an incentive stock option to fail to qualify
as an "incentive stock option" under Section 422 of the Code.
GRANT AND TERMS OF OPTIONS
The committee of the board of directors appointed to administer the Plan (the
"Committee") grants the options, stock purchase rights, stock bonus rights and
stock bonuses and determines the following:
- - which employees and consultants will be granted options, subject to the
limitation that only employees may be granted incentive stock options, while
any eligible grantee may receive non-qualified stock options;
- - the number of shares to be covered by each award granted; and
- - the terms and conditions of any option, stock purchase right, stock bonus
right or stock bonus granted under the Plan, including whether the option
grants are "incentive stock options" or "non-qualified stock options," the
exercise price, the time in which the options may vest or be exercised and
any acceleration of vesting or waiver of forfeiture provisions.
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Each option will be evidenced by a written agreement.
Nothing in the Plan or in any stock option agreement will give any optionee
any right to remain our employee, consultant or director or will interfere with
or restrict in any way our rights to discharge any optionee at any time for any
reason whatsoever, with or without cause.
Options for our independent non-employee directors are discussed in more
detail in "Director Options" below.
EXERCISE PRICE
The exercise price for the shares of common stock subject to your option will
be specified in your option agreement. The Committee sets the per share exercise
price at the time the option is granted. The exercise price is subject to the
following rules:
- - In the case of incentive stock options, the exercise price may not be less
100% of the fair market value for a share of our common stock on the date the
option is granted.
- - In the case of an incentive stock option granted to a stockholder owing more
than 10% of the total combined voting power of all classes of our stock or
that of any parent or subsidiary (a "10% Stockholder"), the exercise price
may not be less than 110% of the fair market value for a share of common
stock on the date the option is granted.
- - In the case of non-qualified stock options, the exercise price may not be
less than 85% of the fair market value for a share of our common stock on the
date the option is granted.
- - In the case of a non-qualified stock option granted to a 10% Stockholder, the
exercise price may not be less than 110% of the fair market value for a share
of common stock on the date the option is granted.
For purposes of the Plan, the fair market value for a share of our common
stock as of a given date will be the closing sales price of our common stock as
quoted on the Nasdaq National Market for the last market trading day prior to
the time of determination, as reported in The Wall Street Journal or such other
source as the Committee deems reliable.
The Code limits the number of options that can be granted to a participant
that will qualify for treatment as incentive stock options. The Code provides
that the value of shares that a participant can acquire by exercising, for the
first time in any calendar year, incentive stock options granted by us or any
parent or subsidiary cannot exceed $100,000 (based on the fair market value of
the covered shares on the date of the grant of the options). Under the Plan, to
the extent that the aggregate fair market value of shares subject to all of the
incentive stock options granted to an employee by us or any parent or subsidiary
which become first exercisable in any calendar year exceeds $100,000, the excess
options will be treated as non-qualified stock options. For purposes of this
calculation, incentive stock options will be taken into account in the order in
which they are granted.
TERM AND TERMINATION OF OPTIONS
The term of an option is set by the Committee and will be stated in your
option agreement. The maximum term of an option under the Plan is:
- - 10 years from the date of grant; or
- - in the case of an incentive stock option granted to a 10% Stockholder, five
years from the date of the grant.
If your relationship with the Company is terminated for cause, your options
will immediately terminate and the option shares will again become available for
issuance under the Plan. If your relationship with the Company is terminated
other than for cause, you will have the time period specified in your option
agreement to exercise your vested options. If there is no specified time in the
option agreement, your vested options will generally remain exercisable for
three months following termination of your relationship with the Company, or, in
the event of your disability or death, 12 months following termination of your
relationship with the Company. However, your right to exercise an option after
your service relationship is terminated may not extend past the expiration of
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the term of the option. If the vested options are not exercised within the
applicable period, your options will terminate and the option shares will again
become available for issuance under the Plan.
