SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ______________)
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
Clarify Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ No fee required.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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[LOGO]
CLARIFY INC.
2125 O'Nel Drive
San Jose, California 95131
May 5, 1997
TO THE STOCKHOLDERS OF CLARIFY INC.
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Clarify Inc. (the "Company"), which will be held at the offices of the
Company, 2125 O'Nel Drive, San Jose, CA 95131, on Wednesday, June 11, 1997, at
10:00 a.m.
Details of the business to be conducted at the Annual Meeting are given
in the attached Proxy Statement and Notice of Annual Meeting of Stockholders.
It is important that your shares be represented and voted at the
meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. Returning the proxy does NOT deprive you of your right to
attend the Annual Meeting. If you decide to attend the Annual Meeting and wish
to change your proxy vote, you may do so automatically by voting in person at
the meeting.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the Company. We look
forward to seeing you at the Annual Meeting.
Sincerely,
David A. Stamm
President and Chief Executive Officer
<PAGE>
[LOGO]
CLARIFY INC.
2125 O'Nel Drive
San Jose, California 95131
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held June 11, 1997
The Annual Meeting of Stockholders ("Annual Meeting") of Clarify Inc.
(the "Company") will be held at the offices of the Company, 2125 O'Nel Drive,
San Jose, CA 95131, on Wednesday, June 11, 1997, at 10:00 a.m. for the following
purposes:
1. To elect five directors of the Board of Directors to serve until the
next Annual Meeting or until their successors have been duly elected and
qualified;
2. To approve an amendment to the Company's Certificate of
Incorporation increasing the number of shares of the Company's Common Stock
reserved for issuance thereunder by 30,000,000 shares;
3. To approve amendments to the 1995 Stock Option/Stock Issuance Plan,
which would among other things, provide for automatic annual increases in the
share reserve beginning in 1998 and continuing through 2000, as set forth in the
accompanying proxy;
4. To approve amendments to the Employee Stock Purchase Plan, including
an increase by 500,000 shares to the number of shares available, as set forth in
the accompanying proxy;
5. To ratify the appointment of Coopers & Lybrand L.L.P. as the
Company's independent public accountants for the fiscal year ending December 31,
1997; and
6. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the
attached Proxy Statement.
Only stockholders of record at the close of business on April 30, 1997
are entitled to notice of, and to vote at, the Annual Meeting and at any
adjournments or postponements thereof. A list of such stockholders will be
available for inspection at the Company's headquarters located at 2125 O'Nel
Drive, San Jose, California, during ordinary business hours for the ten-day
period prior to the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
David A. Stamm
President and Chief Executive Officer
San Jose, California
May 5, 1997
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IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING. IF
YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU
MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE MEETING.
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<PAGE>
CLARIFY INC.
2125 O'Nel Drive
San Jose, California 95131
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
To be held June 11, 1997
These proxy materials are furnished in connection with the solicitation
of proxies by the Board of Directors of Clarify Inc., a Delaware corporation
(the "Company"), for the Annual Meeting of Stockholders (the "Annual Meeting")
to be held at the offices of the Company, 2125 O'Nel Drive, San Jose, CA 95131,
on Wednesday, June 11, 1997, at 10:00 a.m., and at any adjournment or
postponement of the Annual Meeting. These proxy materials were first mailed to
stockholders on or about May 5, 1997.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
The Company's Common Stock is the only type of security entitled to
vote at the Annual Meeting. On April 30, 1997, the record date for determination
of stockholders entitled to vote at the Annual Meeting, there were [_________]
shares of Common Stock outstanding. Each stockholder of record on April 30, 1997
is entitled to one vote for each share of Common Stock held by such stockholder
on April 30, 1997. Shares of Common Stock may not be voted cumulatively. All
votes will be tabulated by the inspector of election appointed for the meeting,
who will separately tabulate affirmative and negative votes, abstentions and
broker non-votes.
