-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Quh48Mg2kjbu2OOA1JTjOelRgtU8TmzR1rypV7purGrXHBEpZwmk9Gufo7UMpwLe SuzDzaJrjrImP3CqU4GwLg== 0000766177-95-000004.txt : 19950419 0000766177-95-000004.hdr.sgml : 19950419 ACCESSION NUMBER: 0000766177-95-000004 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950413 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARVER CORP CENTRAL INDEX KEY: 0000766177 STANDARD INDUSTRIAL CLASSIFICATION: 3651 IRS NUMBER: 911043157 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-14482 FILM NUMBER: 95528473 BUSINESS ADDRESS: STREET 1: 20121 48TH AVE W STREET 2: P O BOX 1237 CITY: LYNNWOOD STATE: WA ZIP: 98036 BUSINESS PHONE: 2067751202 MAIL ADDRESS: STREET 1: 20121 48TH AVE CITY: LYNNWOOD STATE: WA ZIP: 98036 DEF 14A 1 CARVER CORPORATION NOTICE OF ANNUAL MEETING OF SHAREHOLDERS Tuesday, May 16, 1995 To the Shareholders of CARVER CORPORATION: Notice is hereby given that the Annual Meeting of Shareholders of CARVER CORPORATION (the "Company") will be held at 4:00 p.m. local time on Tuesday, May 16, 1995 at Carver Corporation, 20121 - 48th Avenue W., Lynnwood, Washington 98036, for the following purposes: (1) To elect five directors to serve until the next annual meeting of shareholders or until their successors are elected and qualified. (2) To consider and vote upon a proposal to approve the adoption of the Company's 1995 Stock Option Plan, as described in the accompanying Proxy Statement. (3) To consider and vote upon a proposal to approve the adoption of the Company's 1995 Stock Bonus Plan, as described in the accompanying Proxy Statement. (4) To transact such other business as may properly come before the meeting. Shareholders of record on the books of the Company at the close of business on April 3, 1995 are entitled to notice of and to vote at the meeting and any adjournments thereof. By order of the Board of Directors John P. World Secretary Lynnwood, Washington April 14, 1995 IMPORTANT NOTICE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE SIGN, DATE, AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED STAMPED AND ADDRESSED ENVELOPE. THE GIVING OF THE PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE AT THE MEETING IF THE PROXY IS REVOKED AS SET FORTH IN THE ACCOMPANYING PROXY STATEMENT. CARVER CORPORATION 20121 - 48th Avenue West P.O. Box 1237 Lynnwood, Washington 98046-1237 PROXY STATEMENT This proxy statement and the accompanying form of proxy are furnished in connection with the solicitation of proxies by the Board of Directors of Carver Corporation (the "Company") for use at the Annual Meeting of Shareholders to be held on Tuesday, May 16, 1995, at 4:00 P.M. local time, and at any adjournments thereof. Only shareholders of record on the books of the Company at the close of business on April 3, 1995 (the "Record Date") are entitled to notice of and to vote at the meeting. Management anticipates that these proxy solicitation materials and a copy of the Company's 1995 Annual Report to Shareholders will be mailed to shareholders on or about April 14, 1995. If the accompanying form of proxy is properly executed and returned, the shares represented thereby will be voted in accordance with the instructions specified thereon. In the absence of instructions to the contrary, such shares will be voted for all of the nominees for election to the Board of Directors listed in this Proxy Statement and named in the form of proxy and for each proposal described in this Proxy Statement and listed on the form of proxy. Any shareholder executing a proxy has the power to revoke it at any time prior to the voting thereof on any matter (without, however, affecting any vote taken prior to such revocation) by (1) delivering written notice to the Secretary of the Company prior to the voting at the meeting, (2) executing and delivering to the Company another proxy dated as of a later date, or (3) voting in person at the meeting. VOTING SECURITIES AND PRINCIPAL HOLDERS The only voting securities of the Company are shares of common stock, par value $.01 per share (the "Common Stock"), each of which is entitled to one vote. At the Record Date, there were issued and outstanding 3,678,674 shares of Common Stock of the Company. The presence in person or by proxy of holders of record of a majority of the outstanding shares of Common Stock is required to constitute a quorum for the transaction of business at the meeting. Under Washington law and the Company's Articles of Incorporation, if a quorum is present, (1) the five nominees for election to the Board of Directors who receive the greatest number of affirmative votes cast at the Annual Meeting shall be elected directors, and (2) the proposals to approve the adoption of the Company's 1995 Stock Option Plan and the Company's 1995 Stock Bonus Plan will be approved if each proposal receives the affirmative vote of the holder of a majority of the shares of Common Stock present in person or represented by proxy at the meeting, and entitled to vote on the proposal. Shares of Common Stock underlying abstentions and broker non-votes will be considered present at the Annual Meeting for purpose of calculating a quorum and will have no effect on the election of directors. An abstention from voting on the proposals to approve the adoption of the Company's 1995 Stock Option Plan and/or the 1995 Stock Bonus Plan will have the effect of a vote "Against" the proposal. Broker non-votes will have no effect on such proposals since such non-votes are not considered "shares entitled to vote" on such proposals. The Company's Common Stock is traded on the over-the-counter NASDAQ National Market System. The last sale price for the Common Stock of the Company as reported by NASDAQ on March 30, 1995 was $2.625. The following table provides information, as of March 28, 1995, except as set forth below, with respect to each shareholder known by the Company to be the beneficial owner of five percent or more of its outstanding Common Stock. Except as noted in the table, each such person has sole voting and investment powers with respect to the shares shown.
Amount and Nature of Percent of Name and Address Beneficial Outstanding Ownership Shares Robert W. & Diana R. Carver 719,080 (1) 19.5 330 Avenue "A" Snohomish, WA 98290 Dimensional Fund Advisors, Inc. 264,400 (2) 7.2 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401 Paul E. Sackett, Jr. 252,851 (3) 6.9 Sackett & Company 555 California St., Suite 4490 San Francisco, CA 94104 Tweedy, Browne Company L.P. 247,500 (4) 6.7 TBK Partners, L.P. Vanderbilt Partners, L.P. 52 Vanderbilt Avenue New York, NY 10017 _______________________________ (1) Includes 10,000 shares subject to sale under a vested stock option granted by Robert W. and Diana R. Carver to Thomas C. Graham, a director of the Company. (2) The information shown is based upon a Schedule 13G filed by Dimensional Fund Advisors, Inc. ("Dimensional"), a registered investment advisor, with the Securities and Exchange Commission (the "Commission") dated February 9, 1994. According to the 13G (i) Dimensional claims sole voting power with respect to 154,800 shares and sole dispositive power of 264,400 shares owned by Dimensional; (ii) persons who are officers of Dimensional, as officers of DFA Investment Dimensions Group, Inc. (the "Fund"), an open ended investment company, claim sole voting power with respect to 95,900 shares owned by the Fund; (iii) persons who are officers of Dimensional, as officers of The Investment Trust Company (the "Trust"), an open ended investment company, claim sole voting power with respect to 13,700 shares owned by the Trust; (iv) these securities represent securities owned by a variety of investment advisory clients; and (v) Dimensional disclaims beneficial ownership of all 264,400 shares. (3) The information shown is based on Amendment Number 1 to Schedule 13G filed by Paul E. Sackett, Jr., d/b/a/ Sackett & Company, a registered investment advisor, with the Commission dated February 1, 1995. According to the 13G, Sackett & Company is deemed to be the beneficial owner of these securities pursuant to separate arrangements whereby Sackett & Company acts as investment advisor to certain persons. Each such person has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the securities. (4) The information shown is based on a Schedule 13D filed by Tweedy, Browne Company L.P. ("TBC"), TBK Partners, L.P. ("TBK") and Vanderbilt Partners, L.P. ("Vanderbilt") with the Commission dated September 13, 1993. According to the 13D (i) shares beneficially owned by TBC, a registered broker-dealer and investment advisor, are held in the accounts of various customers; (ii) TBK and Vanderbilt are each private investment partnerships; (iii) each of Messrs. Christopher H. Browne, William H. Browne, James M. Clark, Jr. and John D. Spears serve as general partners of each of TBC, TBK and Vanderbilt with Mr. Thomas P. Knapp acting as an additional general partner of TBK; (iv) the general partners of each of TBC, TBK and Vanderbilt may be deemed to have shared power to vote and dispose of shares beneficially owned by the respective partnerships; (v) TBC may be deemed to be the beneficial owner of 217,500 shares, over which TBC claims sole voting power with respect to 182,500 shares and shared dispositive power over 217,500 shares; (vi) TBK beneficially owns directly 20,000 shares; (vii) Vanderbilt beneficially owns directly 10,000 shares; and (viii) each of TBC, TBK and Vanderbilt disclaim beneficial ownership of shares held by the others.
PROPOSAL 1 - ELECTION OF DIRECTORS Nominees A Board of Directors consisting of five directors will be elected at the Annual Meeting to hold office for a term of one year or until their successors are elected and qualified. The Board of Directors has unanimously approved the nominees named below, all of whom are members of the current Board of Directors. Unless otherwise instructed, it is the intention of the persons named in the accompanying form of proxy to vote shares represented by properly executed proxies for the five nominees of the Board of Directors named below. Although the Board of Directors anticipates that all of the nominees will be available to serve as directors of the Company, should any one or more of them not accept the nomination, or otherwise be unwilling or unable to serve, it is intended that the proxies will be voted for the election of a substitute nominee or nominees designated by the Board of Directors. The table below lists the names and ages of the nominees and the amount and nature of the beneficial ownership of Common Stock of the nominees, the executives named in the Summary Compensation Table, and all directors and executive officers as a group on March 29, 1995. Except as noted in the table, each such person has sole voting and investment powers with respect to the shares shown.
Amount and Percent of Nature of Outstanding Name Age Ownership Shares Robert A. Fulton 54 138,250(1) 3.8 Thomas C. Graham 56 35,648(2) 1.0 Walter C. Howe 61 11,750(3) * John F. Vynne 50 15,750(3) * Stephen M. Williams 45 57,500(4) 1.6 All current directors and executive officers as a group (8 persons) 332,524(5) 9.0 _________________ * Less than 1%. (1) Includes options to purchase 71,250 shares exercisable within 60 days. (2) Includes options to purchase 11,250 shares exercisable within 60 days and 10,000 shares subject to a vested stock option granted to Mr. Graham by Robert W. and Diana R. Carver. (3) Includes options to purchase 11,250 shares granted by the Company exercisable within 60 days. (4) Includes 163,029 shares subject to options granted by the Company exercisable within 60 days. (5) Includes 246,029 shares subject to options exercisable within 60 days.