VESTING OF OPTIONS
An option may be exercised when and to the extent it "vests." Your option
agreement will set forth the period during which your right to exercise the
option in whole or part vests. Options granted to employees who are neither
officers nor directors will become vested and exercisable at a rate no less than
20% per year over five years from the date of grant. No portion of an option
which is not vested when your relationship with the Company is terminated will
thereafter become vested. At any time after the grant of an option, the
Committee may accelerate the period during which an option vests.
EXERCISE OF OPTIONS
An option may be exercised for any vested portion of the shares subject to
the option until the option expires or terminates. Only whole shares of common
stock may be purchased upon exercise.
The Committee, however, may provide in your option agreement that you may
exercise the option prior to its vesting, in which case you will acquire shares
of restricted stock that are subject to forfeiture, transfer and other
restrictions as determined by the Committee.
An option may be exercised by delivering to the Secretary of the Company a
written or electronic notice of exercise on a form provided by the Company,
together with payment for the shares in the amount of the aggregate option
exercise price for the shares covered by the option that is being exercised. The
Committee may in its discretion allow payment by:
- - cash;
- - check;
- - the delivery of shares of our common stock already owned by you for more
than six months;
- - the surrender of shares of our common stock which would otherwise be
issuable on exercise of the option;
- - the use of an interest-bearing full recourse promissory note upon such
terms as the Committee prescribes;
- - the delivery of property of any kind which constitutes good and valuable
consideration;
- - the delivery of a notice that you have placed a market sell order with a
broker with respect to shares of common stock issuable upon exercise of the
option, and that the broker has been directed to pay a sufficient portion of
the net proceeds of the sale to us in satisfaction of the option exercise
price; or
- - any combination of the foregoing.
DELIVERY OF SHARES
The Company is not required to deliver the shares purchased upon option
exercise until the following conditions have been satisfied:
- - the admission of such shares to listing on all stock exchanges on which
the stock is listed;
- - the registration of the shares under any state or federal securities laws
or regulations;
- - obtaining approval from any state or federal government agency as the
Committee decides is necessary or advisable;
- - the lapse of a reasonable period of time for administrative convenience;
- - the receipt of consideration as provided in "Exercise of Options" above;
and
- - the receipt of payment for any applicable withholding tax, which in the
discretion of the Committee may be in the same form as used to pay the
exercise price.
BUYOUT PROVISIONS
The Committee may at any time offer to buy out an option previously granted
to you for a payment in cash or shares, based on terms and conditions that the
Committee will communicate
5
to you when the offer is made.
DIRECTOR OPTIONS
Options granted to independent non-employee directors are "non-qualified
stock options" to purchase shares of common stock under the Plan. Each
independent non-employee director who was a member of the board of directors at
the time of the Company's initial public offering was granted an option to
purchase 21,600 shares of common stock on the date of the initial public
offering (each, an "Initial Option"). Through fiscal year 2002, any independent
non-employee director who was elected to the board of directors following the
initial public offering was granted an Initial Option to purchase 21,600 shares
of common stock on the date of his or her initial election to the board of
directors. In addition, through fiscal year 2002, each independent non-employee
director received an additional option to purchase 21,600 shares of common stock
on the date of the annual meeting of the stockholders of the Company in every
third year after the director was granted an Initial Option, if the director is
reelected to the board of directors (each, a "Subsequent Option").
In January 2003, the board of directors amended the Plan to eliminate Subsequent
Grants. Instead, the board approved subsequent stock grants to each non-employee
director to purchase 10,000 shares of common stock (the "Annual Grant") on the
date of each annual meeting of stockholders (beginning with the 2003 annual
meeting) at which the director is re-elected to the board. Any member of the
board of directors who is our employee and who subsequently retires from the
Company while remaining on the board of directors will not receive an Initial
Option but, to the extent eligible, will receive Annual Grants.
