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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ | |
Filed by a Party other than the Registrant o | |
Check the appropriate box: |
o Preliminary Proxy Statement | |
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
þ Definitive Proxy Statement | |
o Definitive Additional Materials | |
o Soliciting Material Pursuant to §240.14a-12 |
Giga-tronics Inc.
Payment of Filing Fee (Check the appropriate box):
þ No fee required. | |
o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
1) Title of each class of securities to which transaction applies: |
2) Aggregate number of securities to which transaction applies: |
3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
4) Proposed maximum aggregate value of transaction: |
5) Total fee paid: |
o Fee paid previously with preliminary materials. |
o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
1) Amount Previously Paid: |
2) Form, Schedule or Registration Statement No.: |
3) Filing Party: |
4) Date Filed: |
SEC 1913 (02-02) | Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. |
Giga-tronics Incorporated
4650 Norris Canyon Road
San Ramon, California 94583
(925) 328-4650
August 12, 2005
To Our Shareholders:
I cordially invite you to attend the annual meeting of Giga-tronics Incorporated shareholders to be held at 9:30 a.m. on Tuesday, September 13, 2005, at the Giga-tronics executive offices, 4650 Norris Canyon Road, San Ramon, California.
At the meeting, you will be asked to elect five directors, approve the 2005 Equity Incentive Plan and approve the ratification of Perry-Smith LLP as our independent accountants. Information about these matters is set forth in the attached Notice and Proxy Statement.
Giga-tronics counts on your continued interest, and I hope you will be able to attend the meeting. However, regardless of whether you plan to attend in person, it is important that your vote be counted. I urge you to vote your shares by signing and returning the accompanying proxy card.
|
Sincerely, | |
|
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|
George H. Bruns, Jr. | |
|
Chairman and Chief Executive Officer |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders:
The Annual Meeting of Shareholders of Giga-tronics Incorporated will be held at 9:30 AM, local
time, on Tuesday, September 13, 2005, at the Giga-tronics executive offices, at 4650 Norris Canyon
Road, San Ramon, California, for the following purposes:
Only shareholders of record at the close of business on July 18, 2005 will be entitled to vote
at this meeting, or any adjournment of this meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING REGARDLESS OF THE NUMBER
YOU HOLD. PLEASE DATE, SIGN, VOTE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED, PREPAID
ENVELOPE.
San Ramon, California
Giga-tronics Incorporated
4650 Norris Canyon Road
San Ramon, California 94583
(925) 328-4650
1.
Elect five directors for the ensuing year;
2.
Approve the 2005 Equity Incentive Plan;
3.
Ratify the appointment of Perry-Smith LLP as independent accountants; and
4.
Transact such other business as may properly come before the meeting.
By Order of the Board of Directors,
Mark H. Cosmez II
Secretary
August 12, 2005
Giga-tronics Incorporated
4650 Norris Canyon Road
San Ramon, California 94583
(925) 328-4650
August 12, 2005
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
This proxy statement is submitted by the Board of Directors of Giga-tronics Incorporated (Giga-tronics or the Company), a California corporation, in connection with the solicitation of proxies for use at the Annual Meeting of Shareholders (the Annual Meeting) to be held on September 13, 2005, in accordance with the notice to shareholders, and at any adjournment thereof.
Our Board of Directors has fixed July 18, 2005 as the record date for the Annual Meeting. Only shareholders of record at the close of business on the record date are entitled to notice of and to vote at this meeting. A majority of the shares of common stock will constitute a quorum for the transaction of business at the Annual Meeting. On the record date, there were 4,734,646 shares of Giga-tronics common stock issued and outstanding. Each share outstanding on the record date is entitled to one vote as to each matter to be acted on at this meeting. However, each shareholder will be entitled to cumulate his votes in the election of directors provided that notice of an intention to cumulate votes is given at this meeting by at least one shareholder before voting for the election of directors. Under cumulative voting, a shareholder is allowed one vote per share multiplied by the number of directors to be elected and may cast the total number of votes for one nominee or may distribute the total number of votes among as many nominees as the shareholder chooses. Five directors will be elected at this meeting.
Shares represented by properly executed proxies received by Giga-tronics will be voted at the Annual Meeting according to the instructions on the proxies. It is intended that shares represented by proxies received by Giga-tronics which are not marked to the contrary will be voted FOR all proposals included in the notice of this meeting.
Any person giving a proxy in the form accompanying this proxy statement has the power to revoke it at any time before its exercise. A shareholder giving a proxy may revoke it before its exercise by filing with the Secretary of Giga-tronics either an instrument revoking the proxy or a duly executed proxy bearing a later date. A proxy will be revoked automatically if the shareholder who executed it is present at the Annual Meeting and votes in person. Attendance at this meeting will not, in and of itself, constitute the revocation of a proxy. The granting of a proxy will give the proxy holder authority to cumulate votes if cumulative voting is elected.
The approximate date on which this Proxy Statement and the accompanying form of proxy will be sent to Giga-tronics shareholders is August 12, 2005.
In the election of directors, the candidates receiving the highest number of affirmative votes of the shares entitled to be voted for them up to the number of directors to be elected by such shares are elected. Votes against the director and votes withheld have no legal effect. Approval of a majority of the shares present or represented and voting at the Annual Meeting is required for all items submitted to the shareholders for their consideration except the election of directors. Georgeson Shareholder Communications, Inc. (Georgeson Shareholder) will be using an automated system for the tabulation of shareholder votes for Giga-tronics. With regard to the election of directors, votes may be cast in favor or withheld; votes that are withheld will be excluded entirely from the vote and generally will have no effect. Abstentions may be specified on proposals other than the election of directors and will be counted as present for purposes of the item on which the
abstention is noted, and therefore counted in the tabulation of the votes cast on a proposal with the effect of a negative vote. Broker non-votes are shares which are represented at the Annual Meeting which a broker or nominee has indicated it does not have discretionary authority to vote with respect to a particular matter. A broker non-vote will not be counted for purposes of determining the election of directors or ratifying the selection of Giga-tronics independent accountants, but for other proposals generally have the effect of a negative vote. Approval of Proposal 2 requires approval of holders of a majority of the shares present or represented and voting at the Annual Meeting but implementation of the plan under the California Corporate Securities Law may require approval of holders of a majority of the outstanding shares, and withheld votes and broker non-votes will have the effect of a negative vote for this purpose.
The Annual Report of Giga-tronics for its fiscal year ended March 26, 2005 is being mailed with this mailing of the Notice of Annual Meeting and Proxy Statement to all shareholders entitled to notice of and to vote at the Annual Meeting.
The costs of solicitation of proxies, including the printing, handling and mailing of the proxy material, will be paid by Giga-tronics. Copies of solicitation material will be furnished to brokerage houses, fiduciaries and custodians to be forwarded to beneficial owners of shares held in their names, and Giga-tronics will reimburse them for their expenses. The solicitation of proxies through this proxy statement may be supplemented by telephone, telegram or personal solicitation by directors, officers or other regular employees of Giga-tronics and by Georgeson Shareholder. Giga-tronics has retained Georgeson Shareholder to solicit proxies for a fee of approximately $6,000, plus a reasonable amount to cover expenses. No additional compensation will be paid to directors, officers or other employees for such services.
The executive offices of Giga-tronics are located at 4650 Norris Canyon Road, San Ramon, California 94583, and the telephone number at that location is (925) 328-4650.
2
PROPOSAL 1
At the Annual Meeting, five directors are to be elected to serve until the next annual
meeting and until their successors are elected and qualified. The nominees of the Board of
Directors for election as directors are listed below. There are no family relationships among the
nominees or between any nominee and any executive officer of Giga-tronics. The Board of Directors
has determined that Messrs. Cole, Harvey and Robert Wilson are independent for purposes of Nasdaq
requirements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR
THE ELECTION OF ALL
3
Information about Executive Officers
4
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
Meetings
There were eight meetings of the Board of Directors during the last fiscal year. All of
the directors attended all the regularly scheduled meetings of the Board of Directors and all the
committees on which they sat. Directors are expected to attend the Annual Meeting except for good
cause. Three of five directors attended the Annual Meeting in 2004.
Committees
Giga-tronics Board of Directors has an Audit Committee, a Compensation Committee and a
Nominating Committee.
Audit Committee.
During fiscal 2005, the Audit Committee consisted of independent (as
determined under the rules of the Nasdaq and the Sarbanes Oxley Act) non-employee directors James
A. Cole, Kenneth A. Harvey and Robert C. Wilson. The Audit Committee serves to monitor the
effectiveness of the independent audit, as well as the Companys accounting, financial controls and
financial reports. The charter of the Audit Committee was included as an exhibit to the Proxy
Statement for the 2004 Annual Meeting. The Audit Committee must approve all non-audit services
provided by the independent accountants. The Audit Committee has not adopted any standards for
pre-approval of non-audit services and has not pre-approved any non-audit services. The Audit
Committee held six meetings during the past fiscal year. The board has determined that
Robert Wilson has:
(i) an understanding of generally accepted accounting principles and financial statements;
(ii) the ability to assess the general application of such principles in connection with the
accounting for estimates, accruals and reserves;
(iii) experience preparing, auditing, analyzing or evaluating financial statements that
present a breadth and level of complexity of accounting issues that are generally comparable
to the breadth and complexity of issues that can reasonably be expected to be raised by the
registrants financial statements, or experience actively supervising one or more persons
engaged in such activities;
(iv) an understanding of internal control over financial reporting; and
(v) an understanding of audit committee functions.
Therefore the Board of Directors determined that Robert Wilson is the Audit Committees
financial expert for purposes of Nasdaq rules and requirements of the Sarbanes Oxley Act.
Compensation Committee.
During fiscal 2005, the Compensation Committee consisted of
independent non-employee directors James A. Cole, Kenneth A. Harvey and Robert C. Wilson. The
committee formulates recommendations to the Board of Directors regarding levels of compensation for
management. In addition, in order to recognize the expected future contributions of key employees
and provide an additional incentive for them to remain with Giga-tronics over the long-term, the
Committee awards options to purchase shares of our common stock. The Compensation Committee
reviews and approves all stock options and executive compensation as part of the Board of Directors
meetings. The Compensation Committee met eight times during the last fiscal year. The
Compensation Committee does not have a formal charter.
5
Nominating Committee.
The Board of Directors has a Nominating Committee, which is
currently comprised of independent non-employee directors James A. Cole and Robert C. Wilson, both
of whom are independent under Nasdaq standards. The purposes of the Nominating Committee are to
recommend persons for membership on the Board and to establish criteria and procedures for the
selection of new directors.
The Nominating Committee has no formal process for identifying and evaluating candidates.
Existing directors attempt to identify suitable candidates as the need arises. The Boards policy
is to consider any director candidate nominated or recommended by a shareholder in the same manner
that it would consider a candidate nominated by the Board or committee. In the past year the
Company did not receive any recommendations for director candidates from any shareholders.
Shareholder recommendations should be submitted in writing to the Company by mail at its main
office at least 120 days in advance of the anniversary date of the mailing of notice of the
previous years annual meeting and should include sufficient biographical information (including
all information that would be required to be disclosed in a proxy statement for a shareholder
meeting at which directors are to be elected) for the committee to make an initial evaluation of
the candidates qualifications. The Company has never engaged or paid a fee to a third party
search firm in connection with the nomination of a candidate for director.
The Nominating Committee considers the following criteria in proposing nominations for
director to the full Board: independence; high personal and professional ethics and integrity;
ability to devote sufficient time to fulfilling duties as a director; impact on diversity of the
Board, including skills and other factors relevant to the Companys business; overall experience in
business, education, and other factors relevant to the Companys business. At a minimum, the
Nominating Committee must be satisfied that each nominee, both those recommended by the Nominating
Committee and any recommended by shareholders, meets the following minimum qualifications:
The Nominating Committee also serves as the Corporate Governance Committee. The Corporate
Governance Committee has adopted a Code of Ethics applicable to all directors, officers and
employees. The Company will provide to any person without charge, upon request, a copy of such
Code of Ethics upon written request mailed to the Company at its main office, to the attention of
the Corporate Secretary.
The charter of the Nominating Committee was included as an exhibit to the Proxy Statement for
the 2004 Annual Meeting.
Compensation of Directors
Each of the directors who is not employed by Giga-tronics receives an annual directors
fee of $10,000 and $1,000 for attendance at each Board of Directors meeting. Outside directors
serving on committees of the Board of Directors receive $500 for attendance at each committee
meeting held on a day other than a Board meeting date. From time to time, Giga-tronics makes
discretionary grants of options to purchase shares of its common stock to directors in
consideration for services they provide to Giga-tronics as members of the Board.