Robert A. Fulton has been the Company's President and Chief Executive Officer since October 1993 and a director of the Company since March 1992. Mr. Fulton was the Company's Chief Operating Officer and Executive Vice President from June to October 1993. Since early 1991, Mr. Fulton has been a private investor and acts as a consultant for computer software developers. From early 1986 until December 1990, Mr. Fulton was the President and Chief Executive Officer of Generic Software, Inc., a developer of computer assisted design and drafting software. Thomas C. Graham has been a director of the Company since March 1991. From March 1992 to September 23, 1993, Mr. Graham served as the Company's President and Chief Executive Officer. As a consultant to the Company, he acted as the Company's Executive Vice President from November 1991 through February 1992. Since 1970, he has been President of Pacific SBG Inc., which provides business counseling and operating management services. He is also a principal in Evergreen Services Corporation, a commercial landscape management company. Mr. Graham serves as a director of several companies, including Lone Wolf Corporation, a local area network and multi-media operating systems company. From 1987 to early 1991, Mr. Graham was Executive Vice President of Alaska Diesel Electric, Inc./Alaska Marine Engine, Inc., a manufacturer of diesel engines and generators primarily for marine markets. Walter C. Howe was elected to the Board of Directors in March 1992. Since September 1990, Mr. Howe has been President of The Washington Roundtable, a forum of representatives from the Pacific Northwest which studies and takes positions on economic, educational and environmental public policy issues for the State of Washington. For the sixteen years prior to that time, Mr. Howe was employed by The Weyerhaeuser Company, most recently as its Vice President of Environmental, Energy and Government Affairs. John F. Vynne became a director of the Company in December 1991. For the past six years, Mr. Vynne has been the President (and sole shareholder) of Thunderbird Pacific Corporation, a Redmond, Washington based manufacturer of electronic instruments and software used in the mining industry. From 1986 through 1987, Mr. Vynne was the President of Vehicle Systems Inc., a wholly owned subsidiary of Caterpillar Corporation, which manufactured electronic instrumentation for use in off highway vehicles and equipment. Stephen M. Williams has been the Company's Executive Vice President and Chief Operation Officer and a Director since February 1995. Mr. Williams was the Company's Vice President and General Manager - Consumer Products Division from August 1994. Prior to that time, Mr. Williams was the Vice President of International Operations of Onkyo Corporation, a manufacturer and distributor of high fidelity audio equipment from 1993 to August 1994. From 1987 to 1993, Mr. Williams was Vice President of Cybex, a division of Lumex Corporation, where he was responsible for marketing, sales, engineering and product development of the Cybex fitness equipment division. BOARD AND COMMITTEE MEETINGS The Company's Board of Directors held twelve meetings during the fiscal year ended December 31, 1994. Each current director attended at least 90% of the meetings of the Board and of the Committees of the Board on which he served that were held during 1994. The Board of Directors has standing Audit and Compensation Committees. The Board of Directors does not have a standing Nominating Committee. The Audit Committee currently consists of Messrs. Graham, Howe and Vynne and meets with the Company's internal financial staff and the Company's independent public accountants to review the scope and findings of the annual audit. The Audit Committee also periodically meets with the Company's Vice President of Finance to review her activities and to discuss the adequacy of the Company's internal accounting controls. The Audit Committee held four meetings during 1994. The Compensation Committee currently consists of Messrs. Graham, Howe, and Vynne and considers and acts upon management's recommendations to the Board of Directors regarding salaries, bonuses and other forms of compensation for the Company's executive officers. The Compensation Committee also administered the Company's 1985 Incentive Stock Option Plan (the "ISOP"), and 1985 Non-Qualified Stock Option Plan (the "Directors' Plan"), and administers the Company's 1995 Stock Option Plan (the "Option Plan"), the Company's 1995 Stock Bonus Plan (the "Stock Bonus Plan"), the Robert A. Fulton Stock Option Agreement (the "Fulton Agreement"), the Stephen M. Williams Stock Option Agreement (the "Williams Agreement"), the Employee Stock Purchase Plan and Stock Appreciation Rights Plan. The Compensation Committee held three meetings during 1994. DIRECTORS' COMPENSATION Employee directors receive no additional compensation for service on the Board of Directors or its committees. Each director who is not an employee of the Company receives an annual fee of $6,000, paid in quarterly installments, plus $450 for each Board and Committee meeting attended. The Chairman of each Committee receives an additional $100 for each meeting attended. If the Stock Bonus Plan is approved by the Shareholders of the Company, each non-employee director will be awarded annually 1,000 shares of the Company's Common Stock in quarterly installments of 250 shares. (See Proposal 3 - The 1995 Stock Bonus Plan, below.) Non-employee directors are also eligible to receive option grants pursuant to the Company's 1995 Stock Option Plan, if such Plan is approved by the Shareholders. (See Proposal 2 -The 1995 Stock Option Plan, below.) Each current director, who was elected prior to 1995, received an option to acquire 16,250 shares of the Company's Common Stock under the Company's 1985 Non-Qualified Stock Option Plan (the "Directors' Plan"). The Directors' Plan terminated on March 29, 1995 and provided for the automatic grant of an option to acquire 16,250 shares of the Company's Common Stock to each director who is not also an employee of the Company upon his or her election as a director of the Company. The exercise price for such option is equal to the last sale price of the Company's Common Stock on the date of his or her election ("Date of Grant"). The duration of an option is nine years and 364 days from the Date of Grant. 3,125 shares granted in each option vest on the Date of Grant, and 3,125, 5,000 and 5,000 shares vest upon the completion of 18, 36 and 54 consecutive months of service, respectively, as a director of the Company. The Directors' Plan further provides that vesting of options outstanding at least one year prior to the below described events will be accelerated and shall become immediately exercisable, as follows: (i) upon accumulation by any person or group (other than a broker, bank or trust company holding any class of voting equity securities of the Company for the account of customers) of beneficial ownership of 25% or more of any class of the Company's voting equity securities; or (ii) upon the occurrence of certain events leading to a change in control such as a tender or exchange offer or upon approval by the Company's shareholders of certain mergers or similar events (an "Acceleration Event"). EXECUTIVE COMPENSATION The following table shows compensation paid by the Company for services rendered during the fiscal years ended December 31, 1994, 1993 and 1992, respectively, to each person who was Chief Executive Officer during fiscal year 1994. No other executive officer's salary and bonus exceeded $100,000 in 1994. SUMMARY COMPENSATION TABLE
Long-Term Annual Compensation Compensation Awards ____________ ____________ Number of Securities Name and Underlying All Other Principal Salary Bonus Options Compensation Position Year $ $ (#) ($) Robert A. Fulton 1994 $100,000 0 100,000 (1) $623 (2) President & CEO 1993 13,040(3) 0 50,000 $ 83 (2) 1992 -- - (4) -- ___________________ (1) Represents performance based options granted under the Company's 1985 Incentive Stock Option Plan (the "ISOP") which vest upon the Company's achievement of certain performance objectives in 1994 and 1995. The Company's failure to achieve the 1994 performance objectives resulted in the forfeiture of options to purchase 40,000 shares by Mr Fulton. The ISOP terminated on January 18, 1995 without affecting outstanding options. (2) Represents Company paid term life insurance premium. (3) Mr. Fulton became the Company's President and Chief Executive Officer on October 5, 1993. From June to October 1993, Mr. Fulton served as the Company's Chief Operating Officer and Executive Vice President. His salary under all positions held in 1993 was paid at an annual rate of $24,000. (4) Excludes options to acquire 16,250 shares of Common Stock granted pursuant to the Directors' Plan prior to appointment as an executive officer of the Company.
The following table summarizes the number and terms of stock option granted in 1994 to the person named in the Summary Compensation Table. Options were granted without tandem SARs. Option Grants in Last Fiscal Year
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation Individual Grants for Option Term (1) ____________________________________________ _______________________ % of Total Number of Options Securities granted to Underlying Employees Options in Exercise Expir- Granted Fiscal Price ation Name # Year ($/Sh) Date 5%($) 10%($) Robert A. Fulton, 100,000(2) 40% $2.75 3/9/04 $173,000 $438,000 President & CEO (1) The potential realizable value is based on the assumption that the price of the Common Stock appreciates at the annual rate shown (compounded annually) from the date of grant until the end of the ten year option term. Actual realizable value, if any, on stock option exercises is dependent on the future performance of the Common Stock and overall market conditions, as well as the option holder's continued employment through the vesting period. (2) Represents options granted pursuant to the ISOP which vest upon the Company's achievement of certain performance objectives in 1994 and 1995. The Company's failure to achieve the 1994 performance objectives resulted in the forfeiture of options to purchase 40,000 shares by Mr Fulton. The ISOP terminated on January 18, 1995 without affecting outstanding options. The option expires on the earlier of (i) ten years from the date of grant, (ii) the expiration of ninety days following the date of the termination of Mr. Fulton's employment, or (iii) one year from the date of death or disability of the optionee. Shares may be acquired under the ISOP by delivery of the exercise price in cash or surrender of previously held shares. Upon an Acceleration Event (as defined above), options granted accelerate and become immediately exercisable.
The following table provides information with respect to option exercises during the year ended December 31, 1994 by the person named in the Summary Compensation Table and the number and value of unexercised options held at December 31, 1994. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Underlying Unexercised Unexercised In-the Money Options at Options at Shares Dec. 31, Dec. 31, Acquired Value 1994 (#) 1004 ($) on Exercise Realized Exercisable/ Exercisable/ Name (#) ($) Unexercisable Unexercisable(1) Robert A. Fulton, 0 N/A 61,250/65,000 $37,500/0 President & CEO (1) Calculation based on the closing price of the Company's Common Stock on December 30, 1994 less the exercise price, multiplied by the number of in-the-money options held. There is no guarantee that if and when these options are exercised they will have this value.
CHANGE IN CONTROL PLAN In a series of meetings between March 11 and 25, 1995, the Compensation Committee of the Company's Board of Directors adopted a Change in Control Severance and Incentive Plan pursuant to which certain key employees of the Company will be granted severance payments if their employment is terminated or they resign for good reason in connection with a change in control of the Company or certain equity investments in the Company, and pursuant to which they will be granted cash payments and will receive accelerated vesting of options to purchase Common Stock following certain equity investments in the Company. The plan does not provide for any severance payment to Robert A. Fulton, the Company's Chief Executive Officer. The plan does provide that Mr. Fulton will receive a minimum of $30,000 cash and accelerated vesting of an option to purchase 15,000 shares of Common Stock following the consummation of any of the following control events: (i) a merger of the Company, sale of all or substantially all of the assets of the Company, or a tender offer for the Company's shares which results in value to the Company or its shareholders of $3.50 per share; or (ii) an investment in equity securities of the Company resulting in gross proceeds to the Company of at least $3,000,000 at a price not less than $3.50 per share of Common Stock or Common Stock equivalent. If the benefits to the Company or its shareholders resulting from a change in control or equity investment exceed the foregoing amounts and/or entail significant additional benefits to the Company or its shareholders, the Compensation Committee of the Board of Directors, in its discretion, may increase the amount of benefits payable to Mr. Fulton to not more $80,000 cash and the accelerated vesting of options to purchase 30,000 shares of Common Stock. REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION The Compensation Committee The Compensation Committee of the Board of Directors (the "Committee") is currently comprised of three independent outside directors. The Committee is responsible for administering the Company's ISOP, Directors' Plan, Fulton Stock Option Agreement, Williams Stock Option Agreement, the 1995 Stock Option Plan, the Stock Bonus Plan, Stock Appreciation Rights Plan and Employee Stock Purchase Plan. The Company's overall executive compensation program is established and administered by the Committee. Compensation Philosophy The philosophy underlying the development and administration of the Company's annual and long-term compensation plans is to align the interests of executive management with those of the shareholders. Key elements of this philosophy are: 1. Establishing compensation plans which deliver pay commensurate with Company performance, as measured by operating, financial and strategic objectives. 2. Providing significant equity-based incentives for executives to ensure that they are motivated over the long-term to respond to the Company's business challenges and opportunities as owners rather than just as employees. 3. Rewarding executives if shareholders receive an above-average return on their investment over the long-term. Compensation Forms Executive compensation consists primarily of (i) base salary, (ii) annual incentive bonus compensation and (iii) long-term incentives in the form of stock options. Base salary is determined on approximately March 1 of each year or at the commencement of the executive's employment with the Company. Bonuses and stock options are usually determined during the first quarter after the end of the fiscal year to allow the Committee to take into account Company and individual performance in determining these elements of executive compensation. The Company also has an employee stock purchase plan which enables all employees, including executives, to purchase shares of the Company's stock at discounted prices and obtain a financial stake in the future success of the Company. Stock options may also be granted to non-executive employees of the Company. In developing executive compensation packages, the Committee considers an appropriate blend of the above-mentioned forms of compensation to be competitive generally and to provide meaningful incentives to the executives on both a short and long- term basis. Historically, the Committee has set salary levels below the median of those paid by other companies in the electronics industry to persons with comparable responsibilities as identified in the American Electronics Association salary surveys. This is done with the objective of giving variable compensation tied to financial performance greater weight than fixed base salary. The annual bonus plan is a discretionary vehicle by which executives can earn additional cash and/or equity compensation depending on individual and Company performance relative to certain annual objectives. In making such discretionary awards, the Committee considers with respect to each executive, certain criteria including the Company's operating, financial and strategic goals (e.g. net sales, margin levels, expense control, earnings per share, operating income, cash flow, technology acquisition and product development). The Company's long-term incentive program consists primarily of grants of stock options pursuant to the ISOP. Grants under the ISOP were made at exercise prices equal to or exceeding the fair market value of the underlying Common Stock on the date of grant, thereby aligning a significant portion of executive compensation with shareholder interests. Executives receive value from their options only if the Company's Common Stock appreciates over the long-term. The Company encourages its officers to acquire shares of its Common Stock. CEO AND EXECUTIVE COMPENSATION Salary The Chief Executive Officer's salary for 1994 was determined in accordance with the Company's compensation philosophy and objectives, as set forth above. When Mr. Fulton was employed by the Company as its President and Chief Executive Officer in October 1993, his compensation was not changed from the level set in June when he was appointed Chief Operating Officer and Executive Vice President. In determining the salary of Mr. Fulton, as CEO, the Committee also considered a salary level sufficient to encourage Mr. Fulton to accept employment with the Company, as its Chief Executive Officer, historical salary levels of former chief executives of the Company, the Company's current financial position, and Mr. Fulton's desire to be compensated at a lower level. Subsequent to year-end, and in keeping with the agreement in principle between Mr. Fulton and the Company, the Committee increased Mr. Fulton's annual salary to $100,000 effective January 1, 1994. In March 1994, the salary levels for the Company's executives were reviewed, and, were, after adjustment to reflect cost of living increases, determined to be equitable when compared to the salaries of other Company executives, considering the nature and scope of their duties and responsibilities and the Company's performance. Annual Bonus During 1994, the Company failed to achieve all of its operating and financial goals which were a combination of sales levels, margins, operating income, expense levels and earnings per share. No annual bonuses were awarded to the Company's Chief Executive Officer or other executive officers for 1994. Stock Options In 1994, options to purchase an aggregate of 250,000 shares of the Company's stock were granted to two executives, inclusive of Mr. Fulton. In 1994, all options granted to executives were at or above the market price of the Company's Common Stock on the date of grant. Vesting schedules and exercise prices of the options granted were designed to motivate the Company's executives to achieve goals which would build shareholder value over the next several years. The material terms of the award of stock options to Mr. Fulton in 1994 are discussed elsewhere in the Proxy Statement. In making that award, the Committee considered the following in determining the number of shares and the vesting schedule: grants made to other executives of the Company; grants made to other C.E.O's of the Company; an appropriate incentive to encourage Mr. Fulton to continue his employment with the Company; and an adequate incentive for Mr. Fulton to initiate, pursue and realize goals and plans which, if successful, would build shareholder value. These stock options vest on the achievement by the Company of certain performance goals during 1994 and 1995. The goals include: specified increases in gross margins, cash, return on investment, and earnings per share and specified reductions in inventory. Since the Company failed to achieve all of its goals in 1994, options to purchase 40,000 shares have been forfeited under this grant to Mr. Fulton. Under the Omnibus Budget Reconciliation Act of 1993, beginning in 1994, the federal income tax deduction for certain types of compensation paid to the chief executive officer and four other most highly compensated officers of publicly held companies is limited to $1 million per officer per fiscal year unless such compensation meets certain requirements. The Compensation Committee is aware of this limitation and believes that, except possibly in the event of exercise of a significant number of options by an executive officer following a dramatic increase in the share price of the Company's Common Stock, no compensation paid by the Company during 1995 will exceed the $1 million limitation. Compensation Committee: Thomas C. Graham, Chairman Walter C. Howe John F. Vynne Performance Graph The following graph shows for the periods indicated a comparison of the cumulative total shareholder return on the Company's Common Stock, Standard & Poors' Composite Index, and the Center for Research and Security Prices ("CRSP") Index for NASDAQ Electronic Components Stocks. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS AMONG CARVER CORPORATION, S&P 500 INDEX AND NASDAQ ELECTRONIC COMPONENTS STOCKS