The exercise price of the options granted to our independent non-employee
directors will be the fair market value of a share of common stock on the date
of grant, except that the exercise price for such options granted on the date of
our initial public offering is the initial public offering price. The Initial
Options and Subsequent Options granted to our independent non-employee directors
vest in three equal annual installments of 1/3 on each of the first three
anniversaries of the date of grant, subject to continuing service as a director.
The Annual Grants vest quarterly over a one-year period, subject to continuing
service as a director. The term of these options is 10 years, and no portion of
an option granted to an independent non-employee director will be exercisable
after 10 years from the date of grant. Any unvested portion of such an option
will no longer be exercisable after the termination of the independent
non-employee director's membership on the board of directors. However, the
exercisability of options granted to independent non-employee directors may be
accelerated on the occurrence of certain specified extraordinary corporate
transactions or events, as explained in "Adjustment in Securities" below.
STOCK PURCHASE RIGHTS, STOCK BONUS RIGHTS AND STOCK BONUSES
The Committee may grant stock purchase rights, stock bonus rights and stock
bonuses to our employees and consultants either alone, in addition to or in
tandem with the issuance of options under the Plan. Stock purchase rights are
rights granted under the Plan to purchase restricted stock. Stock bonus rights
are rights granted under the Plan to receive a bonus of restricted stock for
past services. Stock bonuses are awards of common stock granted under the Plan
as compensation or as bonuses.
The Committee determines:
- - the number of shares subject to any stock purchase rights, stock bonus rights
or stock bonuses granted under the Plan;
- - the price per share for the restricted stock to be issued pursuant to a stock
purchase right or stock bonus right and the price per share (if any) for the
common stock to be issued pursuant to a stock bonus;
- - the time period within which a person designated to receive a stock purchase
right, stock bonus right or stock bonus must accept such offer; and
6
- - any other terms and conditions of the stock purchase right, stock bonus right
or stock bonus, consistent with the Plan.
Stock purchase rights and stock bonus rights may only be accepted by
execution of a written restricted stock purchase agreement. In the case of a
stock bonus, the Committee will advise the offeree how to accept the offer.
The restricted stock purchase agreement will contain such restrictions as the
Committee provides, including restrictions concerning voting rights and
transferability as well as restrictions based on duration of employment and the
satisfaction of performance thresholds.
Unless the Committee provides otherwise, the restricted stock purchase
agreement will grant us the right to repurchase the restricted stock acquired
upon exercise of a stock purchase right or stock bonus right immediately upon
the occurrence of certain events, including, without limitation, a termination
of the purchaser's service relationship with us for any reason (including death
or disability), divorce, bankruptcy or insolvency. The purchase price for shares
repurchased pursuant to this repurchase right, and the rate at which the
repurchase right lapses, will be determined by the Committee and set forth in
the restricted stock purchase agreement. We intend that the restricted stock
purchase agreement will provide that the purchase price for such repurchased
shares would be the original price paid by the purchaser.
Nothing in the Plan or in any restricted stock purchase agreement will give
any holder of restricted stock any right to remain our employee, consultant or
director or will interfere with or restrict in any way our rights to discharge
any holder of restricted stock at any time for any reason whatsoever, with or
without cause.
ELIGIBILITY
Our employees (including employee directors) and consultants are eligible to
receive options, stock purchase rights, stock bonus rights or stock bonuses
under the Plan, although incentive stock options may be granted only to our
employees. The Committee determines which of our employees will be granted
options, stock purchase rights, stock bonus rights or stock bonuses. No person
is entitled to participate in the Plan as a matter of right. Only those
employees and consultants who are selected to receive grants by the Committee
may participate in the Plan. Independent non-employee directors are also
eligible to receive grants under the Plan, as explained in "Director Options"
above.