Quorum Required
The Company's bylaws provide that the holders of a majority of the
Company's Common Stock issued and outstanding and entitled to vote at the Annual
Meeting, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at the Annual Meeting. Abstentions and broker
non-votes will be counted as present for the purpose of determining the presence
of a quorum.
Votes Required
Proposal 1. Directors are elected by a plurality of the affirmative
votes cast by those shares present in person, or represented by proxy, and
entitled to vote at the Annual Meeting. The five nominees for director receiving
the highest number of affirmative votes will be elected. Abstentions and broker
non-votes are not counted toward a nominee's total. Stockholders may not
cumulate votes in the election of directors.
Proposal 2. Approval of the adoption of the amendment to the Company's
Certificate of Incorporation requires the affirmative vote of a majority of the
outstanding shares of the Company's Common Stock. Abstentions and broker
non-votes are not affirmative votes, and therefore, will have the same effect as
votes against the proposal.
Proposal 3. Approval of the amendment to the Company's 1995 Stock
Option/Stock Issuance Plan requires the affirmative vote of a majority of the
Company's Common Stock issued and outstanding and entitled to vote at the Annual
Meeting. Abstentions are not affirmative votes and, therefore, will have the
same effect as a vote
<PAGE>
against the proposal. Broker non-votes will not be treated as entitled to vote
on the matter and thus will not affect the outcome of the voting on the
proposal.
Proposal 4. Approval of the amendment to the Company's Employee Stock
Purchase Plan requires the affirmative vote of a majority of the Company's
Common Stock issued and outstanding and entitled to vote at the Annual Meeting.
Abstentions are not affirmative votes and, therefore, will have the same effect
as a vote against the proposal. Broker non-votes will not be treated as entitled
to vote on the matter and thus will not affect the outcome of the voting on the
proposal.
Proposal 5. Ratification of the appointment of Coopers & Lybrand L.L.P.
as the Company's independent public accountants for the fiscal year ending
December 31, 1997 requires the affirmative vote of a majority of those shares
present in person, or represented by proxy, and cast either affirmatively or
negatively at the Annual Meeting. Abstentions and broker non-votes will not be
treated as entitled to vote on the proposal.
Proxies
Whether or not you are able to attend the Company's Annual Meeting, you
are urged to complete and return the enclosed proxy, which is solicited by the
Company's Board of Directors and which will be voted as you direct on your proxy
when properly completed. In the event no directions are specified, such proxies
will be voted FOR the proposals set forth in this Proxy Statement and in the
discretion of the proxy holders as to other matters that may properly come
before the Annual Meeting. You may also revoke or change your proxy at any time
before the Annual Meeting. To do this, send a written notice of revocation or
another signed proxy with a later date to the Secretary of the Company at the
Company's principal executive offices before the beginning of the Annual
Meeting. You may also automatically revoke your proxy by attending the Annual
Meeting and voting in person. All shares represented by a valid proxy received
prior to the Annual Meeting will be voted.
Solicitation of Proxies
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing, and mailing of this Proxy Statement, the proxy,
and any additional soliciting material furnished to stockholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs of
forwarding the solicitation material to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram, or other means by directors, officers, employees or agents
of the Company. No additional compensation will be paid to these individuals for
any such services. The Company has also retained Corporate Investor
Communications, Inc. ("CIC") to assist in the solicitation of proxies. CIC will
receive a fee for such services of approximately $4,500 plus out-of-pocket
expenses, which will be paid by the Company. Except as described above, the
Company does not presently intend to solicit proxies other than by mail.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The directors who are being nominated for reelection to the Board of
Directors (the "Nominees"), their ages as of April 30, 1997, their positions and
offices held with the Company and certain biographical information are set forth
below. The proxy holders intend to vote all proxies received by them in the
accompanying form FOR the Nominees listed below unless otherwise instructed. In
the event any Nominee is unable or declines to serve as a director at the time
of the Annual Meeting, the proxies will be voted for any nominee who may be
designated by the present Board of Directors to fill the vacancy. As of the date
of this Proxy Statement, the Board of Directors is not aware of any Nominee who
is unable or will decline to serve as a director. The five (5) Nominees
receiving the
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<TABLE>
highest number of affirmative votes of the shares entitled to vote at the Annual
Meeting will be elected directors of the Company to serve until the next Annual
Meeting or until their successors have been duly elected and qualified.