Measurement Period Carver S&P 500 NASDAQ (Fiscal Year Covered) Corporation Index Electronic Components Stocks Measurement Pt-12/29/89 $100 $100 $100 FYE 12/31/90 $ 50.000 $ 96.769 $ 97.042 FYE 12/31/91 $ 47.500 $126.452 $138.193 FYE 12/31/92 $ 50.000 $136.158 $215.897 FYE 12/31/93 $ 58.750 $149.224 $296.495 FYE 12/30/94 $ 57.500 $151.220 $328.140
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Based solely upon its review of Forms 3, 4 and 5 and any amendments thereto furnished to the Company pursuant to Section 16 of the Securities and Exchange Act of 1934, as amended, all such Forms were filed on a timely basis except for a late filing by Robert W. and Diana R. Carver of a Form 4 relating to the sale by them of 35,000 shares of the Company's Common Stock in September 1994. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain of the Company's amplifiers and receivers employ Magnetic Field Amplifier technology pursuant to a nonexclusive license negotiated in March 1985 between Robert W. Carver and Diana R. Carver and the Company relating to the use of three patents currently owned by the Carvers (the "License Agreement"). The License Agreement requires the Company to make royalty payments to Mr. and Mrs. Carver on products containing Magnetic Field Amplifier technology. Such royalties amounted to $56,800 in 1994. On March 9, 1994, Robert W. Carver filed a lawsuit against the Company in the United States District Court for the Western District of Washington at Seattle, claiming, among other things, that the Company failed to provide accurate and/or complete reports and underpaid royalties under the License Agreement. Mr. Carver alleged that the underpayment exceeded $667,000, including accrued interest. Mr. Carver sought a declaratory judgment that certain products of the Company were covered by the patents, damages in an amount to be determined at trial, but not less than $667,000 plus interest, attorneys' fees and costs. On March 11, 1994, the Company filed a lawsuit against Mr. and Mrs. Carver seeking, among other things, a determination of which of the Company's products were covered by Mr. and Mrs. Carver's patents and the amount of any over or underpaid royalties. The Company's complaint also sought a preliminary injunction to prevent Mr. and Mrs. Carver from terminating the License Agreement pending resolution of the issues. The Company believes the circuitry covered by only one of the patents under the License Agreement is used by the Company in certain of its amplifiers and receivers (the "Covered Products"). Mr. and Mrs. Carver contended that many more of the Company's products incorporate technology covered by a second patent covered by the License Agreement (the "Disputed Products"). Mr. Carver contended and the Company agreed that it underpaid royalties to Mr. and Mrs. Carver on Covered Products from May 1985 through December 1993 due to a variety of errors made in calculating royalties payable. However, during the same period, the Company had paid royalties to Mr. and Mrs. Carver on products which are not subject to the License Agreement, including certain of the Disputed Products. Mr. and Mrs. Carver alleged that the net underpayment exceeds $667,000. The Company believes that it has overpaid royalties in excess of the net amount of $200,000, and that it was entitled to a refund of its overpayment or a credit toward future royalties. Another issue raised in the suits was the status of the employment agreement between Mr. Carver and the Company dated April 4, 1985 (the "Employment Agreement"). The initial term of the Employment Agreement was five years ending on March 31, 1990, but the Employment Agreement also provides that it will automatically renew for successive three year terms unless one party gives the other six months notice of its intent not to renew. The Employment Agreement contains a covenant of Mr. Carver that he will not engage in certain competitive activities for a period of two years following termination of the agreement by Mr. Carver or by the Company for cause. Early in 1994, Mr. Carver advised the Company of his position that he had given written notice to the Company that the Employment Agreement would not be renewed more than six months prior to March 31, 1990 and, accordingly, that the Employment Agreement had expired on March 31, 1990, and that the post- termination noncompetition period provided for by that agreement ended on March 31, 1992. In his lawsuit against the Company, Mr. Carver also sought a declaratory judgment that the non- competition period has terminated. The Company denied that it received notification from Mr. Carver that he did not wish to renew the Employment Agreement prior to February 1994 and maintained that the noncompetition period ends on June 6, 1996. On December 9, 1994, the Company and Mr. and Mrs. Carver executed a settlement agreement (the "Settlement Agreement") which: - - - Provided for the dismissal of the lawsuit between the Company and Mr. and Mrs. Carver; - - - Confirmed that the Company had license rights to certain amplifier technology owned by Mr. and Mrs. Carver; - - - Granted the Company a fully paid up license on certain disputed technology; - - - Provided that the Company would pay to Mr. and Mrs. Carver $300,000, without interest, in monthly installments over four years beginning in January 1995; - - - Limited Mr. Carver's right to produce electronic audio products to a certain maximum number of units with a certain minimum manufacturer's suggested retail and dealer price for a limited time; and - - - Contained a mutual release of claims. PROPOSAL 2 - APPROVAL OF THE 1995 STOCK OPTION PLAN At the Annual Meeting, the shareholders of the Company will be asked to approve the adoption of the Carver Corporation 1995 Stock Option Plan (the "Plan") as described below. The Plan was adopted by the Company's Board of Directors on February 15, 1995, subject to approval of the Plan by the Company's shareholders. The Board of Directors believes that the Plan will contribute to the Company's ability to attract and retain the services of key employees and non-employee directors and will more closely align the interests of such persons with those of shareholders by giving such persons a greater proprietary interest in the Company. Description of the 1995 Stock Option Plane The following description of the Plan is qualified in its entirety by reference to the full text of the Plan, a copy of which is attached to this Proxy Statement as Exhibit A. General; Eligibility. The Plan provides for the discretionary grant of incentive stock options ("ISOs") within the meaning of section 422 of the Internal Revenue Code, to employees, discretionary grant of nonqualified stock options ("NQSOs") to employees, consultants and such other persons as the Plan Administrator (as defined below) may select, and nondiscretionary, annual grants of NQSOs to the Company's non- employee directors. See "Federal Income Tax Consequences" below for information concerning the tax treatment of ISOs and NQSOs. Non-employee directors are not eligible to receive discretionary grants of options. The Company currently has three non-employee directors and approximately 143 employees. If approved by shareholders, the Plan will provide for the grant of ISOs from time to time until February 14, 2005 and for the grant of NQSOs from time to time until the Plan is terminated by the Board of Directors in its discretion. Options granted under the Plan may extend beyond the Plan's termination date and the terms and conditions of the Plan will continue to apply to such options. All options granted under the Plan prior to shareholder approval of the Plan are granted subject to receipt of such approval. The Plan provides for the grant of options to purchase an aggregate of 360,000 shares of Common Stock. Of these shares, 60,000 shares are reserved for issuance pursuant to the exercise of options granted to non-employee directors. No person is eligible to receive in any fiscal year options to purchase more than 50,000 shares of Common Stock. The number of shares available under the Plan, the foregoing individual limit, the amount of shares underlying outstanding options and the amount of shares underlying prospective grants of options to the Company's non-employee directors are all subject to adjustment in the event of a share dividend, stock split, or other change in the Company's capital structure. Administration. The Plan is administered by the Compensation Committee (the "Plan Administrator") of the Company's Board of Directors. The Plan Administrator determines the officers, key employees and other persons to whom options will be granted, the exercise prices, the number of shares covered by each grant and all other terms and conditions of the grants. However, the Plan Administrator may not exercise discretion with respect to the amount or timing of grants to non-employee directors or determine which non-employee directors will receive grants under the Plan. Under the terms of the Plan, the Compensation Committee may delegate to one or more executive officers the authority to grant options to employees who are not subject to Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act") with respect to the Common Stock. The Plan is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and is not qualified under section 401(a) of the Internal Revenue Code. Exercise Price. The exercise price of ISOs must be equal to or greater than the fair market value of the Common Stock on the date of grant (110% of the fair market value in the case of employees who hold 10% or more of the voting power of the Common Stock). Except with respect to NQSOs granted to non-employee directors, the option price of NQSOs may be less than the fair market value of the Common Stock on the date of grant. Duration. Options may be granted for varying periods not to exceed ten years from the date of grant (five years in the case of ISOs granted to employees who hold more than 10% of the voting power of the Common Stock). Typically, options granted under the Plan expire ten years from the date of grant. Exercise of Options. Options may be exercised only while the holder is in the employ of the Company or a subsidiary, within 90 days after the date of termination of employment (other than for cause, death or disability), or within one year after termination of employment due to the death or disability of the optionee. During the optionee's lifetime, an option is exercisable only by the optionee. Options granted to persons other than non-employee directors terminate concurrently with the termination of the optionee's employment for cause. Options are not transferable except upon the death of the optionee or pursuant to a qualified domestic relations order as defined under the Internal Revenue Code or Title I of ERISA. Terminated or expired options become available for future grants. Unless otherwise specified a the time of grant, options granted under the Plan become exercisable with respect to 25%, 50%, 75% and 100% of the shares covered by the option on the first, second, third and fourth anniversaries of the date of grant, respectively. The Plan authorizes the administrator thereof to accelerate the vesting of any option at any time. The Plan Administrator may condition the exercisability of any option (other than an option granted to a non-employee director) upon the achievement of one or more performance objectives. Performance objectives may be expressed in terms of one or more of the following: return on equity, return on assets, share price, market share, sales, earnings per share, costs, net earnings, net worth, inventories, cash and cash equivalents, gross margin or the Company's performance relative to its internal business plan. Performance objectives may be in respect of the performance of the Company as a whole (whether on a consolidated or unconsolidated basis), a related corporation, or a subdivision, operating unit, product or product line of either of the foregoing. Performance objectives may be absolute or relative and may be expressed in terms of a progression or a range. At the date of exercise, the holder may pay the full option price in cash or may satisfy the purchase price by complying with one of the following mechanisms: (i) by surrendering shares of Common Stock previously held by the option holder; (ii) by having the Company withhold shares of Common Stock otherwise issuable upon exercise of the option; (iii) by delivering a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds to pay the exercise price; or (iv) by complying with any other payment mechanism approved by the Plan Administrator. Any shares of Common Stock surrendered or withheld will be valued at their fair market value on the date of exercise. Formula Grants to Non-Employee Directors. For so long as shares of Common Stock are available under the Plan, each director shall automatically receive (i) an NQSO to purchase 2,500 shares of Common Stock upon the director's initial election to the Board of Directors, and (ii) an identical option each May thereafter, provided that the director was a non-employee director on the previous December 31. In addition, each non-employee director holding office on the date of approval of the Plan by the Company's shareholders shall receive an NQSO (a "Recognition Option") to purchase up to the number of shares of Common Stock equal to the product of (x) 2,500, multiplied by (y) the number of complete years of continuous service of such person as a non- employee director. Options (other than Recognition Options) vest and become exercisable as follows: forty percent (40%) on the date of grant; thirty percent (30%) on the first anniversary of the date of grant; and thirty percent (30%) on the second anniversary of the date of grant. Recognition Options vest according to the same schedule but assuming that the Recognition Options had been granted in annual increments of 2,500 shares beginning in May of each of the calendar years following the optionee's initial election to the Board of Directors. Change in Control Provision. The Plan provides that outstanding options will become immediately vested and fully exercisable for the periods indicated: (i) for a period of 45 days beginning on the day on which any person or group (with certain exceptions) becomes the beneficial owner of 25% or more of the Company's Common Stock, unless such accumulation is previously approved by a disinterested majority of the Board; (ii) beginning on the date that a tender or exchange offer by any person (with certain exceptions is first published or sent or given, and continuing for so long as such offer remains open, unless, upon consummation thereof, such person would be the beneficial owner of less than 30% of the shares of Common Stock then outstanding, unless such tender offer is approved by a disinterested majority of the Board; or (iii) for a period of 20 days beginning on the day on which the shareholders of the Company (or, if later, approval by the shareholders of a third party) duly approve any merger, consolidation, reorganization or other transaction providing for the conversion or exchange of more than 50% of the outstanding shares of Common Stock into securities of a third party, or cash, or property, or a combination of any of the foregoing. New Plan Benefits Except for those options which have been granted subject to shareholder approval of the Plan, the benefits or amounts that will be received by or allocated to employees of the Company (including the Company's executive officers or other highly- compensated employees) under the Plan are not determinable at this time, because grants of options to such persons will be made at the discretion of the Plan Administrator and may be based on factors which are presently unknown. Set forth below is information as of March 30, 1995 regarding the number of stock options that have been granted under the Plan, or to the persons and groups identified in the table subject to shareholder approval of the Plan.
Number of Shares Underlying Options Granted Subject to Name and Principal Position Value($)(1) Shareholder Approval Robert A. Fulton President and CEO N/A 0 Executive Officers as a group (6 persons) $10,625 85,000 Directors who are not Executive Officers as of group (3 Persons) $ 3,125 25,000 Thomas C. Graham Nominee for Director $ 1,250 10,000 Walter C. Howe Nominee for Director $ 937 7,500 John F. Vynne Nominee for Director $ 938 7,500 Employees (other than Executive Officers) as a group (11 persons) $12,125 97,000 ____________________ (1) Dollar value has been calculated by multiplying the number of shares of Common Stock underlying each option by the difference between the per share exercise price of such option and the closing sale price of the Common Stock on March 30, 1995, which was $2.625 as reported by the NASDAQ National Market System.