Giga-tronics has entered into indemnification agreements with all of its officers and
directors.
6
Communications with Directors
The Company does not have a formal process for shareholders to send communications to the
Board of Directors or to specified individual directors. Shareholders may send communications to
the full board or to individual directors at the Companys main office. Communications will be
forwarded unopened to the director to whom it is addressed or to the lead independent director if
addressed to the Board of Directors. The Board of Directors believes that this informal process is
adequate to ensure that shareholder communications are received by the intended recipients.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors,
executive officers, and holders of more than 10% of Giga-tronics common stock to file reports of
ownership and changes in ownership with the Securities and Exchange Commission, or SEC. Officers,
directors, and greater than 10% shareholders are required by SEC regulations to furnish
Giga-tronics with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms received by Giga-tronics, or written
representations from certain reporting persons, we believe that during the fiscal year ended March
26, 2005 its officers, directors and greater than 10% shareholders complied with all applicable
filing requirements.
7
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below includes information as of July 18, 2005, concerning the beneficial
ownership of Giga-tronics common stock for: each person known by Giga-tronics to own beneficially
more than 5% of Giga-tronics outstanding common stock; each director and nominee; each executive
officer named in the Summary Compensation Table below; and all directors and executive officers of
Giga-tronics as a group:
8
EXECUTIVE COMPENSATION
Summary of Compensation
The following table provides information concerning compensation paid or accrued by the
Company, to or on behalf of Giga-tronics chief executive officer and the other executive officers
during the last fiscal year ended March 26, 2005, and for the fiscal years ended March 27, 2004 and
March 29, 2003:
Summary Compensation Table
9
Stock Options
The following table sets forth stock options granted in fiscal 2005 to each of
Giga-tronics executive officers named in the Summary Compensation Table. No stock appreciation
rights were granted during the 2005 fiscal year. All option exercise prices were based on market
price on the date of grant. The table also sets forth the hypothetical gains that would exist for
the options at the end of their five year terms, assuming compound annual rates of stock
appreciation of 5% and 10%. These numbers are calculations based on the requirements promulgated
by the SEC and do not reflect Giga-tronics estimate of future stock price growth. The actual
future value of all options will depend on the market value of Giga-tronics common stock.
Option Grants in Fiscal 2005
10
Options Exercises and Fiscal Year End Option Value Table
The table below provides information for the executive officers named in the Summary
Compensation Table, concerning the exercise of options during fiscal 2005 and unexercised options
held as of the end of the fiscal year.
Aggregated Options Exercises in Last Fiscal Year
Equity Compensation Plan Information
The following table provides information on options and other equity rights outstanding and
available at March 26, 2005.
Equity Compensation Plan Information
11
Employment Contracts and Termination of Employment and Change-In-Control Arrangements
Change-In-Control Arrangements
All outstanding options will automatically accelerate and become exercisable for fully
vested shares upon a change in control of Giga-tronics, whether effected through merger, sale of
substantially all of Giga-tronics assets, the successful completion of a hostile tender offer for
30% or more of Giga-tronics outstanding common stock, or a change in the majority of the Board of
Directors as a result of one or more contested elections for Board of Directors membership.
Compensation Committee Interlocks and Insider Participation
For the 2005 fiscal year, the Compensation Committee was comprised of Messrs. James A.
Cole, Kenneth A. Harvey and Robert C. Wilson.
No executive officer of Giga-tronics serves as a member of the Board of Directors or
compensation committee of any entity which has one or more executive officers serving as a member
of Giga-tronics Board of Directors or Compensation Committee.
Audit Committee
The Audit Committee of the Board is responsible for providing independent, objective
oversight of Giga-tronics accounting functions and internal controls. The Audit Committee
operates under a written charter approved by the Board of Directors.
Management is responsible for the Companys internal controls and financial reporting process.
The independent accountants are responsible for performing an independent audit of the Companys
consolidated financial statements in accordance with generally accepted auditing standards and
issuing a report thereon. The Audit Committees responsibility is to monitor and oversee these
processes.
In connection with these responsibilities, the Audit Committee met with management to review
and discuss the March 26, 2005 financial statements. The Audit Committee also discussed, with the
independent accountants, the matters required by Statement on Auditing Standards No. 61,
Communication with Audit Committees
. The Audit Committee also received written disclosures from
the independent accountants required by Independence Standards Board Standard No. 1,
Independence
Discussions with Audit Committees
, and the Audit Committee discussed with the independent
accountants that firms independence.
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 consolidated financial statements
be included in the Companys Annual Report (Form 10-KSB) for the year ended March 26, 2005 for
filing with the Securities and Exchange Commission. The Committee has approved the engagement of
Perry-Smith LLP to continue as the Companys auditors for the current year.
Respectfully submitted,
AUDIT COMMITTEE
Kenneth A. Harvey, Chair
12
Report on Executive Compensation
General Compensation Policy
Giga-tronics executive compensation philosophy rests on two fundamental principles.
First, the program is intended to provide fully competitive levels of compensation at expected
levels of performance in order to attract, motivate and retain talented executives. Secondly,
the program is intended to create an alignment of interest between Giga-tronics executives and its
shareholders such that a significant portion of each executives compensation is linked directly to
the creation of shareholder value.
The Executive Compensation Program is intended to place heavy emphasis on variable pay, which
is pay that varies with performance, and less focus on fixed base salary. The incentive pay
programs are intended to reward performance that is directly relevant to the Companys short term
and long term success. The three primary components of the program include base salary, annual
incentive, which is performance-based bonus, and long-term incentives such as stock options.
Factors
The process involved and the factors considered in the executive compensation
determination for fiscal year 2005 are summarized below. It is expected that this process will
remain the same in fiscal year 2006. However, the Committee may, at its discretion, apply a
different set of factors in setting executive compensation in the future in order to further
enhance the basic concept of pay-for-performance.
Base Salary
Base salaries are based primarily on individual performance, and each individuals role
in Giga-tronics. Employees with higher levels of sustained performance over time and/or those
assuming greater responsibilities will be paid correspondingly higher salaries.
On the basis of its knowledge of the industry, this Committee believes that the base salary
levels in effect for Giga-tronics executive officers are competitive with the companies within and
outside our industry with which Giga-tronics competes for executive talent. However, the Committee
did not, through one or more external salary surveys for the industry, independently confirm the
specific percentiles at which the base salary levels in effect for Giga-tronics executive officers
stood in relation to other companies in our industry.
Salaries are reviewed annually based on individual performance, overall financial results and
the general level of increases in the marketplace. Salary increases are granted within a
pay-for-performance framework.
Annual Performance (Non-Stock) Based Incentive Compensation
Giga-tronics annual incentive bonus plan is intended to:
Incentive awards are paid annually in cash based upon achievement of individual performance
objectives for the most recently completed fiscal year.
There were no bonus payments earned in fiscal 2005.
13
Long-Term (Stock Based) Incentive Compensation
Giga-tronics has always believed that stock ownership or stock option participation was
the most effective way of aligning its management and shareholder interests. Options are generally
issued at 100% of market value, for five year terms, exercisable for 25% of the total grant per
year after the first year. The right to exercise options expires 60 days after termination of
employment, except in case of death when an optionees estate would have six months to exercise.
CEO Compensation
The CEO compensation is based on the same considerations as any other senior executive.
Other compensation factors, including salary increases, incentive bonus and option participation
are performance-based.
Based upon Giga-tronics performance, the Compensation Committee increased Mr. Bruns base
compensation to $200,000 annually effective March 2001. Based on the subsequent performance of the
company, Mr. Bruns elected to reduce his salary to $160,000 effective July 16, 2001 and again
reduce his salary to $140,000 effective July 1, 2002. The Compensation Committee reviewed and
approved this election.
Deduction Limit for Executive Compensation
Effective January 1, 1994, Section 162(m) of the Internal Revenue Code limits federal
income tax deductions for compensation paid to the chief executive officer and the four other most
highly compensated officers of a public company to $1 million per individual per year, but contains
an exception for performance-based compensation that satisfies certain conditions.
The 1990 Stock Option Plan was amended in 1994 to restrict the maximum number of shares of
common stock for which any one participant may be granted stock options and stock appreciation
rights to 200,000 shares, and the stockholders approved this amendment at the 1994 Annual Meeting.
As a result, stock options granted to Giga-tronics executive officers with an exercise price not
less than the fair market value of the underlying shares on the grant date will generally qualify
as performance-based compensation which is not subject to the $1 million limitation. The 2000
Stock Option Plan reflects these same restrictions.
14
PERFORMANCE GRAPH
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMOUNG GIGA-TRONICS
15
PROPOSAL 2
Our board of directors is asking our shareholders to approve our 2005 Equity Incentive Plan.
Our Incentive Plan was adopted by our board of directors in July 2005 upon recommendation of the
boards compensation committee (the Committee). The Incentive Plan will take effect upon the
approval of our shareholders. Set forth below is a summary of some of the terms of the Incentive
Plan. The following summary is qualified in its entirety by reference to the terms of the Incentive
Plan, a complete copy of which is attached to this proxy statement as Appendix A.
General.
The Incentive Plan is intended to encourage ownership of the Companys stock by the
Companys employees and directors and to provide additional incentive for them to promote the
success of the Companys business.
The Incentive Plan provides for the following types of awards:
o
stock options;
o
stock appreciation rights;
o
restricted stock awards; and
o
stock grants.
Participants.
Any of our employees including our officers and our directors may be selected by
the Compensation Committee of the board of directors (the Committee) to participate in the
Incentive Plan. As of July 19, 2005, there were approximately 125 persons who will be eligible to
participate in the Incentive Plan. No participant may be granted an award to acquire more than
100,000 shares of common stock in any calendar year.
Administration.
The Incentive Plan will be administered by the Committee, which is presently
composed of three members, all of whom are independent directors as defined by the regulations of
the SEC and Nasdaq. Members of the Committee serve until the appointment of their successors or
their removal by the board. The board may at any time exercise any of the powers and
responsibilities assigned to the Committee under the Incentive Plan. Subject to the provisions of
the Incentive Plan, the Committee has complete authority to make all determinations with respect to
awards to be granted, including the form of award and the recipient of the award. Subject to the
provisions of the Incentive Plan, the Committee also has complete authority to interpret the
Incentive Plan, to prescribe, amend and rescind rules and regulations relating to the Incentive
Plan, to determine the terms and provisions of any agreements concerning the terms of an award, and
to make all other determinations necessary or advisable for the administration of the Incentive
Plan. All decisions, interpretations and other actions of the Committee are final and binding.
Stock options.
Stock options may be granted under the Incentive Plan, including options which
are qualified as incentive stock options, as defined under Section 422 of the Internal Revenue Code
(the Code), and nonqualified stock options. Options will not be exercisable at a price that is
less than 100% of the fair market value of our common stock on the date of grant or, if the
optionee holds at
16
least 10% of the voting power of all classes of our stock, 110% of fair market value. The term
of options will generally be ten years, except that incentive stock options granted to 10%
shareholders will have a term of no more than five years.
Unless the Committee specifically determines otherwise at the time of the grant of the option,
options vest and become exercisable in installments as to 20% of the underlying stock at the first
anniversary of the grant date and 20% per year thereafter. The Committee may allow an optionee to
exercise before an installment vests, subject to the Companys right to repurchase the shares or
any other restriction the Committee imposes.
Upon the exercise of a stock option, the purchase price must be paid in full in either cash or
its equivalent. The Committee may allow the optionee to make payment by tendering shares of our
common stock having a fair market value equal to the exercise price. The Committee may also allow
broker-assisted cashless exercises under which the Company issues shares on exercise of the option
and is paid the purchase price from the sale of the shares by the optionees broker. The Committee
may also authorize loans for the purpose of exercise to the extent permitted by law and may
withhold shares on option exercise in payment of the exercise price and tax withholding.
Options continue to be exercisable for up to twelve months after an optionees association
with the Company terminates due to death or disability and up to 90 days after an optionees
association ends for other reasons. These periods may be extended at the Committees discretion.
Stock appreciation rights (SAR).
An SAR entitles a participant to receive a payment equal in
value to the difference between the fair market value of a share of stock on the date of exercise
of the SAR over the price of the SAR on the date of grant. The terms, methods of exercise, methods
of settlement, form of consideration payable in settlement, and any other terms and conditions of
any SAR will be determined by the Committee at the time of the grant of award and will be reflected
in the award agreement.
Restricted stock.
A restricted stock award is the grant of shares of our common stock
exercisable currently at a price determined by the Committee (including zero), that is subject to
forfeiture until specific conditions or goals are met. Conditions may be based on continuing
employment or achieving performance goals specified by the Committee. During the period of
restriction, participants holding restricted stock may, if permitted by the Committee, have full
voting and dividend rights. The restrictions lapse in accordance with a schedule or other
conditions determined by the Committee.