<CAPTION>
Nominees Age Positions and Offices Held with the Company
- -------------------------------- ------- ----------------------------------------------------------------
<S> <C> <C>
James L. Patterson (2) 59 Chairman of the Board
David A. Stamm(3) 44 President, Chief Executive Officer and Director
Thomas H. Bredt (2) 56 Director
Mary Jane Elmore (1) 43 Director
Frederick Fluegel (1) 57 Director
<FN>
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Stock Option Committee
</FN>
</TABLE>
Mr. Patterson has served as Chairman of the Board of the Company since
April 1991. From May 1985 to June 1995, Mr. Patterson served as a director of
Weitek Inc., a semiconductor company. Mr. Patterson has been an independent
consultant since June 1987. Mr. Patterson is also a director of Aspect
Telecommunications Corp., a provider of call transmission processing systems.
Mr. Patterson holds a B.S.E.E. degree in electrical engineering from the
University of Colorado.
Mr. Stamm co-founded the Company in August 1990. Since that time he has
served as President, Chief Executive Officer and Director of the Company. Mr.
Stamm also co-founded Daisy Systems Corporation ("Daisy"), a computer-aided
engineering hardware and software company, in August 1980, and served in a
variety of executive positions with Daisy through late 1988, most recently as
Executive Vice President, and served as a director until late 1989. Prior to
joining Daisy, Mr. Stamm was employed by Intel Corporation, a semiconductor
company, for seven years. Mr. Stamm holds a B.S.E.E. degree from Purdue
University and holds a patent on single-chip microprocessor technology.
Mr. Bredt has been a director of the Company since February 1991. Mr.
Bredt has been a general partner of MV Management IV, L.P., the general partner
of Menlo Ventures IV, L.P., a venture capital partnership, since April 1986. Mr.
Bredt is also a director of Interlink Computer Sciences, Inc., a computer
software and hardware company, and Red Brick Systems, Inc., a data warehousing
company. Mr. Bredt holds a B.S.E. degree in science engineering from the
University of Michigan, an M.E.E. degree in electrical engineering from New York
University and a Ph.D. degree in computer science from Stanford University.
Ms. Elmore has been a director of the Company since February 1991. Ms.
Elmore has been a general partner of Institutional Venture Management IV, the
general partner of Institutional Venture Partners IV, a venture capital
partnership, since 1983. Ms. Elmore is also a director of Storm Technology,
Inc., a provider of digital photo solutions. Ms. Elmore holds a B.S. degree in
mathematics from Purdue University and an M.B.A. from Stanford University.
Mr. Fluegel has been a director of the Company since February 1991. Mr.
Fluegel has been a general partner of Matrix Partners, a group of venture
capital funds since February 1982. Mr. Fluegel is also a director of FileNet
Corp., a company that provides workflow and document imaging software. Mr.
Fluegel holds a B.S. degree in engineering from the U.S. Naval Academy and an
M.S. degree in business administration from University of California at Irvine.
Board of Directors Meetings and Committees
During the fiscal year ended December 31, 1996, the Board of Directors
held ten (10) meetings and acted by written consent on one (1) occasion. For the
fiscal year, each of the directors during the term of their tenure
3
<PAGE>
attended or participated in at least 75% of the aggregate of (i) the total
number of meetings or actions by written consent of the Board of Directors and
(ii) the total number of meetings held by all Committees of the Board of
Directors on which each such director served. The Board of Directors has three
standing committees: the Audit Committee, the Compensation Committee, and the
Stock Option Committee.