Federal Income Tax Consequences ISOs granted under the Plan are intended to qualify as "incentive stock options" for federal income tax purposes. Under federal income tax law currently in effect, the optionee will recognize no income upon grant or exercise of the ISO. Federal income tax upon any gain resulting from exercise of an ISO is deferred until the optioned shares are sold by the optionee. The gain resulting from the exercise of an ISO is included in the alternative minimum taxable income of the optionee and may, under certain conditions, be taxed under the alternative minimum tax. If an employee exercises an ISO and does not dispose of any of the optioned shares within two years following the date of grant and within one year following the date of exercise, then any gain upon subsequent disposition will be treated as long-term capital gain for federal income tax purposes. If an employee disposes of shares acquired upon exercise of an ISO before the expiration of either the one-year or the two-year holding period, any amount realized will be taxable for federal income tax purposes as ordinary income in the year of such disqualifying disposition to the extent that the lesser of the fair market value of the shares on the exercise date or the fair market value of the shares on the date of disposition exceeds the exercise price. The Company will not be allowed any deduction for federal income tax purposes either at the time of the grant or exercise of an ISO. Upon any disqualifying disposition by an employee, the Company will generally be entitled to a deduction to the extent the employee realizes ordinary income. NQSOs granted under the Plan are intended to be "nonqualified stock options" for federal income tax purposes. Under federal income tax law presently in effect, no income is realized by the grantee of an NQSO until the option is exercised. At the time of exercise of an NQSO, the optionee will realize ordinary income, and the Company will generally be entitled to a deduction, in the amount by which the market value of the shares subject to the option at the time of exercise exceeds the exercise price (the "Option Spread Amount"). The Company's deduction is conditioned upon withholding the appropriate percentage of the Option Spread Amount. Upon sale of shares acquired upon exercise of an NQSO, the excess of the amount realized from the sale over the market value of the shares on the date of exercise will constitute long-term capital gain if the shares have been held for the required holding period. Section 162(m) of the Internal Revenue Code, as adopted in 1993, limits to $1,000,000 per person the amount that the Company may deduct for compensation paid to any of its most highly compensated executive officers in any year after 1993. Under proposed regulations, "qualified performance-based compensation" will not be subject to the $1,000,000 limit. Compensation payable through the exercise of a stock option will qualify as "qualified performance-based compensation" if the option and the plan meet certain requirements. One such requirement is that the plan contain a per-employee limit on the number of shares as to which options may be granted during any specific period. Other requirements are that the option be granted by a committee of at least two "outside" directors and that the exercise price of the option be not less than fair market value of the Common Stock on the date of grant or be exercisable only upon the achievement of predetermined performance objectives. Although the Company has generally drafted the Plan to comply with the requirements of the "qualified performance-based compensation" exception to Code Section 162(m), the Plan may be administered by a committee of directors that are not all "outside" directors as defined in the regulations promulgated under Code 162(m). Nonetheless, the Board of Directors believes it is unlikely that in the near term any officer of the Company will receive compensation in an amount sufficient to trigger the application of Code Section 162(m). Recommendation The affirmative vote by the holders of at least a majority of the shares of Common Stock present in person or represented by proxy at the 1995 Annual Meeting and entitled to vote on the proposal is required for approval of the Plan. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE PLAN. Unless instructed otherwise, it is the intention of the persons named in the accompanying form of proxy to vote shares represented by properly executed proxies in favor of approval of the Plan. PROPOSAL 3 - APPROVAL OF THE 1995 STOCK BONUS PLAN At the Annual Meeting, the shareholders of the Company will be asked to approve the adoption of the Carver Corporation 1995 Stock Bonus Plan (the "Stock Bonus Plan"), as described below. On February 15, 1995 the Board of Directors adopted the Stock Bonus Plan, subject to the approval of the shareholders at the Annual Meeting. Description of the Stock Bonus Plan The essential features of the Stock Bonus Plan are outlined below. The following description of the Stock Bonus Plan is qualified in its entirety by reference to the full text of such plan, a copy of which is attached to this Proxy Statement as Exhibit B. Purposes. The purposes of the Stock Bonus Plan are to reward directors, valued key employees and consultants of the Company for their services to the Company, to enable such persons to acquire a greater proprietary interest in the Company, thereby strengthening their incentive to achieve the objectives of the shareholders of the Company, and to serve as an aid and inducement in the hiring of new employees. Nature of the Plan; Eligibility. The Stock Bonus Plan provides for the discretionary grant by the Company of restricted or unrestricted stock bonuses ("Bonuses" or individually a "Bonus") to employees and other persons selected by the Plan Administrator (as defined below), and for the non-discretionary grant of unrestricted Bonuses to non-employee directors of the Company. Grants to non-employee directors are intended to comply with the "formula award" provisions of Rule 16b-3 ("Rule 16b-3) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company currently has three non-employee directors and approximately 143 employees. The terms and conditions of any Bonus will be set forth in an agreement (the "Bonus Agreement") between the Company and the person receiving the Bonus (the "Grantee"). Administration. The Board of Directors of the Company (the "Board") has the general power to administer the Stock Bonus Plan, but has delegated such power to the Compensation Committee (the "Plan Administrator"). Subject to certain limitations, the Plan Administrator may delegate to one or more executive officers of the Company authority to grant and administer Bonuses to persons who are not subject to Section 16 of the Exchange Act with respect to Common Stock. The Plan Administrator has the power, subject to the provisions of the Stock Bonus Plan, to select the employees and other persons to whom Bonuses may be granted and to determine the type, amount, terms and conditions of each Bonus, based upon factors determined by the Plan Administrator. The Plan Administrator may also adopt, alter and repeal rules, guidelines and practices governing the Plan, the Bonuses and Bonus Agreements, and otherwise supervise the administration of the Plan. However, the Plan Administrator may not exercise discretion with respect to the amount and timing of grants to non-employee directors or determine which non-employee directors will receive grants under the Stock Bonus Plan. Term. The Stock Bonus Plan is effective as of February 15, 1995. However, until the Stock Bonus Plan is approved by the shareholders of the Company, no Bonus may be granted under the Stock Bonus Plan to any non-employee director or other person (collectively, "Insiders") subject to Section 16 of the Exchange Act with respect to the Common Stock. No Bonus may be granted under the Stock Bonus Plan on or after February 15, 2005, or until the Stock Bonus Plan is terminated by the Board in its sole discretion. Stock Subject to the Plan. In each year during the term of the Stock Bonus Plan, the Plan Administrator may grant Bonuses of Common Stock aggregating not more than one percent (1%) of the number of shares of Common Stock issued and outstanding on April 3, 1995, the record date for the Annual Meeting, in the case of 1995, and on each subsequent January 1 for each subsequent year. Whenever a Bonus is granted, the shares issuable pursuant to the Bonus (the "Bonus Shares") are counted against the total number of shares that may be issued in the year of grant. However, if Bonus Shares are forfeited by the Grantee, the number of Bonus Shares so forfeited will again become available for the grant of other Bonuses. Individual Limitation. The Company may not grant Bonuses covering in the aggregate more than 100,000 shares of Common Stock to any one Grantee during each calendar year of the term of the Stock Bonus Plan. Grant of Bonuses. The Plan Administrator may grant Bonuses covering shares of restricted Common Stock ("Restricted Bonus Shares") or unrestricted Common Stock ("Unrestricted Bonus Shares"). Bonus Shares shall be issued without payment by the Grantees of any consideration. The grant of any Bonus (other than a Bonus granted to a non-employee director) may be contingent upon the achievement of specified performance goals or other criteria or factors. Non-employee directors of the Company will receive Bonuses under the Stock Bonus Plan as described below under "Non-Employee Directors." Provisions applicable to Restricted Bonus Shares. During the restriction period set by the Plan Administrator, commencing with, and not exceeding 10 years from, the grant date, the Grantee will not be entitled to sell, assign, transfer, pledge or otherwise encumber Restricted Bonus Shares. Within these limits, the Plan Administrator may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions, in whole or in part, based on service, performance or such other factors or criteria as the Plan Administrator may determine. Termination of the Grantee's employment during the restriction period will result in forfeiture of all shares then subject to restriction unless otherwise provided in the Bonus Agreement or determined by the Plan Administrator. Pending expiration of the restricted period or termination of the Grantee's employment, the Grantee may vote Restricted Bonus Shares. Unless otherwise determined by the Plan Administrator, all dividends on Restricted Bonus Shares payable in cash will be paid to the Grantee in cash, and dividends payable in Common Stock will be paid in the form of Restricted Bonus Shares. Tax Withholding. Unless the Plan Administrator permits otherwise, the Grantee must pay to the Company in cash all federal, state, local and foreign withholding taxes that the Plan Administrator determines to result from the issuance of or lapse of restrictions on Bonus Shares or otherwise in connection with Bonus Shares. The Plan Administrator may authorize a Grantee to make an election (i) to deliver to the Company appropriate loan documents under the terms set forth in the Plan, (ii) to tender to the Company previously-owned shares of Common Stock or (iii) to have Bonus Shares withheld by the Company on behalf of the Grantee, to pay the amount of tax that the Plan Administrator determines is required to be withheld by the Company. Any shares of Common Stock so withheld or tendered will be valued at their fair market value by the Plan Administrator as of the date they are withheld or tendered. The value of the shares withheld or tendered may not exceed the required federal, state, local and foreign withholding tax obligations as computed by the Company. In addition, the Plan Administrator may provide for any other payment mechanism in its discretion. Right of Repurchase. At the option of the Plan Administrator, the Bonus Shares to be delivered pursuant to a Bonus under the Plan may be subject to a right of repurchase by the Company upon termination of employment, subject to terms and conditions set forth in the Bonus Agreement. Adjustments. Upon any change in the Company's capitalization, such as a merger, reorganization, consolidation, recapitalization, stock dividend or stock split, the number of total shares reserved for grants under the Stock Bonus Plan shall be automatically adjusted and the number of Bonus Shares subject to any outstanding Bonus may be adjusted by the Plan Administrator in its discretion. The Plan Administrator may also (except with respect to grants to non-employee directors) adjust performance goals and measurements applicable to Bonuses (i) to take into account changes in law and accounting and tax rules, (ii) to reflect the inclusion and exclusion of extraordinary or unusual items, events or circumstances in order to avoid windfalls or hardships, and (iii) to reflect any material changes in business conditions. Waiver by the Plan Administrator. In the event of hardship or special circumstances of a Grantee, the Plan Administrator may, except with respect to non-employee directors, waive any or all restrictions, conditions, vesting or forfeiture with respect to any Bonus granted to that Grantee. Non-Employee Directors. Four times per year following shareholder approval of the Stock Bonus Plan, provided that shares are available for grant under the plan, each non-employee director of the Company will receive an Unrestricted Bonus for 250 Bonus Shares for service as a director during the then most recently completed calendar quarter. Any director who did not serve for the entire quarter shall receive a pro-rated number of Bonus Shares. ERISA, Internal Revenue Code. The Stock Bonus Plan is not subject to the Employee Retirement Income Security Act of 1974 ("ERISA") and is not qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"). Amendment of Plan. The Plan Administrator may modify, amend or terminate the Stock Bonus Plan, but no such modification, amendment or termination may reduce the benefits afforded to a Grantee under a previously outstanding Bonus without the consent of such Grantee. New Plan Benefits The benefits or amounts that will be received by or allocated to employees of the Company (including the Company's executive officers or other highly-compensated employees) under the Stock Bonus Plan are not determinable at this time, because grants of Bonus Shares to such persons will be made at the discretion of the Plan Administrator and may be based on factors which are presently unknown. The dollar value of Bonuses to non-employee directors will depend upon the value of the Bonus Shares on the respective dates of the grants. If the Bonuses had been granted in 1994, the total dollar value of the Bonuses to all current non-employee directors would have been $7,781. Federal Income Tax Consequences A Grantee will generally have ordinary income subject to withholding taxes (and the Company will be entitled to a corresponding deduction) upon the grant of an Unrestricted Bonus in the amount of the fair market value of the stock at the time of the grant. A Grantee should not have taxable income upon the grant of a Restricted Bonus but would have taxable income upon the lapse of any restrictions. A Grantee receiving a Restricted Bonus, however, may make an election to be taxed at the time of the grant on the fair market value of the stock on the grant date, in which case the lapse of any restrictions will not be a taxable event. If shares are held at least one year after the date the Grantee has taxable income from acquiring them, then upon the sale of the shares the employee will have long-term capital gain or loss equal to the difference between the sale price and the fair market value of the shares on the date income is recognized. Under current federal income tax law, long-term capital gain is taxable at a maximum stated rate of 28%, while ordinary income is taxable at a maximum stated rate of 39.6%. In the case of both capital gains and ordinary income, the effective rate of tax may be higher because of various phase-out and recapture provisions. Recommendation The affirmative vote of the holders of at least a majority of the shares of Common Stock present in person or represented by proxy at the Annual Meeting is required for approval of the Stock Bonus Plan. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE STOCK BONUS PLAN. Unless instructed otherwise, it is the intention of the persons named in the accompanying form of proxy to vote shares represented by properly executed proxies in favor of approval of the Stock Bonus Plan. RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors has appointed Moss Adams to continue as its independent accountants and to examine the financial statements of Carver Corporation for the current year. Representatives of Moss Adams are expected to be present at the Annual Meeting with the opportunity to make a statement, if they desire to do so, and will be available to respond to appropriate questions. OTHER BUSINESS As of the date of this proxy statement, management knows of no other business which will be presented for action at the Annual Meeting. If any other business requiring a vote of the shareholders should come before the meeting, the persons designated as proxies will vote or refrain from voting in accordance with their best judgment. SHAREHOLDER PROPOSAL AND NOMINATION PROCEDURE FOR THE 1996 ANNUAL MEETING OF SHAREHOLDERS The Company's Bylaws provide that advance notice of nominations for the election of directors at a meeting of shareholders must be delivered to or mailed and received by the Company ninety (90) days prior to the date one year from the date of the immediately preceding annual meeting of shareholders or, in the case of a special meeting of shareholders to elect directors, the close of business on the 10th day following the date on which notice of such meeting is first given to shareholders. The Bylaws also provide that advance notice of proposals to be brought before an annual meeting by a shareholder must be submitted in writing and delivered to or mailed and received by the Company not later than ninety (90) days prior to the date one year from the date of the immediately preceding annual meeting of shareholders. Each notice of a nomination or proposal of business must contain, among other things, (i) the name and address of the shareholder who intends to make the nomination or proposal; (ii) a representation that the shareholder is a holder of record of stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or to vote at the meeting for the proposal; (iii) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder and any material interest of such shareholder in any proposal to be submitted to the meeting; and (iv) such other information regarding each nominee or proposal as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission. Shareholder proposals to be presented at the 1996 Annual Meeting of Shareholders must be received by the Secretary at the Company's executive offices by December 15, 1995, in order to be included in the Company's proxy statement and form of proxy relating to that meeting. REPORT ON FORM 10-K The Company's Annual Report on Form 10-K filed with the Commission for the year ended December 31, 1994 is available to shareholders without charge upon written request to Carver Corporation, P.O. Box 1237, Lynnwood, Washington 98046, Attention: Sandra L. Jenkins. SOLICITATION OF PROXIES The form of proxy accompanying this proxy statement is solicited by the Board of Directors of the Company. Proxies may be solicited by officers, directors, and regular supervisory and executive employees of the Company, none of whom will receive any additional compensation for their services. The Company will pay persons holding shares of Common Stock in their names or in the names of nominees, but not owning such shares beneficially, such as brokerage houses, banks, and other fiduciaries, for the expense of forwarding soliciting materials to their principals. All costs of solicitation of proxies will be paid by the Company. By order of the Board of Directors John P. World Secretary Lynnwood, Washington April 14, 1995 PROXY CARVER CORPORATION This Proxy is Solicited on Behalf of the Board of Directors The undersigned hereby appoints Robert A. Fulton and John P. World, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorize them to represent and to vote all shares of common stock of Carver Corporation which the undersigned would be entitled to vote if personally present at the annual meeting of shareholders to be held on May 16, 1995, or any adjournment thereof, as directed herein, and in their discretion, to vote upon such other matters as may properly come before the meeting. 1. For Election of the following Directors: R. Fulton, T. Graham, W. Howe, J. Vynne and S. Williams [ ] Vote FOR all nominees listed above (except as marked to the contrary below) (INSTRUCTION: To withhold authority to vote for any individual nominee, print that nominee's name on the space provided below.) ______________________________________________________________ [ ] WITHHOLD authority to vote for all nominees named above. 2. Approval of the adoption of the Company's 1995 Stock Option Plan, as described in the accompanying Proxy Statement. [ ] FOR [ ] AGAINST [ ] ABSTAIN 3. Approval of the adoption of the Company's 1995 Stock Bonus Plan, as described in the accompanying Proxy Statement. [ ] FOR [ ] AGAINST [ ] ABSTAIN 4. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. (Continued, and to be signed on the other side) This proxy when properly executed will be voted in the manner directed herein by the undersigned shareholder. For the purposes stated in the accompanying proxy statement, management recommends a vote FOR each of the proposals referred to hereon; if no specification is made, a vote FOR all said nominees and FOR approval of said proposals will be entered. The undersigned hereby revokes any proxy or proxies heretofore given for such shares and ratifies all that said proxies or their substitutes may lawfully do by virtue hereof. Please sign exactly as name appears below. _________________________________________ When shares are held jointly, both persons should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. Please mark, sign, date and return the proxy card promptly using the enclosed envelope. Dated ____________________________________, 1995 Signature ______________________________________ Signature if held jointly ______________________ Please mark, sign, date and return the proxy card promptly using the enclosed envelope EX-99.11995STOCKOPTI 2 EXHIBIT A CARVER CORPORATION 1995 STOCK OPTION PLAN This 1995 Stock option Plan (the "Plan") provides for the grant of options to acquire shares of common stock, $.01 par value (the "Common Stock"), of Carver Corporation, a Washington corporation (the "Company"). Stock options granted under this Plan that qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), are referred to in this Plan as "Incentive Stock Options." Incentive Stock Options and stock options that do not qualify under Section 422 of the Code ("Non- Qualified Stock Options") granted under this Plan are referred to as "Options." 1. PURPOSES. The purposes of this Plan are to retain the services of directors, valued key employees and consultants of the Company and such other persons as the Plan Administrator shall select in accordance with Section 3 below, to encourage such persons to acquire a greater proprietary interest in the Company, thereby strengthening their incentive to achieve the objectives of the shareholders of the Company, and to serve as an aid and inducement in the hiring of new employees and to provide an equity incentive to directors, consultants and other persons selected by the Plan Administrator. 2. ADMINISTRATION. This Plan shall be administered by the Board of Directors of the Company (the "Board") if each director is a "disinterested person" (as defined below). If all directors are not independent directors, the Plan shall be administered by a committee designated by the Board and composed of two (2) or more members of the Board, which committee (the "Committee") may be an executive, compensation or other committee, including a separate committee especially created for this purpose. The term "disinterested person" shall have the meaning assigned to it under Rule 16b-3 (as amended from time to time) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor rule or regulatory requirement (the "Rule"). The Committee shall have the powers and authority vested in the Board hereunder (including the power and authority to interpret any provision of this Plan or of any Option). The members of any such Committee shall serve at the pleasure of the Board. A majority of the members of the Committee shall constitute a quorum, and all actions of the Committee shall be taken by a majority of the members present. Any action may be taken by a written instrument signed by all of the members of the Committee and any action so taken shall be fully effective as if it had been taken at a meeting. The Board, or any committee thereof appointed to administer the Plan, is referred to herein as the "Plan Administrator." Subject to the provisions of this Plan, and with a view to effecting its purpose, the Plan Administrator shall have sole authority, in its absolute discretion, to (a) construe and interpret this Plan; (b) define the terms used in this Plan; (c) prescribe, amend and rescind rules and regulations relating to this Plan; (d) correct any defect, supply any omission or reconcile any inconsistency in this Plan; (e) grant Options under this Plan (other than pursuant to Section 6); (f) determine the individuals to whom Options shall be granted under this Plan and whether the Option is an Incentive Stock Option or a Non- Qualified Stock Option; (g) determine the time or times at which Options shall be granted under this Plan; (h) determine the number of shares of Common Stock subject to each Option, the exercise price of each Option, the duration of each Option and the times at which each Option shall become exercisable; (i) determine all other terms and conditions of Options; and (j) make all other determinations necessary or advisable for the administration of this Plan. All decisions, determinations and interpretations made by the Plan Administrator shall be binding and conclusive on all participants in this Plan and on their legal representatives, heirs and beneficiaries. The Plan Administrator shall have no authority, discretion or power to select the persons who will receive Options under Section 6 hereof or to set the number of shares to be covered by such Options, the exercise price of such Options, the timing of the grant of such Options or the period within which such Options may be exercised. The Board or the Committee may delegate to one or more executive officers of the Company the authority to grant Options under this Plan to employees of the Company who, on the Date of Grant, are not subject to Section 16(b) of the Exchange Act with respect to the Common Stock ("Non-Insiders"), and in connection therewith the authority to determine: (a) the number of shares of Common Stock subject to such Option; (b) the duration of the Option; (c) the vesting schedule for determining the times at which such Option shall become exercisable; and (d) all other terms and conditions of such Options. The exercise price for any Option granted by action of an executive officer or officers pursuant to such delegation of authority shall not be less than the fair market value per share of the Common Stock on the Date of Grant. Unless expressly approved in advance by the Board or the Committee, such delegation of authority shall not include the authority to accelerate the vesting, extend the period for exercise or otherwise alter the terms of outstanding Options. The term "Plan Administrator" when used in any provision of this Plan other than Sections 2, 5(m), 5(n) and 12 shall be deemed to refer to the Board or the Committee, as the case may be, and an executive officer who has been authorized to grant Options pursuant hereto, insofar as such provision may be applied to Non- Insiders and Options granted to Non-Insiders. 3. ELIGIBILITY. Incentive Stock Options may be granted to any individual who, at the time the Option is granted, is an employee of the Company or any Related Corporation (as defined below), including employees who are directors of the Company ("Employees"). Non-Qualified Stock Options may be granted to Employees and to such other persons as the Plan Administrator shall select. Options shall be granted hereunder to directors who are not employees of the Company or any related Corporation, but solely on the terms and conditions set forth in Section 6 hereof. Options may be granted in substitution for outstanding Options of another corporation in connection with the merger, consolidation, acquisition of property or stock or other reorganization between such other corporation and the Company or any subsidiary of the Company. Options also may be granted in exchange for outstanding Options. No person shall be eligible to receive in any fiscal year Options to purchase more than 50,000 shares of Common Stock (subject to adjustment as set forth in Section 5(m) hereof). Any person to whom an Option is granted under this Plan is referred to as an "Optionee." Any person who is the owner of an Option is referred to as a "Holder." As used in this Plan, the term "Related Corporation," shall mean any corporation (other than the Company) that is a "Parent Corporation" of the Company or "Subsidiary Corporation" of the Company, as those terms are defined in Sections 424(e) and 424(f), respectively, of the Code (or any successor provisions), and the regulations thereunder (as amended from time to time). 4. STOCK. The Plan Administrator is authorized to grant Options to acquire up to a total of 360,000 shares of the Company's authorized but unissued, or reacquired, Common Stock. The number of shares with respect to which Options may be granted hereunder is subject to adjustment as set forth in Section 5(m) hereof. Of these 360,000 shares, 60,000 shares are available exclusively for grant to certain directors of the Company under Section 6 hereof, subject to adjustment in as set forth in Section 5(m). In the event that any outstanding Option expires or is terminated for any reason, the shares of Common Stock allocable to the unexercised portion of such Option may again be subject to an Option to the same Optionee or to a different person eligible under Section 3 of this Plan; provided however, that any canceled Options will be counted against the maximum number of shares with respect to which Options may be granted to any particular person as set forth in Section 3 hereof. 5. TERMS AND CONDITIONS OF OPTIONS. Each Option granted under this Plan shall be evidenced by a written agreement approved by the Plan Administrator (the "Agreement"). Agreements may contain such provisions, not inconsistent with this Plan, as the Plan Administrator in its discretion may deem advisable. All Options also shall comply with the following requirements: (a) Number of Shares and Type of Option. Each Agreement shall state the number of shares of Common Stock to which it pertains and whether the Option is intended to be an Incentive Stock Option or a Non-Qualified Stock Option. In the absence of action to the contrary by the Plan Administrator in connection with the grant of an Option, all Options shall be Non-Qualified Stock Options. The aggregate fair market value (determined at the Date of Grant, as defined below) of the stock with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (granted under this Plan and all other Incentive Stock Option plans of the Company, a Related Corporation or a predecessor corporation) shall not exceed $100,000, or such other limit as may be prescribed by the Code as it may be amended from time to time. Any portion of an Option which exceeds the annual limit shall not be void but rather shall be a Non-Qualified Stock Option. (b) Date of Grant. Each Agreement shall state the date the Plan Administrator has deemed to be the effective date of the Option for purposes of this Plan (the "Date of Grant"). (c) Option Price. Each Agreement shall state the price per share of Common Stock at which it is exercisable. The exercise price shall be fixed by the Plan Administrator at whatever price the Plan Administrator may determine in the exercise of its sole discretion; provided that the per share exercise price for an Incentive Stock Option shall not be less than the fair market value per share of the Common Stock at the Date of Grant as determined by the Plan Administrator in good faith; provided further, that with respect to Incentive Stock Options granted to greater-than-10 percent (>10%) shareholders of the Company (as determined with reference to Section 424(d) of the Code), the exercise price per share shall not be less than 110 percent (110%) of the fair market value per share of the Common Stock at the Date of Grant as determined by the Plan Administrator in good faith; and, provided further, that Options granted in substitution for outstanding options of another corporation in connection with the merger, consolidation, acquisition of property or stock or other reorganization involving such other corporation and the Company or any subsidiary of the Company may be granted with an exercise price equal to the exercise price for the substituted option of the other corporation, subject to any adjustment consistent with the terms of the transaction pursuant to which the substitution is to occur. (d) Duration of Options. At the time of the grant of the Option, the Plan Administrator shall designate, subject to paragraph 5(g) below, the expiration date of the Option, which date shall not be later than 10 years from the Date of Grant in the case of Incentive Stock Options; provided, that the expiration date of any Incentive Stock Option granted to a greater-than-10 percent (>10%) shareholder of the Company (as determined with reference to Section 424(d) of the Code) shall not be later than five years from the Date of Grant. In the absence of action to the contrary by the Plan Administrator in connection with the grant of a particular Option, and except in the case of Incentive Stock Options as described above, all Options granted under this Section 5 shall expire ten (10) years from the Date of Grant. (e) Vesting Schedule. No Option shall be exercisable until it has vested. The vesting schedule for each Option shall be specified by the Plan Administrator at the time of grant of the Option prior to the provision of services with respect to which such Option is granted; provided, that if no vesting schedule is specified at the time of grant, the Option shall vest according to the following schedule: Number of Years Percentage of Total Following Date of Grant Option Vested One 25% Two 50% Three 75% Four 100% The Plan Administrator may specify a vesting schedule for all or any portion of an Option based on the achievement of performance objectives established in advance of the commencement by the Optionee of services related to the achievement of the performance objectives. Performance objectives shall be expressed in terms of one or more of the following: return on equity, return on assets, share price, market share, sales, earnings per share, costs, net earnings, net worth, inventories, cash and cash equivalents, gross margin or the Company's performance relative to its internal business plan. Performance objectives may be in respect of the performance of the Company as a whole (whether on a consolidated or unconsolidated basis), a Related Corporation, or a subdivision, operating unit, product or product line of either of the foregoing. Performance objectives may be absolute or relative and may be expressed in terms of a progression or a range. An option which is exercisable (in whole or in part) upon the achievement of one or more performance objectives may be exercised only following written notice to the Optionee and the Company by the Plan Administrator that the performance objective has been achieved. (f) Acceleration of Vesting. The vesting of one or more outstanding Options may be accelerated by the Plan Administrator at such times and in such amounts as it shall determine in its sole discretion. The vesting of Options also shall be accelerated under