Stock grants.
A stock grant is an award of shares of common stock without restriction. Stock
grants may be made in certain circumstances to reward special performance or for other special
reasons.
Performance-based awards.
Grants of performance-based awards under the Incentive Plan are
intended to qualify as performance-based compensation under Section 162(m) of the Code and
preserve the deductibility of these awards for federal income tax purposes. Section 162(m) of the
Code denies a tax deduction to public companies for compensation paid to certain covered
employees in a taxable year to the extent the compensation paid to a covered employee exceeds
$1,000,000, unless the plan contains certain features that qualify the compensation as
performance-based compensation. Because Section 162(m) of the Code only applies to those
employees who are covered employees as defined in Section 162(m) of the Code, only covered
employees and those likely to become covered
17
employees are eligible to receive performance-based awards. Covered employees means the
Companys chief executive officer or any of its other four highest compensated officers.
Participants are only entitled to receive payment for a performance-based award for any given
performance period to the extent that pre-established performance goals set by the Committee for
the period are satisfied. These pre-established performance goals must be based on one or more of
the following performance criteria which are set forth in Section 2.23 of the Incentive plan:
2.23
Performance Criteria
means the criteria that the Committee
selects for purposes of establishing the Performance Goal or
Performance Goals for a Participant for a Performance Period. The
Performance Criteria used to establish Performance Goals are limited
to: pre- or after-tax net earnings, sales growth, operating earnings,
operating cash flow, return on net assets, return on shareholders
equity, return on assets, return on capital, Stock price growth,
shareholder returns, gross or net profit margin, earnings per share,
price per share of Stock, and market share, any of which may be
measured either in absolute terms or as compared to any incremental
increase or as compared to results of a peer group.
These performance criteria may be measured in absolute terms or as compared to any incremental
increase or as compared to results of a peer group, and may be calculated in any manner chosen by
the Committee. With regard to a particular performance period, the Committee will have the
discretion to select the length of the performance period, the type of performance-based awards to
be granted, and the goals that will be used to measure the performance for the period. In
determining the actual size of an individual performance-based award for a performance period, the
Committee may reduce or eliminate (but not increase) the award. Generally, a participant would have
to be employed on the date the performance-based award is paid to be eligible for a
performance-based award for that period. If the shareholders approve the Incentive Plan, they will
also be approving the performance criteria set forth above.
Shares reserved for issuance.
Subject to certain adjustments, we will be able to issue a
maximum of 700,000 shares of our common stock under the Incentive Plan. The maximum aggregate
number of shares of our common stock which may be issued pursuant to or subject to outstanding
incentive stock options granted under the Incentive Plan is 700,000 Shares withheld in payment of
tax withholding on exercise of awards, shares tendered by participants in payment of the exercise
price of options and the purchase price of restricted stock, and shares cancelled or forfeited by
participants, become available for future grants under the Incentive Plan.
Acceleration of vesting.
The vesting of any awards granted under the Incentive Plan may be
accelerated in full in the event of a merger or sale of the company if the acquiring entity does
not assume or replace the awards with comparable awards. In addition, the Committee may accelerate
the exercisability of options (unless restricted by the Code in the case of incentive options) and
any grant of restricted stock even if restrictions have not expired.
Limitation of Rights.
Participants in the Incentive Plan will not be deemed for any purpose to
be shareholders of the Company with respect to any of the shares of stock subject to an award
unless and until a certificate has been issued for the shares. However, the Committee may allow
holders of restricted stock to exercise voting rights and receive dividends during the restricted
period. Any stock
18
issued pursuant to awards is subject to any restrictions on transfer imposed by our articles
of incorporation and bylaws and by applicable law.
Transferability.
Except as otherwise provided in the Incentive Plan, options and awards are
not transferable, and no options, awards or interests in them may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated other than by will or the laws of descent and
distribution. All of a participants rights in any option or award may be exercised during the life
of the participant only by the participant or the participants legal representative. However, the
Committee may allow a nonstatutory stock option or restricted stock to be transferred by the
recipient to a family member, provided no compensation or value is paid for the transfer.
Amendment and termination.
The board of directors may terminate, amend or modify the Incentive
Plan at any time, with shareholder approval to the extent necessary and desirable to comply with
any applicable law, regulation or listing standard of any market where our securities trade. We may
not make any grants under the Incentive Plan after the tenth anniversary of the date the plan was
adopted by the board. Awards outstanding at the time the Incentive Plan is amended or terminated
will continue in existence, and the terms of the Incentive Plan will continue to apply to them,
until the awards are exercised, cancelled or forfeited.
Tax effect for us.
We generally will be entitled to a tax deduction in connection with an
option or award under the Incentive Plan in an amount equal to the ordinary income realized by a
participant and at the time the participant recognizes such income (for example, the exercise of a
nonstatutory stock option). Special rules limit the deductibility of compensation paid to our chief
executive officer and to each of the named executive officers. Under Section 162(m) of the Code,
the annual compensation paid to any of these specified executives will be deductible only to the
extent that it does not exceed $1,000,000. However, we can preserve the deductibility of certain
compensation in excess of $1,000,000 if the conditions of Section 162(m) are met with respect to
awards. These conditions include shareholder approval of the Incentive Plan and performance
criteria under the Incentive Plan, setting individual annual limits on each type of award, and
certain other requirements. The Incentive Plan has been designed to permit the Committee to grant
awards that qualify as performance-based for purposes of satisfying the conditions of Section
162(m), thereby permitting us to receive a federal income tax deduction in connection with such
awards if we should make them.
Registration with the SEC.
Upon approval of the Incentive Plan, we plan to file a registration
statement with the SEC to register the shares available under the Incentive Plan.
Shareholder approval.
Approval of the Incentive Plan requires the affirmative vote of a
majority of the shares represented at the annual meeting (although state securities laws to the extent applicable may require the affirmative vote of a majority of the outstanding shares entitled to vote at the annual meeting).
Post-approval Grants/Plan Benefits.
We have not determined to make any specific grants or
awards to any persons under the Incentive Plan upon shareholder approval.
United States income tax considerations.
The grant of the above-listed stock options will not
result in taxable income to the recipient. With respect to non-qualified stock options, the
recipient will realize ordinary income at the time of exercise in an amount equal to the excess of
the fair market value of the shares acquired over the exercise price for those shares and we will
be entitled to a corresponding deduction. Except as described below, gains or losses realized by
the participant upon disposition of such shares will generally be treated as capital gains and
losses, with the basis in such shares equal to the fair market value of the shares at the time of exercise. In the case of a
disqualifying
19
disposition of incentive option stock, some or all of the gain will be ordinary income and we will be entitled to a corresponding deduction.
The preceding discussion is based on U.S. tax laws and regulations presently in effect, which
are subject to change, and the discussion does not purport to be a complete description of the U.S.
income tax aspects of the Incentive Plan. A participant may also be subject to state and local
taxes in connection with the grant of awards under the Incentive Plan. We suggest that participants
consult with their individual tax advisors to determine the applicability of the tax rules to the
awards granted to them in their personal circumstances.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
20
PROPOSAL 3
The Audit Committee has re-appointed the firm of Perry-Smith LLP as Giga-tronics independent
accountants for the fiscal year ending March 26, 2005 and to perform other appropriate services.
We are seeking ratification by the shareholders for this appointment. In case of a negative vote,
the appointment will be reconsidered.
Representatives of Perry-Smith LLP are expected to be present at Giga-tronics Annual Meeting with
the opportunity to make a statement, if they desire to do so, and they are expected to be available
to respond to appropriate questions.
KPMG LLP was previously the principal accountants for Giga-tronics Incorporated. On June 18, 2004,
that firm resigned. The decision to change accountants was not recommended or approved by the audit
committee of the board of directors.
KPMG LLPs report on the registrants consolidated financial statements as of and for the years
ended March 27, 2004 did not contain an adverse opinion or a disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope, or accounting principles, except as follows:
In connection with the audit of the fiscal year ended March 27, 2004 and the subsequent interim
period through June 18, 2004, there were no disagreements with KPMG LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of KPMG LLP, would have caused it to make
reference to the subject matter of the disagreement(s) in connection with its report.
During the registrants fiscal year ended March 27, 2004 and the subsequent interim period through
June 18, 2004 preceding KPMG LLPs resignation, there were no reportable events requiring
disclosure pursuant to Section 228.304(a)(1)(iv) of Regulation S-K.
The Audit Committee of Giga-tronics Incorporated engaged Perry-Smith LLP as its new independent
auditors on July 22, 2004.
During the two previous fiscal years and through July 22, 2004, the Company did not consult with
Perry-Smith LLP regarding the application of accounting principles to a specified transaction,
either completed or proposed; the type of audit opinion that might be rendered on the Companys
financial statements and in no case was a written report provided to the Company nor was oral
advice provided that the Company concluded was an important factor in reaching a decision as to an
accounting, auditing or financial reporting issue; or any matter that was either the subject of a
disagreement, as that term is used in Item 304 of Regulation S-B and defined in the related
instructions to Item 304 of Regulation S-B, or a reportable event, as that term is defined in Item
304 of Regulation S-B.
The following table presents aggregate fees billed for professional services rendered by
Perry-Smith LLP in fiscal year 2005 and KPMG LLP in fiscal year 2004 in the following categories:
21
Independence of Perry-Smith LLP
Since Perry-Smith LLP did not perform any financial information systems design and implementation
or any other professional services, the Audit Committee did not need to consider the independence
issue which might arise from such services.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR
RATIFICATION OF THE APPOINTMENT OF
PERRY-SMITH LLP.
22
SHAREHOLDERS PROPOSALS
To be considered for presentation to the Annual Meeting of Shareholders to be held in
2006, a shareholder proposal must be received by Giga-tronics no later than June 5, 2006. To be
considered for inclusion in the Giga-tronics proxy statement for its Annual Meeting of Shareholders
to be held in 2006, a shareholder proposal must be received by Giga-tronics no later than April 14,
2006. Proposals should be addressed to the Corporate Secretary, Giga-tronics Incorporated, 4650
Norris Canyon Road, San Ramon, CA 94583.
The Annual Report of Giga-tronics for the fiscal year ended March 26, 2005 is being mailed
with this mailing of the Notice of Annual Meeting and Proxy Statement to all shareholders entitled
to notice of and to vote at the Annual Meeting. Giga-tronics will mail the Annual Report on Form
10-KSB for the most recent fiscal year to any shareholder who requests a copy. Requests should be
sent to the Corporate Secretary as noted above for proposals.
OTHER MATTERS
Giga-tronics knows of no other business which will be presented at the Annual Meeting
other than the proposals included in the Notice of Meeting. If any other business is properly
brought before the Annual Meeting, persons appointed as proxies for the shareholders in the
enclosed form will vote on these matters in accordance with their judgments. Regardless of whether
you intend to be present at the Annual Meeting, you are urged to complete, date, sign and return
your proxy promptly.
The Report of the Compensation Committee, the Report of the Audit Committee, the Performance
Graph and the statement of independence of Audit Committee members referred to under Information
About the Board of Directors and Committees of the Board are not to be considered as filed with
the Securities and Exchange Commission or incorporated by reference into any other filings which
the Company makes with the Exchange Commission under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, nor is this information considered as proxy soliciting
material. These portions of this proxy statement are not a part of any of those filings unless
otherwise stated in those filings.
23
Attachment A
Giga-tronics Incorporated
2005 Equity Incentive Plan
Adopted by the Board of Directors on July 19, 2005
1. Purpose.
The 2005 Equity Incentive Plan (the
Plan
) of Giga-tronics Incorporated, a
California corporation (the
Company
), is intended to encourage ownership of Stock by employees
and directors of the Company and Affiliates and to provide additional incentive for them to promote
the success of the Companys business. The Plan is intended to be an incentive stock option plan
within the meaning of Section 422 of the Code, but not all Awards are required to be Incentive
Options.
2. Definitions.
As used in the Plan, the following terms shall have the following
meanings:
2.1
Accelerate
,
Accelerated
, and
Acceleration
means:
(a) when used with respect to an Option or Stock Appreciation Right, that as of the time of
reference the Option or Stock Appreciation Right will become exercisable with respect to some or
all of the Stock or Stock Appreciation Right for which it was not then otherwise exercisable by its
terms; and
(b) when used with respect to Restricted Stock, that the Risk of Forfeiture otherwise
applicable to such Restricted Stock shall expire with respect to some or all of the Restricted
Stock then still otherwise subject to the Risk of Forfeiture.