During the fiscal year ended December 31, 1996, the Audit Committee of
the Board of Directors met one (1) time. The Audit Committee reviews, acts on
and reports to the Board of Directors with respect to various auditing and
accounting matters, including the selection of the Company's auditors, the scope
of the annual audits, fees to be paid to the Company's auditors, the performance
of the Company's auditors and the accounting practices of the Company. The
members of the Audit Committee are Ms. Elmore and Mr. Fluegel.
During the fiscal year ended December 31, 1996, the Compensation
Committee of the Board of Directors met three (3) times. The Compensation
Committee reviews the performance of the executive officers of the Company and
reviews the compensation programs for other key employees, including salary and
cash bonus levels and administers the 1995 Stock Option/Stock Issuance Plan. The
members of the Compensation Committee are Messrs. Bredt and Patterson.
During the fiscal year ended December 31, 1996, the Stock Option
Committee of the Board of Directors acted by written consent 62 times. The Stock
Option Committee has the authority to make option grants under the 1995 Stock
Option/Stock Issuance Plan to non-officers of the Company. The sole member of
the Stock Option Committee is Mr. David Stamm.
Director Compensation
Except for grants of stock options, directors of the Company generally
do not receive compensation for services provided as a director. The Company
also does not pay compensation for committee participation or special
assignments of the Board of Directors, except for reimbursement of their
expenses in attending Board and committee meetings.
Non-employee Board members are eligible for option grants pursuant to
the provisions of the Automatic Option Grant Program under the Company's 1995
Stock Option/Stock Issuance Plan. On June 25, 1996, Messrs. Patterson, Bredt,
and Fluegel and Ms. Elmore were each granted an option to purchase 6,000 shares
at an exercise price of $23.00 per share under the Automatic Option Grant
Program. Under the Automatic Option Grant Program, non-employee Board members
will receive option grants at specified intervals over their period of Board
service. These special grants may be summarized as follows:
o Each individual who was a non-employee Board member on the date of the
initial public offering and each individual who becomes a non-employee
Board member after such date, whether through election by the stockholders
or appointment by the Board, will automatically be granted, at the time of
the offering or if later, at the time of such initial election or
appointment, a non-statutory stock option to purchase 10,000 shares of
Common Stock.
o On the date of each Annual Stockholders Meeting beginning with the 1996
Annual Meeting, each individual who continues to serve as a non-employee
Board member will receive an additional grant of a non-statutory stock
option under the Option Plan to purchase 6,000 shares of Common Stock,
provided such individual has been a member of the Board for at least six
months.
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<PAGE>
Non-employee members of the Board not serving on the Compensation
Committee and directors who are employees of the Company are eligible to receive
options and be issued shares of Common Stock directly under the 1995 Stock
Option/Stock Issuance Plan. A director who is also an employee of the Company,
is eligible to participate in the Company's Employee Stock Purchase Plan and, if
an executive officer of the Company, the Executive Bonus Plan.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED HEREIN.
5
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
<TABLE>
The following table sets forth, as of March 31, 1997, certain
information with respect to shares beneficially owned by (i) each person who is
known by the Company to be the beneficial owner of more than five percent of the
Company's outstanding shares of Common Stock, (ii) each of the Company's
directors and the executive officers named in the Summary Compensation Table and
(iii) all current directors and executive officers as a group. Beneficial
ownership has been determined in accordance with Rude 13d-3 under the Exchange
Act. Under this rule, certain shares may be deemed to be beneficially owned by
more than one person (if, for example, persons share the power to vote or the
power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire shares
(for example, upon exercise of an option or warrant) within (60) days of the
date as of which the information is provided and in computing the percentage
owned by such person (and only such person) by reason of such acquisition
rights. As a result, the percentage of outstanding shares of any person as shown
in the following table does not necessarily reflect the person's actual voting
power at any particular date.