the circumstances described in Sections 5(m) and 5(n) below. (g) Term of Option. Vested Options shall terminate, to the extent not previously exercised, upon the occurrence of the first of the following events: (i) the expiration of the Option, as designated by the Plan Administrator in accordance with Section 5(d) above; (ii) the date of an Optionee's termination of employment or contractual relationship with the Company or any Related Corporation for cause (as determined in the sole discretion of the Plan Administrator); (iii) the expiration of ninety (90) days from the date of an Optionee's termination of employment or contractual relationship with the Company or any Related Corporation for any reason whatsoever other than cause, death or Disability (as defined below) unless, the exercise period is extended by the Plan Administrator until a date not later than the expiration date of the Option; or (iv) the expiration of one year from (A) the date of death of the Optionee or (B) cessation of an Optionee's employment or contractual relationship by reason of Disability (as defined below) unless, the exercise period is extended by the Plan Administrator until a date not later than the expiration date of the Option. If an Optionee's employment or contractual relationship is terminated by death, any Option held by the Optionee shall be exercisable only by the person or persons to whom such Optionee's rights under such Option shall pass by the Optionee's will or by the laws of descent and distribution of the state or county of the Optionee's domicile at the time of death. For purposes of the Plan, unless otherwise defined in the Agreement, "Disability" shall mean any physical, mental or other health condition which substantially impairs the Optionee's ability to perform his or her assigned duties for one hundred twenty (120) days or more in any two hundred forty (240) day period or that can be expected to result in death. The Plan Administrator shall determine whether an Optionee has incurred a Disability on the basis of medical evidence acceptable to the Plan Administrator. Upon making a determination of Disability, the Plan Administrator shall, for purposes of the Plan, determine the date of an Optionee's termination of employment or contractual relationship. Unless accelerated in accordance with Section 5(f) above, unvested Options shall terminate immediately upon termination of employment of the Optionee by the Company for any reason whatsoever, including death or Disability. For purposes of this Plan, transfer of employment between or among the Company and/or any Related Corporation shall not be deemed to constitute a termination of employment with the Company or any Related Corporation. For purposes of this subsection with respect to Incentive Stock Options, employment shall be deemed to continue while the Optionee is on military leave, sick leave or other bona fide leave of absence (as determined by the Plan Administrator). The foregoing notwithstanding, employment shall not be deemed to continue beyond the first ninety (90) days of such leave, unless the Optionee's re-employment rights are guaranteed by statute or by contract. (h) Exercise of Options. Options shall be exercisable, either all or in part, at any time after vesting, until termination; provided, however, that any Optionee who is subject to the reporting and liability provisions of Section 16 of the Exchange Act with respect to the Common Stock shall be precluded from selling or transferring any Common Stock or other security underlying an Option during the six (6) months immediately following the grant of that Option. If less than all of the shares included in the vested portion of any Option are purchased, the remainder may be purchased at any subsequent time prior to the expiration of the Option term. No portion of any Option for less than one hundred (100) shares (as adjusted pursuant to Section 5(m) below) may be exercised; provided, that if the vested portion of any Option is less than one hundred (100) shares, it may be exercised with respect to all shares for which it is vested. Only whole shares may be issued pursuant to an Option, and to the extent that an Option covers less than one (1) share, it is unexercisable. Options or portions thereof may be exercised by giving written notice to the Company, which notice shall specify the number of shares to be purchased, and be accompanied by payment in the amount of the aggregate exercise price for the Common Stock so purchased, which payment shall be in the form specified in Section 5(i) below. The Company shall not be obligated to issue, transfer or deliver a certificate of Common Stock to the Holder of any Option, until provision has been made by the Holder, to the satisfaction of the Company, for the payment of the aggregate exercise price for all shares for which the Option shall have been exercised and for satisfaction of any tax withholding obligations associated with such exercise. During the lifetime of an Optionee, Options are exercisable only by the Optionee or a transferee who takes title to the Option in the manner permitted by Subsection 5(k) hereof. (i) Payment upon Exercise of Option. Upon the exercise of any Option, the aggregate exercise price shall be paid to the Company in cash or by certified or cashier's check. In addition, the Holder may pay for all or any portion of the aggregate exercise price by complying with one or more of the following alternatives: (1) by delivering to the Company shares of Common Stock previously held by such Holder, or by the Company withholding shares of Common Stock otherwise deliverable pursuant to exercise of the Option, which shares of Common Stock received or withheld shall have a fair market value at the date of exercise (as determined by the Plan Administrator) equal to the aggregate exercise price to be paid by the Optionee upon such exercise; (2) by delivering a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds to pay the exercise price; or (3) by complying with any other payment mechanism approved by the Plan Administrator at the time of exercise. (j) Rights as a Shareholder. A Holder shall have no rights as a shareholder with respect to any shares covered by an Option until such Holder becomes a record holder of such shares, irrespective of whether such Holder has given notice of exercise. Subject to the provisions of Sections 5(m) and 5(n) hereof, no rights shall accrue to a Holder and no adjustments shall be made on account of dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights declared on, or created in, the Common Stock for which the record date is prior to the date the Holder becomes a record holder of the shares of Common Stock covered by the Option, irrespective of whether such Holder has given notice of exercise. (k) Transfer of Option. Options granted under this Plan and the rights and privileges conferred by this Plan may not be transferred, assigned, pledged or hypothecated in any manner (whether by operation of law or otherwise) other than by will, by applicable laws of descent and distribution or (except in the case of an Incentive Stock Option) pursuant to a qualified domestic relations order, and shall not be subject to execution, attachment or similar process; provided however, that any Agreement may provide or be amended to provide that the Option to which it relates is transferrable without payment of consideration to immediate family members of the Optionee or to trusts or partnerships established exclusively for the benefit of the Optionee and the Optionee's immediate family members. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any Option or of any right or privilege conferred by this Plan contrary to the provisions hereof, or upon the sale, levy or any attachment or similar process upon the rights and privileges conferred by this Plan, such Option shall thereupon terminate and become null and void. (l) Securities Regulation and Tax Withholding. (1) Shares shall not be issued with respect to an Option unless the exercise of such Option and the issuance and delivery of such shares shall comply with all relevant provisions of law, including, without limitation, any applicable state securities laws, the Securities Exchange Act of 1933, as amended, the Exchange Act, the rules and regulations thereunder and the requirements of any stock exchange upon which such shares may then be listed, and such issuance shall be further subject to the approval of counsel for the Company with respect to such compliance, including the availability of an exemption from registration for the issuance and sale of such shares. The inability of the Company to obtain from any regulatory body the authority deemed by the Company to be necessary for the lawful issuance and sale of any shares under this Plan, or the unavailability of an exemption from registration for the issuance and sale of any shares under this Plan, shall relieve the Company of any liability with respect to the non-issuance or sale of such shares. As a condition to the exercise of an Option, the Plan Administrator may require the Holder to represent and warrant in writing at the time of such exercise that the shares are being purchased only for investment and without any then-present intention to sell or distribute such shares. At the option of the Plan Administrator, a stop-transfer order against such shares may be placed on the stock books and records of the Company, and a legend indicating that the stock may not be pledged, sold or otherwise transferred unless an opinion of counsel is provided stating that such transfer is not in violation of any applicable law or regulation, may be stamped on the certificates representing such shares in order to assure an exemption from registration. The Plan Administrator also may require such other documentation as may from time to time be necessary to comply with federal and state securities laws. THE COMPANY HAS NO OBLIGATION TO UNDERTAKE REGISTRATION OF OPTIONS OR THE SHARES OF STOCK ISSUABLE UPON THE EXERCISE OF OPTIONS. (2) The Holder shall pay to the Company by certified or cashier's check, promptly upon exercise of an Option or, if later, the date that the amount of such obligations becomes determinable, all applicable federal, state, local and foreign withholding taxes that the Plan Administrator, in its discretion, determines to result upon exercise of an Option or from a transfer or other disposition of shares of Common Stock acquired upon exercise of an Option or otherwise related to an Option or shares of Common Stock acquired in connection with an Option. Upon approval of the Plan Administrator, a Holder may satisfy such obligation by complying with one or more of the following alternatives selected by the Plan Administrator: (A) by delivering to the Company shares of Common Stock previously held by such Holder or by the Company withholding shares of Common Stock otherwise deliverable pursuant to the exercise of the Option, which shares of Common Stock received or withheld shall have a fair market value at the date of exercise (as determined by the Plan Administrator) equal to the tax obligation to be paid by the Optionee upon such exercise; provided that if the Holder is an Insider or if beneficial ownership of the shares issuable upon exercise of the Option is attributable to an Insider pursuant to the regulations under Section 16 of the Exchange Act, the Holder will have executed, by a date not later than six (6) months prior to the date of exercise, an irrevocable election to satisfy its obligations under this Paragraph 2 through the Company withholding shares of Common Stock otherwise deliverable pursuant to the exercise of the Option; (B) by executing appropriate loan documents approved by the Plan Administrator by which the Holder borrows funds from the Company to pay the withholding taxes due under this Paragraph 2, with such repayment terms as the Plan Administrator shall select; or (C) by complying with any other payment mechanism approved by the Plan Administrator from time to time. (3) The issuance, transfer or delivery of certificates of Common Stock pursuant to the exercise of Options may be delayed, at the discretion of the Plan Administrator, until the Plan Administrator is satisfied that the applicable requirements of the federal and state securities laws and the withholding provisions of the Code have been met. (m) Stock Dividend, Reorganization or Liquidation. (1) If (i) the Company shall at any time be involved in a transaction described in Section 424(a) of the Code (or any successor provision) or any "corporate transaction" described in the regulations thereunder; (ii) the Company shall declare a dividend payable in, or shall subdivide or combine, its Common Stock or (iii) any other event with substantially the same effect shall occur, the Plan Administrator shall, with respect to each outstanding Option, proportionately adjust the number of shares of Common Stock subject to such Option and/or the exercise price per share so as to preserve the rights of the Holder substantially proportionate to the rights of the Holder prior to such event, and to the extent that such action shall include an increase or decrease in the number of shares of Common Stock subject to outstanding Options, the number of shares available under Section 4 of this Plan and the number of shares of Common Stock underlying Options to be granted pursuant to Section 6 hereof shall automatically be increased or decreased, as the case may be, proportionately, without further action on the part of the Plan Administrator, the Company, the Company's shareholders, or any Holder. (2) If the Company shall at any time declare an extraordinary dividend with respect to the Common Stock, whether payable in cash or other property, the Plan Administrator may, in the exercise of its sole discretion and with respect to each outstanding Option, proportionately adjust the number of shares of Common Stock subject to such Option and/or adjust the exercise price per share so as to preserve the rights of the Holder substantially proportionate to the rights of the Holder prior to such event, and to the extent that such action shall include an increase or decrease in the number of shares of Common Stock subject to outstanding Options, the number of shares available under Section 4 of this Plan and the number of shares of Common Stock underlying Options to be granted pursuant to Section 6 hereof shall automatically be increased or decreased, as the case may be, proportionately, without further action on the part of the Plan Administrator, the Company, the Company's shareholders, or any Holder. (3) If the Company is liquidated or dissolved, the Plan Administrator may allow the Holders of any outstanding Options to exercise all or any part of the unvested portion of the Options held by them; provided, however, that such Options must be exercised prior to the effective date of such liquidation or dissolution. If the Holders do not exercise their Options prior to such effective date, each outstanding Option shall terminate as of the effective date of the liquidation or dissolution. (4) The foregoing adjustments in the shares subject to Options shall be made by the Plan Administrator, or by any successor administrator of this Plan, or by the applicable terms of any assumption or substitution document. (5) The grant of an Option shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge, consolidate or dissolve, to liquidate or to sell or transfer all or any part of its business or assets. (n) Change in Control. (1) Any and all Options that are outstanding under the Plan at the time of occurrence of any of the events described in Subparagraphs (A), (B), (C) and (D) below (an "Eligible Option") shall become immediately vested and fully exercisable for the periods indicated (each such exercise period referred to as an "Acceleration Window"): (A) For a period of forty-five (45) days beginning on the day on which any Person together with all Affiliates and Associates (as such terms are defined below) of such Person shall become the Beneficial Owner (as defined below) of twenty-five percent (25%) or more of the shares of Common Stock then outstanding, but shall not include the Corporation, any subsidiary of the Corporation, any employee benefit plan of the Corporation or of any subsidiary of the Corporation, or any Person or entity organized, appointed or established by the Corporation for or pursuant to the terms of any such employee benefit plan; (B) Beginning on the date that a tender or exchange offer for Common Stock by any Person (other than the Corporation, any subsidiary of the Corporation, any employee benefit plan of the Corporation or of any subsidiary of the Corporation, or any Person or entity organized, appointed or established by the Corporation for or pursuant to the terms of any such employee benefit plan) is first published or sent or given within the meaning of Rule 14d-2 under the Exchange Act and continuing so long as such offer remains open (including any extensions or renewals of such offer), unless by the terms of such offer the offeror, upon consummation thereof, would be the Beneficial Owner of less than thirty percent (30%) of the shares of Common Stock then outstanding; (C) For a period of twenty (20) days beginning on the day on which the shareholders of the Corporation (or, if later, approval by the shareholders of any Person) duly approve any merger, consolidation, reorganization or other transaction providing for the conversion or exchange of more than fifty percent (50%) of the outstanding shares of Common Stock into securities of any Person, or cash, or property, or a combination of any of the foregoing; or (D) For a period of twenty (20) days beginning on the day on which, at any meeting of the shareholders of the Company involving a contest for the election of directors, individuals constituting a majority of the Board of Directors who were not the Board of Director's nominees for election immediately prior to the meeting are elected; provided, however, that with respect to the events specified in Subparagraphs (A), (B) and (C) above, such accelerated vesting shall not occur if the event that would otherwise trigger the accelerated vesting of Eligible Options