2.2
Acquisition
means a merger or consolidation of the Company with or into
another person or the sale, transfer, or other disposition of all or substantially all of the
Companys assets to one or more other persons in a single transaction or series of related
transactions.
2.3
Affiliate
means any corporation, partnership, limited liability company,
business trust, or other entity controlling, controlled by or under common control with the
Company.
2.4
Award
means any grant or sale pursuant to the Plan of Options, Stock
Appreciation Rights, Restricted Stock, or Stock Grants.
2.5
Award Agreement
means an agreement between the Company and a Participant,
setting forth the terms and conditions of an Award.
2.6
Board
means the Board of Directors of the Company.
2.7
Change of Control
means and shall be deemed to have occurred if:
(a) any one person, or more than one person acting as a group, acquires ownership of stock of
the Company that, together with stock held by such person or group, constitutes more than 50% of
the total fair market value or total voting power of the stock of the Company;
(b) a majority of the members of the board of directors of the Company is replaced during any
18-month period by directors whose appointment or election is not endorsed by a majority of the
members of the Companys board of directors prior to the date of appointment or election; or
(c) one person, or more than one person acting as a group, acquires (or has acquired during
the 12-month period ending on the date of the most recent acquisition by such person or group),
assets from the Company that have a total gross fair market value equal to or more than 40% of the
total gross fair market value of all assets of the Company immediately prior to such acquisition or
acquisitions. For purposes of the preceding clause (c), there is no acquisition of assets if the
assets are transferred to:
(i) a shareholder of the Company in exchange for or with respect to its stock;
(ii) an entity, 50% or more of the total value or voting power of which is owned, directly or
indirectly, by the Company;
(iii) a person, or more than one person acting as a group, that owns, directly or indirectly,
50% or more of the total value or voting power of all the outstanding stock of the Company; or
(iv) an entity, at least 50% of the total value or voting power of which is owned, directly or
indirectly, by a person described in the preceding clause (iii).
2.8
Code
means the Internal Revenue Code of 1986, as amended, or any successor statutes
thereto, and any regulations issued from time to time thereunder.
2.9
Committee
means the Compensation Committee of the Board, which in general is
responsible for the administration of the Plan, as provided in Section 5. For any period during
which no such committee is in existence, Committee means the Board, and all authority and
responsibility assigned to the Committee under the Plan shall be exercised, if at all, by the
Board. In the discretion of the Board, the Committee may consist solely of two or more Outside
Directors, in accordance with Section 162(m) of the Code, or solely of two or more Non-Employee
Directors, in accordance with Rule 16b-3 under the Exchange Act. In addition, the Board or the
Committee, in its discretion, may delegate to a committee of two or more persons, who may but need
not be Outside Directors or Non-Employee Directors:
(a) the authority to grant Awards to eligible persons who are either:
(i) not then Covered Employees and are not expected to be Covered Employees at the time of
recognition of income resulting from such Award, or
(ii) not persons with respect to whom the Company wishes to comply with Section 162(m) of the
Code, and/or
(b) the authority to grant Awards to eligible persons who are not then subject to Section 16
of the Exchange Act.
2
2.10
Continuous Service
means the absence of any interruption or termination of
service as an employee or director of the Company or any Subsidiary. Continuous Service shall not
be considered interrupted during any period of (i) any leave of absence approved by the Company or
(ii) transfers between locations of the Company or between the Company and any Parent, Subsidiary
or successor of the Company. Military or sick leave or other public (such as jury duty) or
personal leave approved by an authorized representative of the Company shall not be deemed an
interruption or termination of Continuous Service, provided that it does not exceed the longer of
90 days or the period during which the absent Participants reemployment rights, if any, are
guaranteed by statute or by contract.
2.11
Covered Employee
means an employee who is a covered employee within the
meaning of Section 162(m) of the Code.
2.12
Effective Date
means
, 2005, the date the Plan was approved by the
Board.
2.13
Exchange Act
means the Securities Exchange Act of 1934, as amended
2.14
Exercise Price
means the price at which an Option or Stock Appreciation Right may
be exercised.
2.15
Grant Date
means the date as of which an Award is granted, as determined under
Section 7.1(a).
2.16
Incentive Option
means an Option which by its terms is to be treated as an
incentive stock option within the meaning of Section 422 of the Code.
2.17
Market Value
means the value of a share of Stock on a particular date
determined by such methods or procedures as may be established by the Committee. Unless otherwise
determined by the Committee, the Market Value of a share of Stock as of any date is the closing
price as reported on the Nasdaq SmallCap Market (or on any national securities exchange or other
established market on which or through which the Stock is then traded) for that date or, if no
closing price is reported for that date, the closing price on the next preceding date for which a
closing price was reported.
2.18
Nonstatutory Option
means any Option that is not an Incentive Option.
2.19
Option
means an Incentive Option or a Nonstatutory Option.
2.20
Optionee
means a Participant to whom an Option shall have been granted under
the Plan or to whom an Option has been transferred pursuant to Section 6.4.
2.21
Parent
means a parent corporation of the Company, whether now or hereafter
existing, as defined by Section 424(e) of the Code.
2.22
Participant
means any recipient or Permitted Transferee of an outstanding
Award or of securities issued pursuant to an Award.
3
2.23
Performance Criteria
means the criteria that the Committee selects for
purposes of establishing the Performance Goal or Performance Goals for a Participant for a
Performance Period. The Performance Criteria used to establish Performance Goals are limited to:
pre- or after-tax net earnings, sales growth, operating earnings, operating cash flow, return on
net assets, return on shareholders equity, return on assets, return on capital, Stock price
growth, shareholder returns, gross or net profit margin, earnings per share, price per share of
Stock, and market share, any of which may be measured either in absolute terms or as compared to
any incremental increase or as compared to results of a peer group. The Committee will, in the
manner and within the time prescribed by Section 162(m) of the Code in the case of Qualified
Performance-Based Awards, objectively define the manner of calculating the Performance Criteria it
selects to use for such Performance Period for such Participant.
2.24
Performance Goals
means the written goals established by the Committee for a
Participant during a Performance Period for such Participant based upon the Performance Criteria.
Depending on the Performance Criteria used to establish such Performance Goals, the Performance
Goals may be expressed in terms of overall Company performance or the performance of a division,
business unit, Subsidiary, or an individual.
2.25
Permitted Transferee
means any of the persons or entities to which certain
awards may be transferred as provided in Section 6.4 of the Plan.
2.26
person
means an individual, a corporation, a partnership, a limited liability
company, an association, a trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
2.27
Qualified Performance-Based Awards
means Awards intended to qualify as
performance-based compensation under Section 162(m) of the Code as set forth in Section 7.5.
2.28
Restricted Stock
means Stock granted or sold to a Participant subject to a
Risk of Forfeiture.
2.29
Restriction Period
means the period of time, established by the Committee in
connection with an Award of Restricted Stock, during which the Restricted Stock is subject to a
Risk of Forfeiture described in the applicable Award Agreement.
2.30
Risk of Forfeiture
means a limitation on the right of the Participant to
retain Restricted Stock, including a right of the Company to reacquire Restricted Stock, arising
because of the occurrence or non-occurrence of specified events or conditions.
2.31
Securities Act
means the Securities Act of 1933, as amended.
2.32
SEC
means the U.S. Securities and Exchange Commission.
2.33
Stock
means common stock, no par value, of the Company, and such other
securities as may be substituted for Stock pursuant to Section 8.
4
2.34
Stock Appreciation Right
means a right to receive in cash any excess in the
Market Value of a share of Stock on the date of exercise (except as otherwise provided in Section
7.2(c)) over a specified Exercise Price.
2.35
Stock Grant
means the grant of Stock not subject to restrictions or other
forfeiture conditions.
2.36
Subsidiary
means a subsidiary corporation of the Company, whether now or
hereafter existing, as defined in Section 424(f) of the Code.
2.37
Ten Percent Owner
means a person who owns, or is deemed within the meaning of
Section 422(b)(6) of the Code to own, stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (or any Parent or Subsidiary of the Company). Whether
a person is a Ten Percent Owner shall be determined with respect to an Option based on the facts
existing immediately prior to the Grant Date of the Option.
2.38
Vesting Commencement Date
means, with respect to an Option or Stock
Appreciation Right, the date, determined by the Committee, on which the vesting of the Option or
Stock Appreciation Right shall commence, which may be the Grant Date or a date prior to or after
the Grant Date.
3. Term of the Plan.
Unless the Plan shall have been earlier terminated by the Board,
Awards may be granted from the time the Plan is approved by the shareholders of the Company until
immediately prior to the tenth anniversary of the Effective Date. Awards granted pursuant to the
Plan within that period shall not expire solely by reason of the termination of the Plan.
4. Stock Subject to the Plan.
Subject to Section 8, the maximum aggregate number of
shares of Stock which may be issued pursuant to or subject to Awards is 700,000 The maximum
aggregate number of shares of Stock which may be issued pursuant to or subject to Incentive Options
granted under the Plan is 700,000 The shares of Stock subject to the Plan may be authorized but
unissued shares or reacquired shares, bought on the open market or otherwise. If any Option or
Stock Appreciation Right expires, terminates, or is cancelled for any reason without having been
exercised in full, or if any other Award is forfeited by the Participant, the shares of Stock to
which the Award relates which are not acquired by the Optionee or which are forfeited by the
Participant shall again be available for Awards to be granted under the Plan. In addition,
exercise or settlement of any Award shall not count against the foregoing limitations except to the
extent settled in the form of Stock. Shares of Stock issued pursuant to Awards which are later
repurchased by the Company pursuant to any repurchase right (other than the repurchase of shares
that have not vested and are subject to forfeiture prior to vesting) that the Company may have
shall not be available for future grant of Awards under the Plan. If any shares subject to an
Award are not delivered to a Participant because such shares are withheld for the payment of taxes
or the Award is exercised through a reduction of shares subject to the Award through the net
exercise feature described herein, the number of shares that are not delivered to the Participant
will remain available for issuance under the Plan. If the Exercise Price of any Award is satisfied
by tendering shares of Stock held by the Participant, then the number of shares so tendered will be
available for issuance under the Plan.
5
5. Administration.
The Plan shall be administered by the Committee; provided, however,
that at any time and on any one or more occasions the Board may itself exercise any of the powers
and responsibilities assigned the Committee under the Plan and when so acting shall have the
benefit of all of the provisions of the Plan pertaining to the Committees exercise of its
authorities hereunder. Subject to the provisions of the Plan, the Committee shall have complete
authority, in its discretion, to make or to select the manner of making all determinations with
respect to each Award to be granted by the Company under the Plan, including the employee or
director to receive the Award and the form of Award. In making such determinations, the Committee
may take into account the nature of the services rendered by the respective employees and
directors, their present and potential contributions to the success of the Company and Affiliates,
and such other factors as the Committee in its discretion shall deem relevant. Subject to the
provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, to determine the terms and
provisions of the respective Award Agreements (which need not be identical), and to make all other
determinations necessary or advisable for the administration of the Plan. The Committees
determinations made in good faith on matters referred to in the Plan shall be final, binding and
conclusive on all persons having or claiming any interest under the Plan or an Award made pursuant
hereto.
6. Authorization of Grants.
6.1
Eligibility
. The Committee may grant from time to time and at any time prior
to the termination or expiration of the Plan one or more Awards, either alone or in combination
with any other Awards, to any employee of the Company or any Affiliates or to any member of the
Board or of any board of directors (or similar governing authority) of any Affiliate. However,
only employees of the Company, and of any Parent or Subsidiary of the Company, shall be eligible
for the grant of an Incentive Option. Further, in no event shall the number of shares of Stock
covered by Options or other Awards granted to any one person in any one calendar year exceed
100,000 shares of Stock subject to the Plan.
6.2
General Terms of Awards
. Each grant of an Award shall be subject to
all applicable terms and conditions of the Plan (including but not limited to any specific terms
and conditions applicable to that type of Award set out in the following Section), and such other
terms and conditions, not inconsistent with the terms of the Plan, as the Committee may prescribe.
No prospective Participant shall have any rights with respect to an Award, unless and until such
Participant has (a) (i) executed an Award Agreement with respect to such Award and delivered a
fully executed copy of such Award Agreement to the Company, or (ii) otherwise affirmatively
assented to the terms and conditions of an Award Agreement with respect to such Award, including by
click through agreement, pursuant to procedures and guidelines approved by the Committee, and (b)
otherwise complied with the applicable terms and conditions of such Award.
6.3
Effect of Termination of Employment, Disability or Death
.