<CAPTION>
5% Stock holders, Directors, Named Officers Shares Beneficially Percent Beneficially
and Officers and Directors as a Group Owned(1) Owned(1)
------------------------------------- -------- --------
<S> <C> <C>
Putnam Investments, Inc. (2)............... 2,398,591 11.55%
One Post Office Square
Boston, MA 02109
Warburg, Pincus Counsellors, Inc. (3) ..... 2,252,566 10.85
466 Lexington Avenue
New York, NY 10017
FMR Corp (4)............................... 1,299,000 6.26
82 Devonshire Street
Boston, MA 02109
David A. Stamm (5)......................... 1,681,122 8.10
c/o Clarify Inc.
2125 O'Nel Drive
San Jose, California 95131
Thomas H. Bredt (6)........................ 106,606 *
Mary Jane Elmore (7)....................... 414,584 2.00
Frederick Fluegel (8)...................... 116,382 *
James L. Patterson (9)..................... 221,974 1.07
Donna J.H. Novitsky (10)................... 289,945 1.40
Randy Raynor (11).......................... 200,429 *
Ray M. Fritz (12).......................... 121,048 *
Robert A. Spinner (13)..................... 166,098 *
All current officers and directors as a
group (14)................................. 3,475,631 16.74
<FN>
- ----------
* Less than 1%
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.
(2) Includes (i) 2,344,991 shares held by Putnam Investment Management, Inc.
("PIM") and (ii) 53,600 shares held by Putnam Advisory Company, Inc.
("PAC"), two wholly-owned subsidiaries and registered advisors of Putnam
Investments, Inc. ("PI"), which is a wholly-owned subsidiary of Marsh &
McLennan Companies, Inc. ("MMC").
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<PAGE>
(3) Includes shares owned on behalf of another person where Warburg, Pincus
Counsellors, Inc. serves as Investment Advisor to many accounts. None of
these accounts, individually, own more than 5% of the Company's Common
Stock.
(4) Includes (i) 916,200 shares held by Fidelity Management & Research Company
("Fidelity") and a wholly-owned subsidiary and investment advisor of FMR
Corp. and (ii) 382,800 shares held by Fidelity Management Trust Company, a
bank, and wholly-owned subsidiary and institutional account investment
manager of FMR Corp.
(5) Includes (i) 5,000 shares held by Mr. Stamm's 2 daughters and (ii) 20,000
shares of Common Stock issuable pursuant to options exercisable within 60
days of March 31, 1997.
(6) Includes (i) 5,000 shares of Common Stock issuable pursuant to currently
exercisable options and (ii) 26,666 shares held by Menlo Ventures. Mr.
Bredt, a director of the Company, is a general partner of MV Management IV,
L.P. ("MV Management"), the general partner of Menlo Ventures IV. L.P.
("Menlo Ventures"). Mr. Bredt disclaims beneficial ownership of the shares
held by Menlo Ventures and its affiliated entities except to the extent of
his pecuniary interest therein arising from his general partnership
interest in MV Management.
(7) Includes (i) 5,000 shares of Common Stock issuable pursuant to a currently
exercisable option and (ii) 349,176 shares held by Institutional Venture
Partners IV ("IVM IV") and (iii) 5,318 shares held by Institutional Venture
Management IV ("IVM IV"). Ms. Elmore, a director of the Company, is a
general partner of IVM IV, which is the general partner of IVP IV. Ms.
Elmore disclaims beneficial ownership of shares held by IVP IV and persons
and entities affiliated therewith except to the extent of her individual
share ownership and her pecuniary interest in IVM IV.
(8) Includes 5,000 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 31, 1997.
(9) Includes 28,223 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 31, 1997.
(10) Includes 16,666 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 31, 1997.
(11) Includes 75,800 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 31, 1997.
(12) Includes 13,332 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 31, 1997.
(13) Includes 126,598 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 31, 1997.
(14) Includes 333,951 shares of Common Stock issuable pursuant to options
exercisable within 60 days of March 31, 1997.