ADMINISTRATION OF THE PLAN
The Committee will administer the Plan. The Committee will consist solely of
two or more members of our board of directors. A director may serve on the
Committee only if he or she is then a "non-employee director" as defined by Rule
16b-3 under the Exchange Act and an "outside director" for purposes of Section
162(m) of the Code.
The Committee conducts the general administration of the Plan in accordance
with its provisions. The Committee has the power to:
- - construe and interpret the terms of the Plan and awards granted pursuant
to the Plan;
- - adopt rules for the administration, interpretation and application of the
Plan that are consistent with the Plan;
- - interpret, amend or revoke any of the newly adopted rules of the Plan; and
- - in accordance with the Plan, delegate the authority to grant awards under the
Plan.
The Committee may delegate to other members of the board of directors who do
not meet the definitions of "outside director" and "non-employee director" the
authority to grant awards to recipients who are not covered by the relevant
provisions of Section 162(m) of the Code or Section 16 of the Exchange Act.
Committee members may resign at any time by delivering written notice to the
board of directors. Vacancies in the Committee are filled by the board of
directors. The board of directors may abolish the Committee at any time and
administer the Plan themselves.
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RIGHTS AS A STOCKHOLDER
You will not have any rights as a stockholder as to the shares of common
stock covered by an option until we have issued and delivered the shares of
common stock issuable to you or your account following exercise of your option.
We will not adjust for dividends or distributions or other rights for common
stock if the record date for the dividend or distribution is prior to the date
of such issuance.
OPTIONS AND STOCK PURCHASE RIGHTS NOT TRANSFERABLE
You generally cannot assign or transfer any option, stock purchase right or
stock bonus right granted under the Plan, except by will or the laws of descent
or distribution. During your lifetime, only you may exercise the option or other
right or award.
REPURCHASE PROVISIONS
An option agreement or restricted stock agreement may provide that we may
repurchase shares acquired upon exercise of an option, stock purchase right or
stock bonus right upon the occurrence of certain specified events, including
termination of the grantee's service relationship with us, the grantee's
divorce, or the grantee's bankruptcy or insolvency.
CERTAIN RESTRICTIONS ON RESALE
Employees, officers and directors who are our "affiliates" as defined by the
rules and regulations under the Securities Act may offer or sell the shares of
common stock they acquire upon exercise of their options under the Plan only if
they make such offers and sales:
- - pursuant to an effective registration statement under the Securities Act;
- - pursuant to an appropriate exemption from the registration requirements of
the Securities Act; or
- - within the limitations and subject to the conditions set forth in Rule 144
under the Securities Act.
AMENDMENT AND TERMINATION OF THE PLAN
The board of directors may not, without prior stockholder approval:
- - amend the Plan so as to increase the number of shares of stock that may be
issued under the Plan; or
- - extend the term of the Plan.
However, no stockholder approval is required to adjust the number of shares
in the event of a merger, stock split or other transaction or event involving a
change in our capital structure, as explained in "Adjustment in Securities"
below.
The Plan will continue in effect until its termination by the board of
directors, but no options, stock purchase rights or stock bonus rights may be
issued under the Plan after June 19, 2010. The termination of the Plan will not
affect the validity of any option, right or other award then outstanding under
the Plan. Except as indicated above, the board of directors may also modify the
Plan from time to time. However, no amendment or termination of the Plan may
impair the rights of a holder of an option, stock purchase right or stock bonus
right without his or her written consent.
ADJUSTMENT IN SECURITIES
In the event of a dividend or other distribution, recapitalization,
reclassification, stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, dissolution, transfer, exchange, disposition of all or
substantially all of our assets, or other similar corporate transaction that
affects the common stock, the Committee may appropriately adjust any or all of:
- - the number and kind of shares for which options, stock purchase rights or
stock bonus rights may be granted, including adjusting the limits on the
number of shares subject to the Plan and the number of shares which any
individual may purchase in a calendar year;
- - the number and kind of shares which are subject to outstanding options, stock
purchase rights, stock bonus rights or restricted stock; and
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- - the grant or exercise price of any option, stock purchase right or stock
bonus right.