(a)
Termination of Employment, Etc
. Unless the Committee shall provide
otherwise (consistent with applicable law and other relevant restrictions) with respect to any
Award, if the Participants Continuous Service ends for any reason other than by total disability
6
or death, including because of the Participants employer ceasing to be an Affiliate, (i) any
outstanding Option or Stock Appreciation Right of the Participant shall cease to be exercisable in
any respect 90 days following that event and, for the period it remains exercisable following that
event, shall be exercisable only to the extent exercisable at the date of that event, subject to
the condition that no Option or Stock Appreciation Right shall be exercised after its expiration in
accordance with its terms, and (ii) any other outstanding Award of the Participant shall be
forfeited or otherwise subject to return to or repurchase by the Company on the terms specified in
the applicable Award Agreement.
(b)
Disability of Participant
. Unless the Committee shall provide
otherwise (consistent with applicable law and other relevant restrictions) with respect to any
Award, if a Participants Continuous Service ends due to disability (as defined in Section 22(e)(3)
of the Code), and such Participant was in Continuous Service from the Grant Date until the date of
termination of service, (i) any outstanding Option or Stock Appreciation Right of the Participant
shall cease to be exercisable in any respect twelve months following the date of termination of
Continuous Service and, for the period it remains exercisable following that event, shall be
exercisable only to the extent exercisable at the date of that event, subject to the condition that
no Option or Stock Appreciation Right shall be exercised after its expiration in accordance with
its terms, and (ii) any other outstanding Award of the Participant shall be forfeited or otherwise
subject to return to or repurchase by the Company on the terms specified in the applicable Award
Agreement.
(c)
Death of Participant
. Unless the Committee shall provide otherwise
(consistent with applicable law and other relevant restrictions) with respect to any Award, in the
event of the death of a Participant who was in Continuous Service from the Grant Date until the
date of death, (i) any outstanding Option or Stock Appreciation Right of the Participant shall
cease to be exercisable in any respect twelve months following that event and, for the period it
remains exercisable following the date of death, shall be exercisable by such Participants estate
or by a person who acquired the right to exercise such Award by bequest, inheritance or otherwise
as a result of the Participants death, but only to the extent exercisable at the date of death,
subject to the condition that no Option or Stock Appreciation Right shall be exercised after its
expiration in accordance with its terms, and (ii) any other outstanding Award of such Participant
shall be forfeited or otherwise subject to return to or repurchase by the Company on the terms
specified in the applicable Award Agreement.
(d)
Extension of Termination Date.
An Award Agreement may provide that if
the exercise of the Award following the termination of the Participants Continuous Service would
be prohibited at any time solely because the issuance of shares of Stock would violate the
registration requirements under the Securities Act, then the Award will terminate on the earlier of
(i) the expiration of the term of the Award set forth in the Award Agreement or (ii) the expiration
of a period of three consecutive months after the termination of the Participants Continuous
Service during which the exercise of the Award would not be in violation of such registration
requirements, but only to the extent exercisable at the date of such termination, subject to the
condition that no Option or Stock Appreciation Right shall be exercised after its expiration in
accordance with its terms. Pursuant to the Code, any extension of the exercisability of an
Incentive Option pursuant to this Section 6.3(d) will cause the Incentive Option to be treated as a
Nonstatutory Option.
7
6.4
Transferability of Awards
. Except as otherwise provided in this
Section 6.4, Awards shall not be transferable, and no Award or interest therein may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by
the laws of descent and distribution. All of a Participants rights in any Award may be exercised
during the life of the Participant only by the Participant or the Participants legal
representative. However, the Committee may, at or after the grant of an Award of a Nonstatutory
Option, Stock Appreciation Right or Restricted Stock, provide that such Award may be transferred by
the Participant through a gift or domestic relations order in settlement of marital property rights
to any of the following donees or transferees and may be reacquired by the Participant from any of
such donors or transferees (each a Permitted Transferee):
(a) any
family member
, which includes any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships and any individual sharing the Participants household (other than a tenant or
employee);
(b) a trust in which family members have more than 50% of the beneficial interest;
(c) a foundation in which family members (or the Participant) control the
management of assets; and
(d) any other entity in which family members (or the Participant) own more than
50% of the voting interests,
provided, that (x) any such transfer is without payment of any value whatsoever and that no
transfer shall be valid unless first approved by the Committee, acting in its sole discretion; (y)
the Award Agreement pursuant to which such Awards are granted, and any amendments thereto, must be
approved by the Committee and must expressly provide for transferability in a manner consistent
with this Section 6.4; and (z) subsequent transfers of transferred Awards shall be prohibited
except in accordance with this Section 6.4. Following transfer, any such Awards and any securities
issued pursuant thereto shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that the term of the Plan and the Award
Agreement shall continue to be applied with respect to the original Participant, and any Awards
shall be exercisable by the transferee only to the extent and for the periods specified in the
Award Agreement or Section 6.3, as applicable.
6.5
Cancellation of Awards For Improper Acts of Participant
. If, at any
time during the course of a Participants employment with the Company or any Affiliates or within
six months after termination of Continuous Service, a Participant engages in any activity in
competition with any business activity of the Company of any Affiliates, or inimical, contrary or
harmful to the interests of the Company or any Affiliates, including, but not limited to:
(a) conduct related to the Participants employment for which either criminal or civil
penalties may be sought,
8
(b) violation of the policies of the Company or any Affiliates, including, without limitation,
personnel and insider trading policies,
(c) accepting employment with or serving as a consultant, advisor or in any other capacity to
an employer that is in competition with or acting against the interests of the Company or any
Affiliates,
(d) employing or recruiting any present, former or future employee of the Company or any of
its Affiliates,
(e) disclosing or misusing any confidential information or material concerning the Company or
any Affiliates, or
(f) participating in a hostile takeover attempt, tender offer or proxy contest involving the
Company or any Affiliates,
then (1) all Awards shall terminate and be forfeited effective the date on which the Participant
enters into such activity, unless terminated or forfeited sooner by operation of another term of
condition of the Plan or an Award Agreement or by operation of law, (2) any cash, security or other
property acquired by a Participant pursuant to an Award during the Forfeiture Period shall be
forfeited, and (3) any gain realized by a Participant from the sale of any security acquired under
any Award during the Forfeiture Period shall be paid by the Participant to the Company. The
Forfeiture Period shall mean the period commencing on the Grant Date of the Award and ending six
months after termination of Continuous Service.
7. Specific Terms of Awards.
7.1
Options
.
(a)
Date of Grant
. The granting of an Option shall take place at the time
specified in the Award Agreement.
(b)
Exercise Price
. Unless otherwise provided by law, the per share price
at which Stock may be acquired under each Incentive Option and each Nonstatutory Stock Option shall
be not less than 100% of the Market Value of a share of Stock on the Grant Date, or not less than
110% of the Market Value of a share of Stock on the Grant Date if the Optionee is a Ten Percent
Owner.
(c)
Exercise Period
. No Incentive Option may be exercised on or after the
tenth anniversary of the Grant Date, or on or after the fifth anniversary of the Grant Date if the
Optionee is a Ten Percent Owner. No Nonstatutory Option may be exercised on or after the tenth
anniversary of the Grant Date.
(d)
Exercisability
. An Option may be immediately exercisable or become
exercisable in such installments, cumulative or non-cumulative, as the Committee may determine.
Unless the Committee specifically determines otherwise at the time of the grant of the Option, each
Option shall vest and become exercisable, cumulatively, as to 20% of the Stock originally subject
to the Option at the first anniversary of the Vesting Commencement Date and
9
as to 20% of the Stock originally subject to the Option at the end of each successive
anniversary thereafter until all of the Stock subject to the Option has vested, subject to Sections
6.3 and 8.2. In the case of an Option not otherwise immediately exercisable in full, the Committee
may Accelerate such Option in whole or in part at any time; provided, that in the case of an
Incentive Option, any such Acceleration of the Option would not cause the Option to fail to comply
with the provisions of Section 422 of the Code or the Optionee consents to the Acceleration.
(e)
Method of Exercise
. An Option may be exercised by the Optionee giving
written notice, in the manner provided in Section 16, specifying the number of shares of Stock with
respect to which the Option is then being exercised. The notice shall be accompanied by payment in
the form of cash or check payable to the order of the Company in an amount equal to the Exercise
Price of the Stock to be purchased plus any applicable tax withholding or, if the Committee had so
authorized upon the grant of an Incentive Option or on or after grant of a Nonstatutory Option (and
subject to such conditions, if any, as the Committee may deem necessary to avoid adverse accounting
or tax effects on the Company) by:
(i) delivery to the Company of Stock having a Market Value equal to the Exercise
Price of the shares of Stock with respect to which the Option is then being exercised
(ii) a net exercise of the Option (as further described below),
(iii) delivery to the Company of a cash payment made pursuant to a cashless
exercise program (as further described below),
(iv) any other form of legal consideration that may be acceptable to the
Committee.
Subject to compliance with applicable law and regulation, including but not limited to Section
402 of the Sarbanes-Oxley Act of 2002, if the Stock is traded on an established market, payment of
any Exercise Price may also be made through and under the terms and conditions of any formal
cashless exercise program authorized by the Company entailing the sale of the Stock subject to an
Option in a brokered transaction (other than to the Company). Receipt by the Company of such
notice and payment in any authorized or combination of authorized means shall constitute the
exercise of the Option. Within 30 days thereafter but subject to the remaining provisions of the
Plan, the Company shall deliver or cause to be delivered to the Optionee or his agent a certificate
or certificates for the number of shares of Stock then being purchased. Stock issued and paid for
pursuant to this section shall be fully paid and nonassessable.
In the case of a net exercise of an Option, the Company will not require a payment of the
Exercise Price of the Option from the Participant but will reduce the number of shares of Stock
issued upon the exercise by the largest number of whole shares that have a Fair Market Value that
does not exceed the aggregate Exercise Price. With respect to any remaining balance of the
aggregate Exercise Price, the Company will accept a cash payment from the Participant.
10
The number of shares of Stock underlying an Option will decrease following the exercise of
such Option to the extent of (i) shares used to pay the Exercise Price of an Option under the net
exercise feature, (ii) shares actually delivered to the Participant as a result of such exercise
and (iii) shares withheld for purposes of tax withholding.
(f)
Early Exercise.
The Option may include a provision whereby the
Participant may elect at any time before his or her Continuous Service terminates to exercise the
Option as to any part or all of the shares of Stock subject to the Option prior to the full vesting
of the Option. Any unvested shares of Stock so purchased may be subject to a repurchase option in
favor of the Company or to any other restriction the Committee determines to be appropriate.
(g)
Limit on Incentive Option Characterization
. An Option shall be
considered to be an Incentive Option only to the extent that the number of shares of Stock for
which the Option first becomes exercisable in a calendar year do not have an aggregate Market Value
(as of the date of the grant of the Option) in excess of the
current limit
. The current limit
for any Optionee for any calendar year shall be $100,000 minus the aggregate Market Value at the
date of grant of the number of shares of Stock available for purchase for the first time in the
same year under each other incentive option previously granted to the Optionee under all other
plans of the Company and Affiliates. Any Stock which would cause the foregoing limit to be
violated shall be deemed to have been granted under a separate Nonstatutory Option, otherwise
identical in its terms to those of the Incentive Option. The current limit will be calculated
according to the chronological order in which the Options were granted.
(h)
Notification of Disposition
. Each person exercising any Incentive
Option granted under the Plan shall be deemed to have covenanted with the Company to report to the
Company any disposition of such shares prior to the expiration of the holding periods specified by
Section 422(a)(1) of the Code and, if and to the extent that the realization of income in such a
disposition imposes upon the Company federal, state, local or other withholding tax requirements,
or any such withholding is required to secure for the Company an otherwise available tax deduction,
promptly to remit to the Company an amount in cash sufficient to satisfy those requirements.
7.2
Stock Appreciation Rights
.
(a)
Tandem or Stand-Alone
. Stock Appreciation Rights may be granted in
tandem with an Option (at or, in the case of a Nonstatutory Option, after the award of the Option),
or alone and unrelated to an Option. Stock Appreciation Rights in tandem with an Option shall
terminate to the extent that the related Option is exercised, expires or is cancelled, and the
related Option shall terminate to the extent that the tandem Stock Appreciation Rights are
exercised, expire or are cancelled.
(b)
Exercise Price
. Stock Appreciation Rights shall have such Exercise
Price as the Committee may determine, except that in the case of Stock Appreciation Rights in
tandem with Options, the Exercise Price of the Stock Appreciation Rights shall equal the Exercise
Price of the related Option.
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(c)
Exercise Period
. No Stock Appreciation Right may be exercised on or
after the tenth anniversary of the Vesting Commencement Date.