</FN>
</TABLE>
7
<PAGE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Company's Board of Directors (the
"Compensation Committee") has the exclusive authority to establish the level of
base salary payable to the Chief Executive Officer ("CEO") and the executive
officers of the Company and to administer the Company's 1995 Stock Option/Stock
Issuance Plan and Employee Stock Purchase Plan. In addition, the Committee has
the responsibility for approving the individual bonus programs to be in effect
for the CEO and the other executive officers and certain key employees each
fiscal year.
For the 1996 fiscal year, the process utilized by the Committee in
determining executive officer compensation levels took into account both
qualitative and quantitative factors. Among the factors considered by the
Committee were survey data disclosing executive compensation programs in place
at similar-size companies and the recommendations of the Company's CEO. However,
the Committee made the final compensation decisions concerning such officers.
General Compensation Policy. The Committee's fundamental policy is to
offer the Company's executive officers competitive compensation opportunities
based upon overall Company performance, their individual contribution to the
financial success of the Company and their personal performance. It is the
Committee's objective to have a substantial portion of each officer's
compensation contingent upon the Company's performance, as well as upon his or
her own level of performance. Accordingly, each executive officer's compensation
package consists of: (i) base salary, (ii) cash bonus awards and (iii) long-term
stock-based incentive awards.
Base Salary. The base salary for each executive officer is set on the
basis of personal performance and the salary level in effect for comparable
positions at companies that compete for executive talent on the basis of
executive management surveys conducted by the Company.
Annual Cash Bonuses. Each executive officer has an established target.
The annual pool of bonuses for executive officers is determined on the basis of
the Company's achievement of the financial performance targets established at
the start of the fiscal year, a range for the executive's contribution and a
measure of customer satisfaction. For the 1996 fiscal year, the Company exceeded
its performance targets and bonuses were paid in amounts greater than targeted
bonus amounts. Actual bonuses paid reflect an individual's accomplishment of
both corporate and functional objectives, with greater weight being given to
achievement of corporate rather than functional objectives. Each year, the
annual incentive plan is reevaluated with a new achievement threshold and new
targets for revenue and profit.
Long-Term Incentive Compensation. During fiscal 1996, the Committee, in
its discretion, made option grants to Messrs. Fritz, Spinner, Raynor, and Ms.
Novitsky under the 1995 Stock Option/Stock Issuance Plan. Generally, a
significant grant is made in the year that an officer commences employment and
no grant is made in the second year. Grants may or may not be made in subsequent
years. Generally, the size of the initial grant and each subsequent grant is set
at a level that the Committee deems appropriate to create a meaningful
opportunity for stock ownership based upon the individual's position with the
Company, the individual's potential for future responsibility and promotion and,
for subsequent grants, the individual's performance in the recent period and the
number of unvested options held by the individual at the time of the new grant.
The relative weight given to each of these factors will vary from individual to
individual at the Committee's discretion.
Each grant allows the officer to acquire shares of the Company's Common
Stock at a fixed price per share (the market price on the grant date) over a
specified period of time. The option vests in periodic installments over a two
to five year period, contingent upon the executive officer's continued
employment with the Company and the vesting schedule is adjusted to reflect
existing grants to ensure a meaningful incentive in each year following the year
of grant. Accordingly, the option will provide a return to the executive officer
only if he or she remains in the
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<PAGE>
Company's employ, and then only if the market price of the Company's Common
Stock appreciates over the option term.
CEO Compensation. The annual base salary for Mr. Stamm, the Company's
President and Chief Executive Officer, was established by the Committee in
February 1994 and increased in October 1996. The Committee's decision was made
primarily on the basis of Mr. Stamm's personal performance of his duties.
The remaining components of the Chief Executive Officer's 1996 fiscal
year incentive compensation were entirely dependent upon the Company's financial
performance and provided no dollar guarantees. The bonus paid to the Chief
Executive Officer for the fiscal year 1996 was based on the same incentive plan
as all other officers. An option grant was made to the Chief Executive Officer
during the 1996 fiscal year and was intended to reflect his years of service
with the Company and to place a significant portion of his total compensation at
risk, because the options will have no value unless there is appreciation in the
value of the Company's Common Stock over the option term.