In addition, if any such transaction or event occurs, the Committee may take
any one or more of the following actions with respect to any option, stock
purchase right, stock bonus right or restricted stock granted or issued under
the Plan:
- - provide for the purchase of the option, stock purchase right, stock bonus
right or restricted stock for the value it would have if it were currently
exercisable or payable or fully vested;
- - make the option or other award immediately fully exercisable;
- - have the surviving entity or an affiliate of the surviving entity assume it
or substitute similar options, rights, awards or restricted stock;
- - adjust the terms, conditions and criteria included in options, stock purchase
rights, stock bonus rights or restricted stock either outstanding or which
may be granted in the future; and
- - provide that immediately upon the consummation of any such event the option,
stock purchase right or stock bonus right will not be exercisable and will
terminate, except that during a specified period of time prior to the
completion of the corporate transaction the option, stock purchase right or
stock bonus right will be fully exercisable, and the restrictions on
restricted stock will terminate (and, in the case of restricted stock, some
or all shares may cease to be subject to repurchase).
Subject to certain restraints, the Committee may also include any provisions
or limitations in any option, stock purchase right or restricted stock agreement
that it deems equitable and in the best interest of the Company.
If the Company undergoes an acquisition and the surviving entity or its
affiliate does not assume or substitute for outstanding options, rights, awards
or restricted stock under the Plan, then:
- - for participants whose service has not been terminated prior to the
acquisition, outstanding options and rights will become fully vested and
exercisable and all restrictions on those awards will lapse at least 10 days
before the date the acquisition closes (and the options or rights will
terminate if not exercised before the date the acquisition closes); and
- - for any other participants, outstanding options and rights will terminate if
not exercised before the date the acquisition closes.
If the surviving entity or its affiliate does assume or substitute for
outstanding options, rights, awards or restricted stock under the Plan, then a
participant's awards will become immediately and fully vested and exercisable
if, within nine months after the acquisition, one of the following events
occurs:
- - the surviving entity terminates without cause the employee or director status
of the participant holding such stock award; or
- - the employee holding such stock award terminates his or her employment either
because his or her principal work location was moved more than 50 miles from
the existing work location or because there is a material reduction in his or
her responsibilities.
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FEDERAL INCOME TAX CONSEQUENCES
ASSOCIATED WITH THE PLAN
The following is a general summary under current law of the material federal
income tax consequences to participants in the Plan. This summary deals with the
general tax principles that apply and is provided only for general information.
Some kinds of taxes, such as foreign, state and local income taxes, are not
discussed. Tax laws are complex and subject to change and may vary depending on
individual circumstances and from locality to locality. The summary does not
discuss all aspects of income taxation that may be relevant to you in light of
your personal investment circumstances. This summarized tax information is not
tax advice.
YOU ARE ADVISED TO CONSULT YOUR OWN ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF PARTICIPATING IN THE PLAN.
NON-QUALIFIED STOCK OPTIONS
For federal income tax purposes, if you are granted non-qualified stock
options under the Plan, you will not have taxable income on the grant of the
option, nor will we be entitled to any deduction. Generally, on exercise of
non-qualified stock options you will recognize ordinary income, and we will be
entitled to a deduction, in an amount equal to the difference between the option
exercise price and the fair market value of the common stock on the date of
exercise. Your basis for the stock for purposes of determining your gain or loss
on subsequent disposition of such shares generally will be the fair market value
of the common stock on the date you exercise the option. Any subsequent gain or
loss will be generally taxable as capital gains or losses.
INCENTIVE STOCK OPTIONS
There is no taxable income to you when you are granted an incentive stock
option or when that option is exercised. However, the amount by which the fair
market value of the shares at the time of exercise exceeds the option price will
be an "item of adjustment" for you for purposes of the alternative minimum tax.