(d)
Exercisability
. A Stock Appreciation Right will become exercisable in such
installments, cumulative or non-cumulative, as the Committee may determine. Unless the Committee
specifically determines otherwise at the time of the grant of the Stock Appreciation Right, each
Stock Appreciation Right shall vest and become exercisable, cumulatively, as to 20% of the Stock
Appreciation Right at the first anniversary of the Vesting Commencement Date and as to 20% of the
Stock originally subject to the Stock Appreciation Right at the end of each successive anniversary
thereafter until the Stock Appreciation Right has fully vested, subject to Sections 6.3 and 8.2.
In the case of a Stock Appreciation Right not otherwise immediately exercisable in full, the
Committee may Accelerate such Stock Appreciation Right in whole or in part at any time.
(e)
Method of Exercise
. A Stock Appreciation Right may be exercised by
the Optionee giving written notice, in the manner provided in Section 16, specifying the number of
shares of Stock with respect to which the Stock Appreciation Right is then being exercised.
(f)
Other Terms
. Except as the Committee may deem inadvisable or
inapplicable in the circumstances, Stock Appreciation Rights shall be subject to terms and
conditions substantially similar to those applicable to a Nonstatutory Option. In addition, a
Stock Appreciation Right related to an Option which can only be exercised during limited periods
following a Change of Control may entitle the Participant to receive an amount based upon the
highest price paid or offered for Stock in any transaction relating to the Change of Control or
paid during the 30-day period immediately preceding the occurrence of the Change of Control in any
transaction reported in the stock market on which or through which the Stock is normally traded.
(g)
Section 409A of the Code
. Section 409A of the Code contains various
requirements which a Stock Appreciation Right must fulfill in order to avoid being classified as
deferred compensation, and thereby triggering adverse tax consequences. Among other
requirements:
(i) the Exercise Price of the Stock Appreciation Right must never be less than the fair market
value of the Stock on the date the Stock Appreciation Right is granted,
(ii) the Stock must be traded on an established securities market,
(iii) only such traded Stock may be delivered in settlement of the Stock Appreciation Right
upon exercise,
(iv) the Stock Appreciation Right must not include any feature for the deferral of
compensation other than the deferral of recognition of income until the exercise of the Stock
Appreciation Right,
(v) there must be no agreements or arrangements under which the Company will purchase the
Stock delivered in settlement of the Stock Appreciation Right upon exercise, and
12
(vi) exercisability of the Stock Appreciation Right may not be accelerated except in certain
limited instances.
Under the Plan, the Company is not limited only to granting Stock Appreciation Rights which fulfill
the requirements of Section 409A. Therefore, any Stock Appreciation Right which the Company grants
which does not fulfill Section 409A of the Code may trigger adverse tax consequences for any
Participant who receives such a Stock Appreciation Right.
7.3
Restricted Stock
.
(a)
Purchase Price
. Shares of Restricted Stock shall be issued under the
Plan for such consideration, in cash, other property or services, or any combination thereof, as is
determined by the Committee.
(b)
Issuance of Certificates
. Each Participant receiving a Restricted
Stock Award, subject to Section 7.3(c), shall be issued a stock certificate in respect of such
Restricted Stock. Such certificate shall be registered in the name of such Participant, and, if
applicable, shall bear an appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award which includes language substantially in the following form:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE 2005 EQUITY INCENTIVE
PLAN OF THE ISSUER AND AN AWARD AGREEMENT ENTERED INTO BY THE REGISTERED OWNER AND
THE ISSUER. COPIES OF SUCH PLAN AND AGREEMENT ARE ON FILE IN THE OFFICES OF THE
ISSUER.
(c)
Escrow of Shares
. The Committee may require that the stock
certificates evidencing Restricted Stock be held in custody by a designated escrow agent (which may
but need not be the Company) until the restrictions thereon shall have lapsed, and that the
Participant deliver a stock power, endorsed in blank, relating to the Stock covered by such Award.
(d)
Restrictions and Restriction Period
. During the Restriction Period
applicable to Restricted Stock, such shares shall be subject to limitations on transferability and
a Risk of Forfeiture arising on the basis of such conditions related to the performance of
services, Company or Affiliate performance or otherwise as the Committee may determine and provide
for in the applicable Award Agreement. Any such Risk of Forfeiture may be waived or terminated, or
the Restriction Period shortened, at any time by the Committee on such basis as it deems
appropriate.
(e)
Rights Pending Lapse of Risk of Forfeiture, or Forfeiture of Award
.
Except as otherwise provided in the Plan or the applicable Award Agreement, at all times prior to
lapse of any Risk of Forfeiture applicable to, or forfeiture of, an Award of Restricted Stock, the
Participant shall have all of the rights of a shareholder of the Company, including the right to
vote, and the right to receive any dividends with respect to, the Restricted Stock. The Committee,
as determined at the time the Award is made, may permit or require the payment of cash dividends to
be deferred and, if the Committee so determines, reinvested in additional
13
shares of Restricted Stock to the extent shares are available under Section 4 and otherwise to
be subject to the terms of the Plan.
(f)
Lapse of Restrictions
. If and when the Restriction Period expires
without a prior forfeiture of the Restricted Stock, the certificates for such shares shall be
delivered to the Participant promptly if not theretofore so delivered. Restricted Stock may be
subject to a share repurchase right or option in favor of the Company in accordance with a vesting
schedule to be determined by the Committee. In the event that a Participants Continuous Service
terminates, the Company will have the right, but not the obligation, to repurchase or otherwise
reacquire, any or all of the shares of Restricted Stock held by the Participant that have not
vested as of the date of termination. At the Committees election, the repurchase price may be the
lesser of: (i) the Fair Market Value on the relevant date or (ii) the Participants original
cost.
7.4
Stock Grants
. Stock Grants shall be awarded solely in recognition of
significant contributions to the success of the Company or Affiliates, in lieu of compensation
otherwise already due or in such other limited circumstances as the Committee deems appropriate.
Stock Grants shall be made without forfeiture conditions of any kind.
7.5
Qualified Performance-Based Awards
.
(a)
Purpose
. The purpose of this Section 7.5 is to provide the Committee
the ability to qualify Awards as performance-based compensation under Section 162(m) of the Code.
If the Committee, in its discretion, decides to grant an Award as a Qualified Performance-Based
Award, the provisions of this Section 7.5 will control over any contrary provision contained in the
Plan. In the course of granting any Award, the Committee may specifically designate the Award as
intended to qualify as a Qualified Performance-Based Award. However, no Award shall be considered
to have failed to qualify as a Qualified Performance-Based Award solely because the Award is not
expressly designated as a Qualified Performance-Based Award, if the Award otherwise satisfies the
provisions of this Section 7.5 and the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder applicable to performance-based compensation.
(b)
Authority
. All grants of Awards intended to qualify as Qualified
Performance-Based Awards and determination of terms applicable thereto shall be made by the
Committee or, if not all of the members thereof qualify as
Outside Directors
within the meaning
of applicable IRS regulations under Section 162 of the Code, a subcommittee of the Committee
consisting of such of the members of the Committee as do so qualify. Any action by such a
subcommittee shall be considered the action of the Committee for purposes of the Plan.
(c)
Applicability
. This Section 7.5 will apply only to those Covered
Employees, or to those persons who the Committee determines are reasonably likely to become Covered
Employees in the period covered by an Award, selected by the Committee to receive Qualified
Performance-Based Awards. The Committee may, in its discretion, grant Awards to Covered Employees
that do not satisfy the requirements of this Section 7.5.
(d)
Discretion of Committee with Respect to Qualified Performance-Based
Awards
. Options may be granted as Qualified Performance-Based Awards in accordance with
14
Section 7.1, except that the Exercise Price of any Option intended to qualify as a Qualified
Performance-Based Award shall in no event be less that the Market Value of the Stock on the date of
grant. With regard to other Awards intended to qualify as Qualified Performance-Based Awards, such
as Restricted Stock, the Committee will have full discretion to select the length of any applicable
Restriction Period, the kind or level of the applicable Performance Goal, and whether the
Performance Goal is to apply to the Company, a Subsidiary or any division or business unit or to
the individual. Any Performance Goal or Goals applicable to Qualified Performance-Based Awards
shall be objective, shall be established not later than 90 days after the beginning of any
applicable Performance Period (or at such other date as may be required or permitted for
performance-based compensation under Section 162(m) of the Code) and shall otherwise meet the
requirements of Section 162(m) of the Code, including the requirement that the outcome of the
Performance Goal or Goals be substantially uncertain (as defined in the regulations under Section
162(m) of the Code) at the time established.
(e)
Payment of Qualified Performance-Based Awards
. A Participant will be
eligible to receive payment under a Qualified Performance-Based Award which is subject to
achievement of a Performance Goal or Goals only if the applicable Performance Goal or Goals are
achieved, as determined by the Committee. In determining the actual size of an individual
Qualified Performance-Based Award, the Committee may reduce or eliminate the amount of the
Qualified Performance-Based Award earned, if in its sole and absolute discretion, such reduction or
elimination is appropriate.
(f)
Maximum Award Payable
. The maximum Qualified Performance-Based Award
payment to any one Participant under the Plan is the number of shares of Stock set forth in Section
4, or if the Qualified Performance-Based Award is paid in cash, that number of shares multiplied by
the Market Value of the Stock as of the date the Qualified Performance-Based Award is granted.
(g)
Limitation on Adjustments for Certain Events
. No adjustment of any
Qualified Performance-Based Award pursuant to Section 8 shall be made except on such basis, if any,
as will not cause such Award to provide other than performance-based compensation within the
meaning of Section 162(m) of the Code.
7.6
Awards to Participants Outside the United States
. The Committee may
modify the terms of any Award under the Plan, granted to a Participant who is, at the time of grant
or during the term of the Award, resident or primarily employed outside of the United States in any
manner deemed by the Committee to be necessary or appropriate in order that the Award shall conform
to laws, regulations, and customs of the country in which the Participant is then resident or
primarily employed, or so that the value and other benefits of the Award to the Participant, as
affected by foreign tax laws and other restrictions applicable as a result of the Participants
residence or employment abroad, shall be comparable to the value of such an Award to a Participant
who is resident or primarily employed in the United States. The Committee may establish
supplements to, or amendments, restatements, or alternative versions of, the Plan for the purpose
of granting and administrating any such modified Award. No such modification, supplement,
amendment, restatement or alternative version may increase the share limit of Section 4.
15
7.7
Award as Deferred Compensation.
Notwithstanding any other provisions
of the Plan, it is not intended that any grant of an Award shall result in the deferral of
compensation within the meaning of Section 409A of the Code; provided, however, that to the extent
the grant of an Award would result in the deferral of compensation under Section 409A of the Code,
such Award shall comply with the requirements of Section 409A of the Code.
8. Adjustment Provisions.
8.1
Adjustment for Corporate Actions
. All of the share numbers set forth
in Section 4 reflect the capital structure of the Company as of the Effective Date. Subject to
Section 8.2, if subsequent to the Effective Date the outstanding number of shares of Stock (or any
other securities covered by the Plan by reason of the prior application of this Section) are
increased, decreased, or exchanged for a different number or kind of shares or other securities, or
if additional shares or new or different shares or other securities are distributed with respect to
such outstanding Stock, through merger, consolidation, sale of all or substantially all the
property of the Company, reorganization, combination, recapitalization, reclassification, stock
dividend, stock split, reverse stock split, or other similar distribution of the Companys equity
securities without the receipt of consideration by the Company, an appropriate and proportionate
adjustment will be made in (i) the maximum numbers and kinds of shares provided in Section 4, (ii)
the numbers and kinds of shares or other securities subject to the then outstanding Awards, (iii)
the Exercise Price for each share or other unit of any other securities subject to then outstanding
Awards (without change in the aggregate purchase price as to which such Awards remain exercisable),
and (iv) the repurchase price of each share of Restricted Stock then subject to a Risk of
Forfeiture in the form of a Company repurchase right.
8.2
Treatment in Certain Acquisitions
.
(a) Subject to any provisions of then outstanding Awards granting different rights
to the holders thereof, in the event of an Acquisition constituting a Change of Control in which
some or all outstanding Awards are not Accelerated, any then outstanding Awards shall nevertheless
Accelerate to the extent not assumed or replaced by comparable Awards referencing shares of the
capital stock of the successor or acquiring entity or the entity in control of such successor or
acquiring entity, and at the effective time of such Acquisition (or after a reasonable period
following such Acquisition, as determined by the Committee) terminate. As to any one or more
outstanding Awards which are not otherwise Accelerated in full by reason of such Acquisition, the
Committee may also, either in advance of such Acquisition or at the effective time thereof and upon
such terms as it may deem appropriate, provide for the Acceleration of such outstanding Awards in
the event that the employment of the Participants should subsequently terminate following such
Acquisition. Each outstanding Award that is assumed in connection with such Acquisition, or is
otherwise to continue in effect subsequent to such Acquisition, will be appropriately adjusted,
immediately after such Acquisition, as to the number and class of securities and other relevant
terms in accordance with Section 8.1.