Tax Limitation. As a result of federal tax legislation enacted in 1993,
a publicly-held company such as the Company will not be allowed a federal income
tax deduction for compensation paid to certain executive officers to the extent
that compensation exceeds $1 million per officer in any year. This limitation
will be in effect for all fiscal years of the Company after the Company's
initial public offering. The stockholders approved the Company's 1995 Stock
Option/Stock Issuance Plan, which includes a provision that limits the maximum
number of shares of Common Stock for which any one participant may be granted
stock options over the term of the plan. Accordingly, any compensation deemed
paid to an executive officer upon the exercise of an outstanding option under
the 1995 Stock Option/Stock Issuance Plan with an exercise price equal to the
fair market value of the option shares on the grant date will qualify as
performance-based compensation that will not be subject to the $1 million
limitation. Since it is not expected that the cash compensation to be paid to
the Company's executive officers for the 1997 fiscal year will exceed the $1
million limit per officer, the Committee will defer any decision on whether to
limit the dollar amount of all other compensation payable to the Company's
executive officers to the $1 million cap.
Compensation Committee
James L. Patterson
Thomas H. Bredt
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors was
formed in July 1993, and the members of the Compensation Committee are Messrs.
Patterson and Bredt. Neither of these individuals was at any time during 1996,
or at any other time, an officer or employee of the Company. No executive
officer of the Company serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
9
<PAGE>
STOCK PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder
return on the Company's Common Stock between November 3, 1995 (the date the
Company's Common Stock commenced public trading) and December 31, 1996 with the
cumulative total return of (i) the CRSP Total Return Index for the Nasdaq Stock
Market (U.S. Companies) (the "Nasdaq Stock Market-U.S. Index") and (ii) the
Hambrecht & Quist Software Sector Index (the "H&Q Software Sector Index"), over
the same period. This graph assumes the investment of $100.00 on November 3,
1995 in the Company's Common Stock, the Nasdaq Stock Market-U.S. Index and the
H&Q Software Sector Index, and assumes the reinvestment of dividends, if any.
The comparisons shown in the graph below are based upon historical data
and the Company cautions that the stock price performance shown in the graph
below is not indicative of, nor intended to forecast, the potential future
performance of the Company's Common Stock. Information used in the graph was
obtained from Hambrecht & Quist LLC, a source believed to be reliable, but the
Company is not responsible for any errors or omissions in such information.
Comparison of Cumulative Total Return Among Clarify Inc.,
the Nasdaq Stock Market-U.S. Index and the H&Q Software Sector Index
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
Cumulative Total Return
-------------------------------------------------
11/03/95 12/95 12/96
-------- ----- -----
CLARIFY INC. 100 135 431
NASDAQ STOCK MARKET--US 100 99 122
HAMBRECHT & QUIST COMPUTER 100 96 116
Notwithstanding anything to the contrary set forth in any of the
Company's previous or future filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, that might
incorporate this Proxy Statement or future filings made by the Company under
those statutes, the Compensation Committee Report and Stock Performance Graph
are not deemed filed with the Securities and Exchange Commission and shall not
be deemed incorporated by reference into any of those prior filings or into any
future filings made by the Company under those statutes.
10
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following Summary Compensation Table sets forth the compensation
earned by the Company's Chief Executive Officer and four (4) other executive
officers who were serving as such at the end of the fiscal year each of whose
salary and bonus for fiscal year 1996 exceeded $100,000 for services rendered in
all capacities to the Company and its subsidiaries for that fiscal year
(collectively, the "Named Officers").