has received the prior approval of a majority of all of the directors of the Corporation, excluding for such purposes the votes of directors who are directors or officers of, or have a material financial interest in any Person (other than the Corporation) who is a party to the event specified in Subparagraph (A), (B) or (C) above which otherwise would trigger acceleration of vesting and provided, further, that no Option which is to be converted into an option to purchase shares of Exchange Stock as stated at item (3) below shall be accelerated pursuant to this Section 5(n). (2) The exercisability of any Eligible Option which remains unexercised following expiration of an Acceleration Window shall be governed by the vesting schedule and other terms of the Agreement representing such Option. (3) If the shareholders of the Corporation receive shares of capital stock of another Person ("Exchange Stock") in exchange for or in place of shares of Common Stock in any transaction involving any merger, consolidation, reorganization or other transaction providing for the conversion or exchange of all or substantially all outstanding shares of Common Stock into Exchange Stock, then at the closing of such transaction all Options granted hereunder shall be converted into options to purchase shares of Exchange Stock unless the Corporation (by the affirmative vote of a majority of all of the directors of the Corporation, excluding for such purposes the votes of directors who are directors or officers of, or have a material financial interest in the Person issuing the Exchange Stock and any Affiliate of such Person), in its sole discretion, determines that any or all such Options granted hereunder shall not be so converted but instead shall terminate. The amount and price of converted Options shall be determined by adjusting the amount and price of the Options granted hereunder in the same proportion as used for determining the shares of Exchange Stock the holders of the Common Stock received in such merger, consolidation, reorganization or other transaction. Unless altered by the Plan Administrator, the vesting schedule set forth in the Option Agreement shall continue to apply to the Options granted for Exchange Stock. For the purposes of this Subsection 5(n): (i) "Person" shall include any individual, firm, corporation, partnership or other entity; (ii) "Affiliate" and "Associate" shall have the meanings assigned to them in Rule 12b-2 under the Exchange Act; and (iii) "Beneficial Owner" shall have the meaning assigned to it in Rule 16a-1 under the Exchange Act. 6. NON-EMPLOYEE DIRECTORS. Directors who are not also employees of the Company ("Non-Employee Directors") shall be eligible to receive options under the Plan only in accordance with the terms and conditions of this Section 6. (a) Number of Shares and Date of Grant. Concurrent with election to the Board of Directors, and so long as shares are available for grant pursuant to Section 4, each Non-Employee Director shall automatically receive an option to purchase 2,500 shares of Common Stock, subject to adjustment as set forth in Section 5(m) hereof. Every first Wednesday in May for so long as shares are available for grant pursuant to Section 4, each Non- Employee Director who was a director of the Company as of December 31 of the immediately preceding year shall receive an additional option to purchase 2,500 shares of Common Stock, subject to adjustment as set forth in Section 5(m) hereof. In addition, each Non-Employee Director holding office on the date of approval of this Plan by the Company's shareholders shall receive an option (a "Recognition Option") to purchase up to the number of shares of Common Stock equal to the product of (x) 2,500, multiplied by (y) the number of complete years of continuous service of such person as a Non-Employee Director, subject to adjustment as set forth in Section 5(m) hereof. Options granted pursuant to this Section 6 shall be Non-Qualified Stock Options. (b) Option Price. The exercise price of Options granted under this Section 6 shall be the fair market value of the Company's Common Stock on the Date of Grant. For the purposes of this Section, the term "fair market value" on any given day means: (i) if the Common Stock is listed on a national securities exchange, the average of the high and low prices of the Common Stock of the Company on such exchange; or (ii) if the Common Stock is quoted in the over-the-counter securities market, the last sale price of the Common Stock as quoted by NASDAQ National Market System or, if the Common Stock is not quoted in the National Market System, the mean between the closing bid and asked prices of Common Stock as quoted by NASDAQ. (c) Vesting. In order to ensure that the Company will receive the benefits contemplated in exchange for the Options, no Option granted under this Section 6 shall be exercisable until it has vested. Options (other than Recognition Options) shall vest and become exercisable as follows: forty percent (40%) on the Date of Grant; thirty percent (30%) on the first anniversary of the Date of Grant; and thirty percent (30%) on the second anniversary of the Date of Grant. Recognition Options shall vest according to the same schedule but assuming that the Recognition Options had been granted in annual increments of 2,500 shares beginning on the first Wednesday in May of each of the calendar years following the Optionee's initial election to the Board of Directors. (d) Term of Option. Options shall terminate, to the extent not previously exercised, upon the occurrence of the first of the following events: (i) ten (10) years from the Date of Grant; (ii) the expiration of ninety (90) days from the date of Optionee's termination as a Director of the Company for any reason other than death or Disability (as defined below); or (iii) the expiration of one (1) year from the date of death of Optionee or the cessation of Optionee's service as a Director by reason of Disability (as defined below). For purposes of this Section 6, unless otherwise defined in the Agreement, "Disability" shall mean any physical, mental or other health condition which substantially impairs the Optionee's ability to perform his or her duties as a director of the Company for one hundred twenty (120) days or more in any two hundred forty (240) day period or that can be expected to result in death. (e) Other Terms. Except as otherwise provided in this Section 6, all Options granted to Non-Employee Directors shall be subject to the provisions of the Plan, including Section 5. (f) Amendments. The provisions of this Section 6 shall not be amended more than once every six (6) months, other than to comport with changes in the Code, the Employee Retirement Income Security Act, or the rules thereunder. 7. EFFECTIVE DATE; TERM. This Plan shall be effective as of February 15, 1995. Incentive Stock Options may be granted by the Plan Administrator from time to time thereafter until February 14, 2005. Non-Qualified Stock Options may be granted until this Plan is terminated by the Board in its sole discretion. Termination of this Plan shall not terminate any Option granted prior to such termination. Any Options granted by the Plan Administrator prior to the approval of this Plan by the shareholders of the Company shall be granted subject to ratification of this Plan by the shareholders of the Company within twelve (12) months after this Plan is adopted by the Board. The Plan Administrator may require any shareholder approval that it considers necessary for the Company to comply with or to avail the Company and/or the Optionees of the benefits of any securities, tax, market listing or other administrative or regulatory requirement. If such shareholder ratification is sought within twelve (12) months after this Plan is adopted by the Board and such shareholder ratification is not obtained, each and every Option granted under this Plan shall be null and void and shall convey no rights to the Holder thereof. 8. NO OBLIGATIONS TO EXERCISE OPTION. The grant of an Option shall impose no obligation upon the Optionee to exercise such Option. 9. NO RIGHT TO OPTIONS OR TO EMPLOYMENT. Except for the grant of options pursuant to Section 6 hereof, whether or not any Options are to be granted under this Plan shall be exclusively within the discretion of the Plan Administrator, and nothing contained in this Plan shall be construed as giving any person any right to participate under this Plan. The grant of an Option shall in no way constitute any form of agreement or understanding binding on the Company or any Related Company, express or implied, that the Company or any Related Company will employ or contract with an Optionee for any length of time, nor shall it interfere in any way with the Company's or, where applicable, a Related Company's right to terminate Optionee's employment at any time, which right is hereby reserved. 10. APPLICATION OF FUNDS. The proceeds received by the Company from the sale of Common Stock issued upon the exercise of Options shall be used for general corporate purposes, unless otherwise directed by the Board. 11. INDEMNIFICATION OF PLAN ADMINISTRATOR. In addition to all other rights of indemnification they may have as members of the Board, members of the Plan Administrator shall be indemnified by the Company for all reasonable expenses and liabilities of any type or nature, including attorneys' fees, incurred in connection with any action, suit or proceeding to which they or any of them are a party by reason of, or in connection with, this Plan or any Option granted under this Plan, and against all amounts paid by them in settlement thereof (provided that such settlement is approved by independent legal counsel selected by the Company), except to the extent that such expenses relate to matters for which it is adjudged that such Plan Administrator member is liable for willful misconduct; provided, that within fifteen (15) days after the institution of any such action, suit or proceeding, the Plan Administrator member involved therein shall, in writing, notify the Company of such action, suit or proceeding, so that the Company may have the opportunity to make appropriate arrangements to prosecute or defend the same. 12. AMENDMENT OF PLAN. Except as set forth in Section 6 hereof, the Plan Administrator may, at any time, modify, amend or terminate this Plan or modify or amend Options granted under this Plan, including, without limitation, such modifications or amendments as are necessary to maintain compliance with applicable statutes, rules or regulations; provided however, no amendment with respect to an outstanding Option which has the effect of reducing the benefits afforded to the Holder thereof shall be made over the objection of such Holder; further provided, that the events triggering acceleration of vesting of outstanding Options may be modified, expanded or eliminated without the consent of Holders. The Plan Administrator may condition the effectiveness of any such amendment on the receipt of shareholder approval at such time and in such manner as the Plan Administrator may consider necessary for the Company to comply with or to avail the Company and/or the Optionees of the benefits of any securities, tax, market listing or other administrative or regulatory requirement. Without limiting the generality of the foregoing, the Plan Administrator may modify grants to persons who are eligible to receive Options under this Plan who are foreign nationals or employed outside the United States to recognize differences in local law, tax policy or custom. Date Approved by Board of Directors of Company: February 15, 1995. Date Approved by Shareholders of Company: ___________________ EX-99.21995STOCKBONU 3 EXHIBIT B CARVER CORPORATION 1995 STOCK BONUS PLAN This 1995 Stock Bonus Plan (the "Plan") provides for the grant of bonuses consisting of shares of common stock, $.01 par value (the "Common Stock"), of Carver Corporation, a Washington corporation (the "Company"). Bonuses granted under this plan shall be Restricted Bonuses or Unrestricted Bonuses as defined in Section 5(a) of the Plan. 1. PURPOSES. The purposes of this Plan are to reward directors, valued key employees and consultants of the Company and such other persons as the Plan Administrator shall select in accordance with Section 3 below for their services to the Company, to enable such persons to acquire a greater proprietary interest in the Company, thereby strengthening their incentive to achieve the objectives of the shareholders of the Company, and to serve as an aid and inducement in the hiring of new employees. 2. ADMINISTRATION. This Plan shall be administered by the Board of Directors of the Company (the "Board") if each director is a "disinterested person" (as defined below). If all directors are not disinterested persons, the Plan shall be administered by a committee designated by the Board and composed of two (2) or more members of the Board who are disinterested persons, which committee (the "Committee") may be an executive, compensation or other committee, including a separate committee especially created for this purpose. "Disinterested person" shall have the meaning assigned to it under Rule 16b-3 (as amended from time to time) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor rule or regulatory requirement ("Rule 16b-3"). The Committee shall have the powers and authority vested in the Board hereunder (including the power and authority to interpret any provision of this Plan or of any Bonus). The members of any such Committee shall serve at the pleasure of the Board. A majority of the members of the Committee shall constitute a quorum, and all actions of the Committee shall be taken by a majority of the members present. Any action may be taken by a written instrument signed by all of the members of the Committee and any action so taken shall be fully effective as if it had been taken at a meeting. The Board, or any committee thereof appointed to administer the Plan, is referred to herein as the "Plan Administrator". Subject to the provisions of this Plan, and with a view to effecting its purpose, the Plan Administrator shall have sole authority, in its absolute discretion, to (a) construe and interpret this Plan; (b) define the terms used in this Plan; (c) prescribe, amend and rescind rules and regulations relating to this Plan; (d) correct any defect, supply any omission or reconcile any inconsistency in this Plan; (e) determine the individuals to whom Bonuses shall be granted under this Plan and whether the Bonus shall be a Restricted Bonus or an Unrestricted Bonus; (f) determine the time or times at which Bonuses shall be granted under this Plan; (g) determine the number of shares of Common Stock covered by each Bonus; (h) determine all other terms and conditions of Bonuses; and (i) make all other determinations necessary or advisable for the administration of this Plan. All decisions, determinations and interpretations made by the Plan Administrator shall be binding and conclusive on all participants in this Plan and on their legal representatives, heirs and bene- ficiaries. The Plan Administrator shall have no authority, discretion or power to award bonuses hereunder to directors of the Company. Benefits for such persons shall accrue solely in accordance with Section 6 hereof. The Board or the Committee may delegate to one or more executive officers of the Company the authority to grant Bonuses under this Plan to employees of the Company who, on the Date of Grant, are not subject to Section 16(b) of the Exchange Act with respect to the Common Stock ("Non-Insiders"), and in connection therewith the authority to determine the number of shares of Common Stock covered by such Bonus and all other terms and conditions of such Bonuses. Unless expressly approved in advance by the Board or the Committee, such delegation of authority shall not include the authority to alter the terms of outstanding Bonuses. The term "Plan Administrator" when used in any provision of this Plan other than Sections 2 and 12 shall be deemed to refer to the Board or the Committee, as the case may be, and an executive officer who has been authorized to grant Bonuses pursuant hereto, insofar as such provision may be applied to Non-Insiders and Bonuses granted to Non-Insiders. 3. ELIGIBILITY. Bonuses may be granted to any individual who, at the time the Bonus is granted, is an employee of the Company or any Related Corporation (as defined below), including employees who are directors of the Company ("Employees"), and to such other persons as the Plan Administrator shall select. Bonuses shall be granted hereunder to directors who are not employees of the Company or any Related Corporation, but solely on the terms and conditions set forth in Section 6 hereof. During each calendar year of the term of the Plan, no person shall be eligible to receive Bonuses covering more than 100,000 shares of Common Stock (subject to adjustment in the event of a stock split, stock dividend, recapitalization, reorganization or similar event). Any person to whom a Bonus is granted under this Plan is referred to as a "Grantee". As used in this Plan, the term "Related Corporation", shall mean any corporation (other than the Company) that is a "Parent Corporation" of the Company or "Subsidiary Corporation" of the Company, as those terms are defined in Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (or any successor provisions) (the "Code"), and the regulations thereunder (as amended from time to time). 4. STOCK. In each year during the term of the Plan, the Plan Administrator is authorized to grant Bonuses to acquire an amount of shares of the Company's authorized but unissued, or reacquired, Common Stock equal in amount to one percent (1%) of the number of issued and outstanding shares of Common Stock on the record date for the meeting of shareholders of the Company at which this Plan is approved, in the case of 1995, and on January 1 of each year thereafter. The number of shares with respect to which Bonuses may be granted in each year hereunder is subject to adjustment in the event of a stock split, stock dividend, recapitalization, reorganization or similar event. In the event that any outstanding Bonus is forfeited for any reason, the shares of Common Stock allocable to the forfeited portion of such Bonus may again be subject to a Bonus to the same Grantee or to a different person eligible under Section 3 of this Plan. Shares of Common Stock granted to a Grantee pursuant to a Bonus are referred to herein as "Bonus Shares". 