(b) For the purposes of this Section 8.2, an Award shall be considered assumed or
replaced by a comparable Award if, following the Acquisition constituting a Change of Control, the
replacement award confers the right to receive, for each share of Stock subject or relating to the
Award immediately prior to such Acquisition:
16
(i) the consideration (whether stock, cash or other securities or property) received in such
Acquisition by holders of Stock on the effective date of such Acquisition (and if holders were
offered a choice of consideration, the type of consideration chosen by the holders of a majority of
the outstanding Stock); provided, however, that if such consideration received in such Acquisition
was not solely common stock of the successor corporation or its Parent or Subsidiary, the Committee
may, with the consent of the successor corporation, provide for the consideration to be received
upon the exercise of the Award for each share of Stock subject to the Award to be solely common
stock of the successor corporation or its Parent or Subsidiary equal in fair market value to the
per share consideration received by holders of Stock in such Acquisition; or
(ii) in the case of Awards which are payable otherwise than in Stock or other securities of
the Company or other property, the same consideration which the Participant would have been
entitled to receive had no such Acquisition occurred.
8.3
Dissolution or Liquidation
. Upon dissolution or liquidation of the
Company, other than as part of an Acquisition or similar transaction, (a) each outstanding Option
and Stock Appreciation Right shall terminate, but the Optionee shall have the right, immediately
prior to such dissolution or liquidation, to exercise the Option to the extent exercisable on the
date of dissolution or liquidation; (b) each share of Restricted Stock that is subject to a Risk of
Forfeiture immediately prior to such dissolution or liquidation may, at the election of the
Company, be forfeited by the Company prior to such dissolution or liquidation pursuant to the terms
of the applicable Award Agreement; and (c) subject to subparts (a) and (b) of this Section 8.3,
each other outstanding Award shall be forfeited.
8.4
Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events
. In the event of any corporate action not specifically covered by the
preceding sections, including but not limited to an extraordinary cash distribution on Stock, a
corporate separation or other reorganization or liquidation, the Committee may make such adjustment
of outstanding Awards and their terms, if any, as it, in its sole discretion, may deem equitable
and appropriate in the circumstances. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring
events (including, without limitation, the events described in this Section 8.4) affecting the
Company or the financial statements of the Company or of changes in applicable laws, regulations,
or accounting principles, whenever the Committee determines that such adjustments are appropriate
in order to prevent dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan or to provide for or preserve the appropriate tax benefits to the
Company.
8.5
Related Matters
. Any adjustment in Awards made pursuant to this
Section 8 shall be determined and made, if at all, by the Committee and shall include any
correlative modification of terms, including of Option Exercise Prices, rates of vesting or
exercisability, Risks of Forfeiture, applicable repurchase prices for Restricted Stock, and
Performance Goals and other financial objectives which the Committee may deem necessary or
appropriate so as to ensure the rights of the Participants in their respective Awards are not
substantially diminished nor enlarged as a result of the adjustment and corporate action other than
as expressly contemplated in this Section 8.
17
8.6
Fractional Shares Prohibited
. No fraction of a share shall be
purchasable or deliverable in payment of an Award, but in the event any adjustment hereunder of the
number of shares covered by an Award shall cause such number to include a fraction of a share, such
number of shares shall be adjusted to the nearest smaller whole number of shares.
9. Settlement of Awards
9.1
Violation of Law
. Notwithstanding any other provision of the Plan or
the relevant Award Agreement, if, at any time, in the reasonable opinion of the Company, the
issuance of Stock covered by an Award may constitute a violation of applicable law, rule,
regulation or any listing standard of any market on which or through which the Companys securities
may be traded, then the Company may delay such issuance and the delivery of a certificate for such
shares until compliance with such provisions has been obtained.
9.2
Corporate Restrictions on Rights in Stock
. Any securities to be issued
pursuant to Awards shall be subject to all restrictions upon the transfer thereof which may be now
or hereafter imposed by the articles of incorporation and bylaws of the Company and applicable law.
9.3
Investment Representations
. The Company shall be under no obligation
to issue any securities covered by any Award unless they have been effectively registered under the
Securities Act, or the Participant or his or her Permitted Transferee shall have made such written
representations to the Company or otherwise (which the Company believes may be reasonably relied
upon) as the Company may deem necessary or appropriate for purposes of confirming that the issuance
of such securities will be exempt from the registration requirements of the Securities Act and any
applicable state securities laws and otherwise in compliance with all applicable laws, rules and
regulations, including but not limited to that the Participant or his or her Permitted Transferee
is acquiring the securities for such persons own account for the purpose of investment and not
with a view to, or for sale in connection with, the distribution of any such securities. The
Company may require a Participant or his or her Permitted Transferee, as a condition of exercising
or acquiring securities under any Award or transferring any award as may be permitted by the Plan,
(i) to give written assurances satisfactory to the Company as to the Participants or his or her
Permitted Transferees knowledge and experience in financial and business matters and/or to employ
a purchaser representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters, and that the Participant or his or her Permitted
Transferee is capable of evaluating, alone or together with the purchaser representative, the
merits and risks of exercising the Award; and (ii) to give written assurances satisfactory to the
Company stating that the Participant or his or her Permitted Transferee is acquiring securities
subject to the Award for the Participants or his or her Permitted Transferees own account and not
with any present intention of selling or otherwise distributing the securities.
9.4
Registration
.
(a)
SEC Registration
. If the Company shall deem it necessary or desirable to
register under the Securities Act or other applicable statutes any securities issued or to be
issued pursuant to Awards, or to qualify any such securities for exemption from the Securities Act
or
18
other applicable statutes, then the Company shall take such action at its own expense. The Company
may require from each Participant, or each holder of securities acquired pursuant to the Plan, such
information in writing for use in any registration statement, prospectus, preliminary prospectus or
offering circular as is reasonably necessary for that purpose and may require reasonable indemnity
to the Company and its Affiliates and their respective officers, directors, agents, advisors and
employees from that holder against all losses, claims, damage and liabilities arising from use of
the information so furnished and caused by any untrue statement of any material fact therein or
caused by the omission to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances under which they were made.
(b)
Lock-Ups.
In addition, the Company may require of any person holding an Award or
securities issued pursuant to an Award that such person agree that, without the prior written
consent of the Company, such person will not sell, make any short sale of, lend, grant any option
for the purchase of, pledge or otherwise encumber, or otherwise dispose of, any securities which
were or may be issued pursuant to an Award or any interest therein during the 180-day period
commencing on the effective date of the registration statement (or commencing on the closing date
of any offering of the Companys securities registered pursuant to a shelf registration statement,
whichever is applicable) relating to an underwritten public offering. Without limiting the
generality of the foregoing provisions of this Section 9.5, if in connection with any underwritten
public offering of securities of the Company the managing underwriter of such offering requests
that the Companys directors and officers enter into a lock-up agreement containing provisions that
are more restrictive than the provisions set forth in the preceding sentence, then (a) to the
extent requested by the Company, each holder of securities acquired pursuant to the Plan
(regardless of whether such person has complied or complies with the provisions of clause (b)
below) shall be bound by, and shall be deemed to have agreed to, the same lock-up terms as those to
which the Companys directors and officers are required to adhere; and (b) at the request of the
Company, each such person shall execute and deliver a lock-up agreement in form and substance
equivalent to that which is required to be executed by the Companys directors and officers.
9.5
Placement of Legends; Stop Orders; etc
. Each certificate for
securities to be issued pursuant to Awards may bear a reference to the investment representation
made in accordance with Section 9.4 in addition to any other applicable restriction under the Plan,
the terms of the Award and, if applicable, to the fact that no registration statement has been
filed with the SEC and no registration or qualification has been filed under any state securities
or blue sky laws in respect to such securities. All certificates for Stock or other securities
delivered under the Plan shall be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other requirements of any stock
exchange or market on which or through which the Companys securities are then traded, and any
applicable federal or state securities law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such restrictions.
9.6
Tax Withholding
. Whenever shares of Stock are issued or to be issued
pursuant to Awards, the Company shall have the right to require the Participant to remit to the
Company an amount sufficient to satisfy federal, state, local or other withholding tax requirements
if, when, and to the extent required by law (whether so required to secure for the Company an
otherwise
19
available tax deduction or otherwise) prior to the delivery of any certificate or certificates
for such shares. The obligations of the Company under the Plan shall be conditional on
satisfaction of all such withholding obligations and the Company shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind otherwise due to the
Participant. However, in such cases Participants may elect, subject to the approval of the
Committee, to satisfy an applicable withholding requirement, in whole or in part, by having the
Company withhold shares of Stock from Stock otherwise due to the Participant in payment of an
Award, or to submit shares of Stock previously owned by the Participant, to satisfy their tax
obligations .
9.7 Participants may only elect to have shares withheld having a Market Value on the date
the tax is to be determined equal to the minimum statutory total tax which could be imposed as a
result of the transaction. All elections shall be irrevocable, made in writing, signed by the
Participant, and shall be subject to any restrictions or limitations that the Committee deems
appropriate.
10. Reservation of Stock.
The Company shall at all times during the term of the Plan
and any outstanding Awards granted hereunder reserve or otherwise keep available such number of
shares of Stock as will be sufficient to satisfy the requirements of the Plan (if then in effect)
and the Awards, and shall pay all fees and expenses necessarily incurred by the Company in
connection therewith.
11. Use of Proceeds.
Proceeds from the sale of the Companys securities pursuant to
Awards will constitute general funds of the Company.
12. Limitation of Rights in Stock; No Special Service Rights.
Subject to Section
7.3(e), a Participant shall not be deemed for any purpose to be a shareholder of the Company with
respect to any of the Stock subject to an Award, unless and until a certificate shall have been
issued therefor and delivered to the Participant or his/her agent. Nothing contained in the Plan
or in any Award Agreement shall confer upon any Participant any right to the continuation of such
Participants employment or other association with the Company (or any Affiliate), or interfere in
any way with the right of the Company (or any Affiliate), subject to the terms of any separate
employment or provision of law or articles of incorporation or bylaws to the contrary, at any time
to terminate such employment or other association or to increase or decrease, or otherwise adjust,
the other terms and conditions of the Participants employment or other association with the
Company and Affiliates.
13. Unfunded Status of the Plan.
The Plan is intended to constitute an unfunded plan
for incentive compensation, and the Plan is not intended to constitute a plan subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended. With respect to any
payments not yet made to a Participant by the Company, nothing contained in this Plan shall give
any such Participant any rights that are greater than those of an unsecured general creditor of the
Company. In its sole discretion, the Committee may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan to make payment of Awards, provided,
however, that the existence of such trusts or other arrangements is consistent with the unfunded
status of the Plan.
20
14. Nonexclusivity of the Plan.
Neither the adoption of the Plan by the Board nor the
submission of the Plan to the shareholders of the Company shall be construed as creating any
limitations on the power of the Company to adopt such other incentive arrangements as it may deem
desirable, including without limitation, the granting of stock options, restricted stock and other
forms of compensation (incentive or otherwise) other than under the Plan upon such terms as the
Company may determine from time to time.
15. Termination and Amendment of the Plan.
15.1 The Board may at any time terminate the Plan or make such modifications of
the Plan as it shall deem advisable to the extent permitted by applicable law and the rules and
regulations of any market on which or through which the Companys securities may be traded. Unless
the Board otherwise expressly provides, no amendment of the Plan shall affect the terms of any
Award outstanding on the date of such amendment unless such amendment is necessary to comply with
Section 409A of the Code. In any case, no termination or amendment of the Plan may, without the
consent of any Participant, adversely affect the rights of the Participant under such Award.
15.2 The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, provided that the Award as amended is consistent with the terms of
the Plan, but no such amendment shall impair the rights of the Participant without such
Participants consent unless the impairment of such rights is necessary to comply with Section 409A
of the Code.
15.3 No amendment will be effective unless approved by the shareholders of the
Company to the extent shareholder approval is necessary to satisfy applicable law or the rules and
regulations of any market on which or through which the Companys securities may be traded.