Gain realized by you on the sale of shares of stock acquired through the
exercise of an incentive stock option is taxable at capital gains rates, and no
tax deduction is available to us, unless you dispose of the shares (1) within
two years after the date of grant of the option or (2) within one year of the
date the shares were transferred to you. If the shares of common stock are sold
or otherwise disposed of before the end of the one-year and two-year periods
specified above, the difference between the option exercise price and the fair
market value of the shares on the date of the option's exercise will be taxed at
ordinary income rates, and we will be entitled to a deduction to the extent you
must recognize ordinary income. If such a sale or disposition takes place in the
year in which you exercise the option, the income you recognize upon your sale
or disposition of the shares will not be considered income for alternative
minimum tax purposes. Otherwise, if you sell or otherwise dispose the shares
before the end of the one-year and two-year periods specified above, the maximum
amount that will be included as alternative minimum tax income is the gain, if
any, you recognize on the disposition of the shares.
An incentive stock option exercised more than three months after you
terminate employment, other than by reason of death or disability, will be taxed
as a non-qualified stock option, and you will have been deemed to have received
income on the exercise taxable at ordinary income rates. We will be entitled to
a tax deduction equal to the ordinary income, if any, realized by you.
STOCK PURCHASE RIGHTS, STOCK BONUS RIGHTS AND RESTRICTED STOCK
For federal income tax purposes, if you are granted a stock purchase right or
stock bonus right, you generally will not have taxable income on the grant of
such right, nor will we then be entitled to any deduction. Generally, on the
purchase or acquisition of restricted stock pursuant to a stock purchase right
or stock bonus right, you will also not have taxable income, nor
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will we be entitled to a deduction, unless you make a valid election under
Section 83(b) of the Code. However, when restrictions on shares of restricted
stock lapse, such that the shares are no longer subject to a substantial risk of
forfeiture, you generally will recognize ordinary income, and we will be
entitled to a corresponding deduction, for an amount equal to the difference
between the fair market value of the shares at the date such restrictions lapse
over the purchase price for the restricted stock. If you make a valid election
under Section 83(b) with respect to restricted stock, you generally will
recognize ordinary income at the date of issuance of the restricted stock in an
amount equal to the difference, if any, between the fair market value of the
shares at that date over the purchase price for the restricted stock, and we
will be entitled to a deduction for the same amount.
STOCK BONUSES
For federal income tax purposes, if you are granted a stock payment in the
form of a stock bonus, then you generally will recognize ordinary income, and we
will be entitled to a deduction, in an amount equal to the fair market value of
the common stock on the date you receive the stock bonus. Your basis for the
stock for purposes of determining your gain or loss on subsequent disposition of
such shares generally will be the fair market value of the common stock on the
date you receive the stock bonus. Any subsequent gain or loss will generally be
taxable as a capital gain or loss.
SECTION 162(m) OF THE CODE
In general, under Section 162(m) of the Code, income tax deductions of
publicly held corporations may be limited to the extent total compensation
(including base salary, annual bonus, stock option exercises and non-qualified
benefits) for certain executive officers exceeds $1,000,000 (less the amount of
any "excess parachute payments" as defined in Section 280G of the Code) in any
taxable year of the corporation. However, under Section 162(m), the deduction
limit does not apply to certain "performance-based" compensation.
Stock options will satisfy the "performance-based" exception if (1) the
awards are made by a qualifying compensation committee, (2) the plan sets the
maximum number of shares that can be granted to any person within a specified
period and (3) the compensation is based solely on an increase in the stock
price after the grant date.
Stock purchase rights, stock bonus rights and stock bonuses granted under the
Plan would not qualify as "performance based compensation."
OTHER TAX CONSEQUENCES
We recommend that you consult your personal tax advisors with respect to the
federal, foreign (if applicable), state and local tax aspects of option grants,
option exercises and any subsequent dispositions of common stock acquired under
the Plan.
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