5. TERMS AND CONDITIONS OF BONUSES. (a) Grant of Bonus. The Plan Administrator may grant to a Grantee (i) Bonus Shares subject to the restrictions described in Section 5(c) hereof (such grant a "Restricted Bonus" and such shares "Restricted Bonus Shares"); or (ii) Bonus Shares which are not subject to the restrictions described in Section 5(c) hereof (such grant an "Unrestricted Bonus" and such shares "Unrestricted Bonus Shares"). The Grantee shall pay no consideration for Restricted Bonus Shares or Unrestricted Bonus Shares. (b) Bonus Agreement. As soon as practicable after the date of a Bonus grant, the Company and the Grantee shall enter into a written agreement (a "Bonus Agreement") identifying the date of grant, and specifying the terms and conditions of the Bonus. Any Bonus under this Plan shall be governed by the terms of the Plan and the applicable Bonus Agreement. (c) Restricted Bonus Shares. (i) Restrictions. Subject to the provisions of the Plan and the Bonus Agreement, during the period (the "Restriction Period"), if any, set by the Plan Administrator at the time of award of the Bonus (the "Date of Grant"), commencing with, and not exceeding ten (10) years from, the Date of Grant, the Grantee shall not be permitted to sell, assign, transfer, pledge or otherwise encumber Restricted Bonus Shares. Within these limits, the Plan Administrator may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions, in whole or in part, based on service, performance or such other factors or criteria as the Plan Administrator may determine. (ii) Dividends on Restricted Bonus Shares. Unless otherwise determined by the Plan Administrator, with respect to dividends on Restricted Bonus Shares, dividends payable in cash shall be paid to the Grantee and dividends payable in Common Stock shall be paid in the form of Restricted Bonus Shares. The payment of share dividends in additional Restricted Bonus Shares shall only be permissible if sufficient shares of Common Stock are available under Section 4 for such reinvestment. (iii) Termination. Except to the extent otherwise provided in the Bonus Agreement and pursuant to Section 5(c)(i), in the event the Grantee ceases to be, for any reason, employed by, or a consultant to, the Company or a Related Corporation (such event a "Termination") during the Restriction Period, all Restricted Bonus Shares then subject to restriction shall be forfeited by the Grantee. (iv) Escrow and Voting of Restricted Bonus Shares. As soon as practicable following the Grant Date, the appropriate officers of the Company shall prepare, issue and deliver certificate(s) representing Restricted Bonus Shares to the Chief Financial Officer or General Counsel of the Company (the "Administrative Executive") to be held by such person in accordance with this paragraph. Any grant of Restricted Bonus Shares under this Plan shall be made conditioned on the Grantee's delivery to the Administrative Executive of stock power(s) duly transferring ownership of the Restricted Bonus Shares to the Company. The Administrative Executive shall deliver the share certificate(s) and stock power(s) to the Grantee only following the receipt of written certification from the Plan Administrator that the Restricted Period relating to the Restricted Bonus Shares has expired. Pending the delivery of share certificates representing Restricted Bonus Shares to the Grantee as provided in this paragraph 5(c)(iv) or the forfeiture of such shares as provided in paragraph 5(c)(iii), the Grantee shall be entitled to vote such shares. (d) Performance Goals. Any Bonus may be granted either alone or in addition to other Bonuses granted under the Plan. The Plan Administrator may condition the grant of any Bonus upon the attainment of specified performance goals or such other factors or criteria, including continued employment or consulting, as the Plan Administrator shall determine. Performance objectives may vary from Grantee to Grantee and among groups of Grantees and shall be based upon such Company, subsidiary, group or division factors or criteria as the Plan Administrator may deem appropriate, including, but not limited to, earnings per share or return on equity. The other provisions of Bonuses also need not be the same with respect to each recipient. Unless specified otherwise in the Plan or by the Plan Administrator, the date of grant of a Bonus shall be the date of action by the Plan Administrator to grant the Bonus. (e) Right of Repurchase. At the option of the Plan Administrator, Bonus Shares issued under this Plan may be subject to a right of repurchase in favor of the Company upon Termination (as defined in Section 5(c)(iii) hereof) of the Grantee. The terms and conditions of such right of repurchase, if any, shall be set forth in the Bonus Agreement. (f) Securities Regulation and Tax Withholding. (i) Bonus Shares shall not be issued with respect to a Bonus, unless the grant of such Bonus and the issuance and delivery of such Bonus Shares shall comply with all relevant provisions of law, including, without limitation, any applicable state securities laws, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations thereunder and the requirements of any stock exchange or quotation system upon which such Bonus Shares may then be listed or quoted, and such issuance shall be further subject to the approval of counsel for the Company with respect to such compliance, including the availability of an exemption from registration for the issuance of such Bonus Shares. The inability of the Company to obtain from any regulatory body the authority deemed by the Company to be necessary for the lawful issuance of any Bonus Shares under this Plan, or the unavailability of an exemption from registration for the issuance of any Bonus Shares under this Plan, shall relieve the Company of any liability with respect to the non-issuance of such Bonus Shares. As a condition to the issuance of Bonus Shares, the Plan Administrator may require the Grantee to represent and warrant in writing at the time of such issuance that such Bonus Shares are being acquired only for investment and without any then-present intention to sell or distribute such Bonus Shares. At the option of the Plan Administrator, a stop-transfer order against such Bonus Shares may be placed on the stock books and records of the Company, and a legend indicating that the Bonus Shares may not be pledged, sold or otherwise transferred, unless an opinion of counsel is provided stating that such transfer is not in violation of any applicable law or regulation, may be stamped on the certificates representing such Bonus Shares in order to assure an exemption from registration. The Plan Administrator also may require such other documentation as may from time to time be necessary to comply with federal and state securities laws. THE COMPANY HAS NO OBLIGATION TO UNDERTAKE REGISTRATION OF BONUS SHARES. (ii) The Grantee shall pay to the Company by certified or cashier's check, promptly upon grant of a Bonus or, if later, the date that the amount of such obligations becomes determinable (in either case, the "Tax Date"), all applicable federal, state, local and foreign withholding taxes that the Plan Administrator, in its discretion, determines to result upon grant of a Bonus, lapse of restrictions on transfer of Restricted Bonus Shares, transfer or other disposition of Bonus Shares or otherwise related to a Bonus or Bonus Shares. Upon approval of the Plan Administrator, a Grantee may satisfy such obligation by complying with one or more of the following alternatives selected by the Plan Administrator: (A) by delivering to the Company shares of Common Stock previously held by such Grantee or by the Company withholding Bonus Shares otherwise issuable pursuant to the Bonus, which have a fair market value at the Tax Date (as determined by the Plan Administrator) equal to the tax obligation to be paid by the Grantee on such Tax Date; provided, that if the Grantee is an Insider or if beneficial ownership of Bonus Shares is attributable to an Insider pursuant to the regulations under Section 16 of the Exchange Act, the Grantee will have executed, by a date not later than six (6) months prior to the Tax Date, an irrevocable election to satisfy its obligations under this Paragraph (ii) through the Company withholding shares of Common Stock otherwise deliverable pursuant to the Bonus; (B) by executing appropriate loan documents approved by the Plan Administrator by which the Grantee borrows funds from the Company to pay the withholding taxes due under this Paragraph (ii), with such repayment terms as the Plan Administrator shall select; or (C) by complying with any other payment mechanism approved by the Plan Administrator from time to time. (iii) The issuance, transfer or delivery of certificates representing Bonus Shares may be delayed, at the discretion of the Plan Administrator, until the Plan Administrator is satisfied that the applicable requirements of the federal and state securities laws and the withholding provisions of the Internal Revenue Code have been met. (g) Adjustment of Bonuses; Waivers. The Plan Administrator may adjust the restrictions, performance goals and measurements applicable to Bonuses (i) to take into account changes in law and accounting and tax rules; (ii) to make such adjustments as the Plan Administrator deems necessary or appropriate to reflect the inclusion or exclusion of the impact of extraordinary or unusual items, events or circumstances in order to avoid windfalls or hardships; and (iii) to make such adjustments as the Plan Administrator deems necessary or appropriate to reflect any material changes in business conditions. In the event of hardship or other special circumstances of a Grantee and otherwise in its discretion, the Plan Administrator may waive in whole or in part any or all restrictions, conditions, vesting or forfeiture with respect to any Bonus granted to such Grantee. The provisions of this Section 5(g) shall not apply to Bonuses granted under Section 6 hereof. (h) Non-Competition. The Plan Administrator, in addition to any other requirement it may impose, may condition any discretionary adjustment or waiver pursuant Section 5(g) hereof upon a Grantee's agreement to (i) not engage in any business or activity competitive with any business or activity conducted by the Company; and (ii) be available for consultations at the request of the Company's management, all on such terms and conditions (including conditions in addition to (i) and (ii)) as the Plan Administrator may determine. (i) Rights as Shareholder. Unless the Plan or the Plan Administrator expressly specifies otherwise, a Grantee shall have no rights as a shareholder with respect to any Bonus Shares until the issuance (as evidenced by the appropriate entry on the books of the Company or a duly authorized transfer agent) of a certificate representing the Bonus Shares. Subject to Sections 4 and 5(c)(ii), no adjustment shall be made for dividends or other rights for which the record date is prior to the date the certificate is issued. (j) Beneficiary Designation. The Plan Administrator, in its discretion, may establish procedures for a Grantee to designate a beneficiary to whom any Bonus Shares issuable or amounts payable in the event of the Grantee's death are to be issued or paid. (k) Transfer Limitation on Stock. In addition to any other transfer restrictions which may be imposed under the Plan or any Bonus Agreement, a Grantee who is an Insider may not sell or otherwise transfer, in whole or in part, any Bonus Shares prior to the six-month anniversary of the issuance of such Bonus Shares, unless the Plan Administrator determines that the foregoing provisions are not necessary to make the transaction exempt from Section 16(b) of the Exchange Act pursuant to Rule 16b-3. 6. NON-EMPLOYEE DIRECTORS. Directors who are not also employees of the Company ("Non-Employee Directors") shall be eligible to receive Bonuses under the Plan only in accordance with the terms and conditions of this Section 6. On each February 15, May 15, August 15 and November 15, following shareholder approval of this Plan and for so long thereafter as shares are available for grant pursuant to Section 4, each person who served as a Non-Employee Director during the then most recently completed calendar quarter shall receive 250 Bonus Shares. Any person who served as a Non-Employee Director for less than the entire quarter shall receive a pro-rated number of Bonus Shares based on the number of days of service as a Non- Employee Director during such quarter. 7. EFFECTIVE DATE; TERM. This Plan shall be effective as of February 15, 1995. Bonuses may be granted by the Plan Administrator from time to time thereafter until February 15, 2005, or until this Plan is terminated by the Board in its sole discretion. Termination of this Plan shall not terminate any Bonus granted prior to such termination. No Bonuses shall be granted hereunder to directors of the Company pursuant to Section 6 hereof or to Insiders prior to the approval of this Plan by the shareholders of the Company. The Plan Administrator may require any shareholder approval that it considers necessary for the Company to comply with or to avail the Company and/or the Optionees of the benefits of any securities, tax, market listing or other administrative or regulatory requirement. 8. NO OBLIGATIONS TO ACCEPT BONUS SHARES. The grant of an Bonus shall impose no obligation upon the Grantee to receive Bonus Shares. 9. NO RIGHT TO BONUSES OR TO EMPLOYMENT. Except for the grant of Bonuses pursuant to Section 6 hereof, whether or not any Bonuses are to be granted under this Plan shall be exclusively within the discretion of the Plan Administrator, and nothing contained in this Plan shall be construed as giving any person any right to participate under this Plan. The grant of a Bonus shall in no way constitute any form of agreement or understanding binding on the Company or any Related Corporation, express or implied, that the Company or any Related Corporation will employ or contract with a Grantee for any length of time, nor shall it interfere in any way with the Company's or, where applicable, a Related Corporation's right to terminate a Grantee's employment at any time, which right is hereby reserved. 10. RULE 16b-3. With respect to Insiders, transactions under this Plan are intended to comply with the applicable conditions of Rule 16b-3. To the extent any provision of this Plan or action by the Plan Administrator fails to so comply, it shall be adjusted to comply with Rule 16b-3 to the extent permitted by law and deemed advisable by the Plan Administrator. It shall be the responsibility of Insiders and not of the Company or the Plan Administrator, to comply with the requirements of Section 16 of the Exchange Act; and neither the Company nor the Plan Administrator shall be liable if this Plan or any transaction under this Plan fails to comply with the applicable conditions of Rule 16b-3, or if any Insider incurs any liability under Section 16 of the Exchange Act. 11. INDEMNIFICATION OF PLAN ADMINISTRATOR. In addition to all other rights of indemnification they may have as members of the Board, members of the Plan Administrator shall be indemnified by the Company for all reasonable expenses and liabilities of any type or nature, including attorneys' fees, incurred in connection with any action, suit or proceeding to which they or any of them are a party by reason of, or in connection with, this Plan or any Bonus granted under this Plan, and against all amounts paid by them in settlement thereof (provided that such settlement is approved by independent legal counsel selected by the Company), except to the extent that such expenses relate to matters for which it is adjudged that such Plan Administrator member is liable for willful misconduct; provided, that within fifteen (15) days after the institution of any such action, suit or proceeding, the Plan Administrator member involved therein shall, in writing, notify the Company of such action, suit or proceeding, so that the Company may have the opportunity to make appropriate arrangements to prosecute or defend the same. 12. AMENDMENT OF PLAN. Except as set forth in Section 6 hereof, the Plan Administrator may, at any time, modify, amend or terminate this Plan or modify or amend Bonuses granted under this Plan, including, without limitation, such modifications or amendments as are necessary to maintain compliance with applicable statutes, rules or regulations; provided, however, no amendment with respect to an outstanding Bonus which has the effect of reducing the benefits afforded to the Grantee thereof shall be made over the objection of such Grantee. The Plan Administrator may condition the effectiveness of any such amendment on the receipt of shareholder approval at such time and in such manner as the Plan Administrator may consider necessary for the Company to comply with or to avail the Company and/or the Optionees of the benefits of any securities, tax, market listing or other administrative or regulatory requirement. Without limiting the generality of the foregoing, the Plan Administrator may modify grants to persons who are eligible to receive Bonuses under this Plan who are foreign nationals or employed outside the United States to recognize differences in local law, tax policy or custom. 13. UNFUNDED STATUS OF PLAN. The Plan shall constitute an "unfunded" plan for incentive compensation. The Plan Administrator may authorize the creation of trusts or arrangements to meet the obligations created under the Plan to deliver Stock or make payments; provided, however, that unless the Plan Administrator otherwise determines, the existence of such trusts or other arrangements shall be consistent with the "unfunded" status of the Plan. Date Approved by Board of Directors of Company: February 15, 1995. Date Approved by Shareholders of Company: _______________. -----END PRIVACY-ENHANCED MESSAGE-----