16. Notices and Other Communications.
Any notice, demand, request or other
communication hereunder to any party shall be deemed to be sufficient if contained in a written
instrument delivered in person or duly sent by first class, registered, certified or overnight
mail, postage prepaid, or telecopied with a confirmation copy by first class, registered, certified
or overnight mail, addressed or telecopied, as the case may be, (i) if to the Participant, at such
Participants residence or business address last filed with the Company and (ii) if to the Company,
at its principal place of business, addressed to the attention of its Chief Financial Officer, or
to such other address or telecopier number or electronic mail address, as the case may be, as the
addressee may have designated by notice to the addressor. All such notices, requests, demands and
other communications shall be deemed to have been received: (i) in the case of personal delivery,
on the date of such delivery; (ii) in the case of mailing, when received by the addressee; (iii) in
the case of facsimile transmission, when confirmed by facsimile machine report; and (iv) in the
case of electronic mail, when directed to an electronic mail address at which the receiving party
has consented to receive notice, provided, that such consent is deemed revoked if the sender is
unable to deliver by electronic transmission two consecutive notices and such inability becomes
known to the secretary or assistant secretary of the Company or to the transfer agent, or other
person responsible for giving notice.
21
17. Governing Law.
The Plan and all Award Agreements and actions taken thereunder shall
be governed, interpreted and enforced in accordance with the laws of the State of California,
without regard to the conflict of laws principles thereof.
18. Miscellaneous.
(a)
Limitation on Securities Issuable
. At no time shall the total number of
securities issuable upon exercise of all outstanding Options and the total number of shares
provided for under any stock bonus or similar plan or agreement of the Company exceed the
applicable percentage as calculated in accordance with the conditions and exclusions of §260.140.45
of the California Code of Regulations, based on the securities of the Company which are outstanding
at the time the calculation is made.
(b)
Information to Participants
. Participants will receive financial statements of
the Company at least annually as required by Rule §260.140.45 of the California Code of
Regulations.
(c)
Final and Binding.
The terms of the Plan and of any Award, and all actions and
interpretations of the Committee made pursuant to the Plan, shall be final, binding and conclusive
on all persons having or claiming any interest under the Plan or an Award, including but not
limited to Participants and their spouses and domestic partners, and the respective Permitted
Transferees, executors, administrators, heirs, personal representatives and successors of the
foregoing.
22
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE
GIGA-TRONICS INCORPORATED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
George H. Bruns, Jr. and Mark H. Cosmez II, or either of them are hereby constituted and appointed
the lawful attorneys and proxies of the undersigned, each with full power of substitution, to vote
and act as proxy with respect to all shares of common stock of Giga-tronics Incorporated standing
in the name of the undersigned on the books of Giga-tronics at the close of business on July 18,
2005 at the Annual Meeting of Shareholders to be held at 9:30 A.M., on September 13, 2005, at
Giga-tronics principal executive offices at 4650 Norris Canyon Road, San Ramon, CA 94583, or at
any adjournment or postponement thereof.
THE POWERS HEREBY GRANTED MAY BE EXERCISED BY BOTH OF SAID ATTORNEYS OR PROXIES OR THEIR
SUBSTITUTES PRESENT AND ACTING AT THE ANNUAL MEETING OF SHAREHOLDERS OR ANY ADJOURNMENT OR
POSTPONEMENT THEREOF OR, IF ONLY ONE BE PRESENT AND ACTING, THEN BY THAT ONE. THE UNDERSIGNED
HEREBY REVOKES ANY AND ALL PROXIES HERETOFORE GIVEN BY THE UNDERSIGNED TO VOTE AT SAID MEETING.
(Continued, and to be signed, on the other side.)
THERE ARE THREE WAYS TO VOTE YOUR PROXY
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE
Director
Name and Principal Occupation
Since
Age
George H. Bruns, Jr.
1980
86
Chief Executive Officer since January,
1995, Chairman of the Board and a
Director of the Company. He provided
seed financing for the Company in 1980
and has been a Director since
inception. Mr. Bruns is General
Partner of The Bruns Company, a
private venture investment and
management consulting firm. Mr. Bruns
is Director of Testronics, Inc. of
McKinney, Texas.
James A. Cole
1994
63
General Partner of Windward Ventures,
General Partner of Spectra Enterprise
Associates and a Partner of New
Enterprise Associates. Founder and
President of Amplica, Inc. and
presently a director of Vitesse
Semiconductor Corp., a public company,
and eleven private companies including
Troika Network and Astute Networks.
Kenneth A. Harvey
2002
40
President of Peak Consulting Group.
Former CEO of Advanced Wireless &
Telecom, Vice President and General
Manager of Credence Systems
Corporation. Co-founded Modulation
Instruments where he served as
President and CEO.
William E. Wilson
1998
65
Now retired, Mr. Wilson was President of Microsource, Inc. from
April 2001 to January 2004. Before
joining the Company as the President
of Microsource, Inc., Mr. Wilson was
the Chairman and CEO of Microwave
Technology Incorporated of Fremont,
CA, a producer of microwave devices
and amplifiers with broad application
to the telecommunications and the test
and measurement industries.
Robert C. Wilson
1991
85
Chairman of Wilson & Chambers, a
private investment firm. Formerly
Vice President of General Electric,
Executive Vice President of Rockwell
International, CEO of Collins Radio,
and CEO of Memorex.
NOMINEES NAMED.
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Name
Age
Position
86
See previous table.
54
Vice President, Finance/Chief
Financial Officer, Giga-tronics
since October 1997. Before joining
Giga-tronics, Mr. Cosmez was the
Chief Financial Officer for Pacific
Bell Public Communications. Prior
to 1997, he was the Vice President
of Finance and Chief Financial
Officer for International
Microcomputer Software Inc., a
NASDAQ-traded software company.
59
President, ASCOR, Inc. since
November 1987. Mr. Lum founded
ASCOR in 1987 and has been
President since inception. Mr. Lum
was a founder and Vice President of
Autek Systems Corporation, a
manufacturer of precision waveform
analyzers. Mr. Lum is on the Board
of Directors for the Santa Clara
Aquamaids, a non-profit
organization dedicated to advancing
athletes in synchronized swimming
to the Olympics games.
54
President of Microsource, Inc.
since 2003. Prior to that,
President of Dymatix, a subsidiary
of Giga-tronics, Inc., and its
Ultracision and Viking predecessors
from 1996 through 2003. General
Manager of Mar Engineering from
1993 to 1996. Prior to that, some
20 years of varied positions in the
aerospace industry.
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The nominee should have a reputation for integrity and honesty.
The nominee should have demonstrated business experience and the ability to
exercise sound judgment.
The nominee should have an understanding of the Company and its industry.
The nominee should have the ability and willingness to act in the interests of
the Company and its shareholders.
The nominee should not have a conflict of interest that would impair the
nominees ability to fulfill the responsibilities of a director.
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Percentage of Total
Amount and Nature of
Outstanding
Name of Beneficial Owner
Beneficial Ownership
Common Stock
491,523
(1)
10.3%
41,094
(2)
0.9
68,287
(3)
1.4
13,100
0.3
72,114
(4)
1.5
49,839
(5)
1.1
27,500
(6)
0.6
64,500
(7)
1.4
827,957
(8)
17.0%
*
Less than 0.1%
(1)
Includes 260,870 shares owned by the Bruns Trust, 170,000 registered in the names of Mr.
Bruns son and daughter, 22,163 shares owned by The Bruns Company, 19,740 shares owned directly and 18,750 shares
issuable under options exercisable within 60 days of July 18, 2005.
(2)
Includes 7,500 shares issuable under options exercisable within 60 days of July 18, 2005.
(3)
Includes 15,500 shares issuable under options exercisable within 60 days of July 18, 2005.
(4)
Includes 18,750 shares issuable under options exercisable within 60 days of July 18, 2005.
(5)
Includes 10,000 shares issuable under options exercisable within 60 days of July 18, 2005.
(6)
Includes 7,500 shares issuable under options exercisable within 60 days of July 18, 2005.
(7)
Includes 57,500 shares issuable under options exercisable within 60 days of July 18, 2005.
(8)
Includes 135,500 shares issuable under options exercisable within 60 days of July 18, 2005.
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Annual Compensation
Long-Term Compensation
Number of
Other
Securities
All Other
Annual
Underlying
Compen-
Name and
Fiscal
Compen-
Options/
sation
Principal Position
Year
Salary($)
Bonus
sation
SARs(#)(1)
($)(2)
2005
$
145,384
10,000
$
458
2004
$
140,000
75,000
$
1,373
2003
$
145,384
$
1,730
2005
$
100,000
$
500
2004
$
100,000
30,000
$
1,500
2003
$
104,808
$
2,620
2005
$
115,137
$
7,200
(3)
$
1,833
2004
$
114,689
$
7,200
(3)
27,500
$
1,833
2003
$
120,981
$
7,200
(3)
$
1,935
2005
$
110,000
$
550
2004
$
97,384
20,000
$
1,926
2003
$
96,000
$
2,400
(1)
Stock options granted under Giga-tronics 2000 Stock Option Plan.
(2)
Represents contributions made by Giga-tronics to its 401(k) Plan which match in part the
pre-tax elective deferral contributions included under Salary made to the 401(k) plan by the
executive officers.
(3)
Other compensation for Mr. Jeffrey T. Lum represents the use of a company automobile.
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No. of
Percentage
Securities
of Total
Under-
Options
Potential Realization
lying
Granted to
Exer-
Value at Assumed
Options
Employees
cise
Annual Rates of Stock
Date of
Granted
in Fiscal
Price
Price Appreciation for
Name
Grant
(#)
2005
($/sh)
Exp. Date
Option Term
5
%($)
10
%($)
3/7/2005
10,000
5.6
%
$
3.11
3/7/2010
$
8,592
$
18,987
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and Fiscal Year-End Options Values
Number of Securities
Value of Unexercised In
Underlying Unexercised
the Money Options at
Options at March 26, 2005 (#)
March 26, 2005(1)
Shares
Acquired
Value
Name
on Exercise
Realized
Exercisable
Unexercisable
Exercisable
Unexercisable
18,750
66,250
$
47,063
$
158,088
13,500
24,500
$
29,085
$
59,895
14,375
23,125
$
30,700
$
57,900
12,500
17,500
$
25,375
$
41,925
No. of securities to be
Weighted average exercise
No. of securities remaining available
issued upon exercise of
price of outstanding
for future issuance under equity
outstanding options,
options, warrants and
compensation plans (excluding
Plan category
warrants and rights
rights
securities reflected in column (a))
(a)
(b)
(c)
648,100
$ 3.089
54,150
NA
NA
NA
648,100
$ 3.089
54,150
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Robert C. Wilson
James A. Cole
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reward key employees based upon company and individual performance,
motivate, and
provide competitive cash compensation opportunities.
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BY THE COMPENSATION COMMITTEE:
James A. Cole
Kenneth A. Harvey
Robert C. Wilson
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INCORPORATED, THE S & P 500 INDEX AND THE NASDAQ TELECOMUNICATIONS STOCKS
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2005 EQUITY INCENTIVE PLAN
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A VOTE IN FAVOR OF PROPOSAL 2
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APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
2005
2004
$
144,000
$
194,000
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By order of the Board of Directors,
George H. Bruns, Jr.
Chairman and Chief Executive Officer
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Approved by the Shareholders on
, 2005
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ANNUAL MEETING OF SHAREHOLDERS
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INTERNET VOTING
VOTING BY MAIL
Visit the Internet voting Web site at
http://proxy.georgeson.com.
Have this proxy card ready and
follow the instructions on your screen.
You will incur only your usual Internet charges.
Available until 5:00 p.m., Eastern Daylight
Time, on September 12, 2005.
Simply sign and date your proxy card and
return it in the postage-paid envelope to Georgeson
Shareholder Communications, Wall Street
Station, P.O. Box 1100, New York, NY 10269-0646.
If you are voting by telephone or the Internet,
please do not mail your proxy card.
Please mark
votes as in
this example
Elect five Directors for the ensuing year.
FOR
ALL
WITHHOLD
NOMINEES LISTED
AUTHORITY
TO
Nominees: (1) George H. Bruns, Jr., (2) James A. Cole,
(EXCEPT AS
VOTE FOR
(3) Kenneth A. Harvey, (4) Robert C. Wilson,
INDICATED BELOW)
ALL NOMINEES
(5) William E. Wilson.
LISTED
INSTRUCTION: To withhold authority to vote for one or more
o
o
individual nominees, write such names in the space provided
below.
Adopt the Giga-tronics Incorporated 2005 Equity Incentive Plan.
FOR
AGAINST
ABSTAIN
o
o
o
Ratify the appointment of Perry-Smith LLP as independent certified
public accountants.
FOR
AGAINST
ABSTAIN
o
o
o
In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
Dated:
, 2005
Signature(s)
Signature(s)
Title
Please sign exactly as the name appears printed hereon. When shares are
held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name by annual authorized
officer. If a partnership, please sign in full partnership name by authorized
person. Receipt of the Proxy statement for the meeting is hereby acknowledged.