<TABLE>
Summary Compensation Table
<CAPTION>
Long-Term
Compensation
------------
Awards
------
Annual Compensation Securities
------------------- Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Options(#) Compensation(1)
--------------------------- ---- --------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
David A. Stamm 1996 $173,269 $111,540 35,000 $336
President and Chief 1995 $139,706 $158,834 20,000 $600
Executive Officer 1994 $141,458 0 0 $600
Ray M. Fritz 1996 $143,129 $56,784 15,000 $313
Vice President, Finance 1995 $128,422 $83,751 13,332 $626
and Chief Financial 1994 $46,654 $10,000 146,666 $209
Officer
Donna J. H. Novitsky 1996 $139,850 $55,770 15,000 $313
Vice President, 1995 $130,311 $57,949 16,666 $626
Marketing 1994 $122,634 $22,000 80,000 $569
Randy Raynor 1996 $149,623 $59,826 5,000 $339
Vice President, 1995 $141,006 $62,705 80,000 $677
Engineering 1994 $134,966 $12,000 0 $600
Robert A. Spinner 1996 $308,426 $27,040 22,500 $327
Vice President, Sales 1995 $296,695 $47,750 33,332 $670
1994 0 0 166,666 0
<FN>
(1) Represents life insurance premiums paid by the Company.
</FN>
</TABLE>
11
<PAGE>
Option Grants in Last Fiscal Year
<TABLE>
The following table contains information concerning the stock option grants
made to each of the Named Officers in fiscal year 1996. No stock appreciation
rights were granted to these individuals during such year.
<CAPTION>
Potential
Realizable Value at
Number of Individual Grant Assumed Annual
Securities ---------------- Rates of Stock
Underlying % of Total Price Appreciation
Options Options Granted Exercise for Option Term
Granted to Employees or Base Expiration ---------------
Name (#)(2) in 1996(1) Price ($/Sh) Date 5% ($) 10% ($)
- ------------------- ---------- --------------- -------------------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
David A. Stamm..... 35,000 2.62 51.875 12/04/06 1,141,837 2,893,634
Ray M. Fritz....... 15,000 1.12 51.875 12/04/06 489,359 1,267,484
Donna J.H. Novitsky 15,000 1.12 51.875 12/04/06 489,359 1,267,484
Randy Raynor....... 5,000 0.37 51.875 12/04/06 163,120 413,377
Robert A. Spinner.. 22,500 1.68 51.875 12/04/06 734,038 1,860,196
<FN>
- ----------
(1) The Company granted options to employees to purchase 1,335,829 shares of
Common Stock in 1996. Options become exercisable to the extent of 25% after
one year from the vesting commencement date and the remainder in a series
of equal monthly installments over a period of 36 months. The exercise
price for each option may be paid in cash, in shares of Common Stock valued
at fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company
may also finance the option exercise by loaning the optionee sufficient
funds to pay the exercise price for the purchased shares, together with any
federal and state income tax liability incurred by the optionee in
connection with such exercise. The plan administrator has the discretionary
authority to reprice the options through the cancellation of those options
and the grant of replacement options with an exercise price based on the
fair market value of the option shares on the regrant date. The options
have a maximum term of 10 years measured from the option grant date,
subject to earlier termination in the event of the optionee's cessation of
service with the Company. For additional terms applicable to the options,
see Proposal No. 3 - "Amendment to 1995 Stock Option/Stock Issuance Plan."
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the Commission. There is no assurance that the
actual stock price appreciation over the 10-year option term will be at the
assumed 5% and 10% levels or at any other defined level. Unless the market
price of the Common Stock appreciates over the option term, no value will
be realized from option grants made to the executive officers.
</FN>
</TABLE>
12
<PAGE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
<TABLE>
The following table sets forth information concerning the shares acquired
and the value realized upon the exercise of stock options during fiscal year
1996 and the year-end number and value of unexercised options with respect to
each of the Named Officers. No stock appreciation rights were exercised by the
Named Officers in fiscal year 1996 or were outstanding at the end of that year.
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options in-the-Money Options
Shares at FY-End (#) at FY-End ($)(3)
Acquired on Value ------------- ----------------
Name Exercise (#) Realized ($)(1) Exercisable(2) Unexercisable Exercisable Unexercisable
- ---- ------------- --------------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David A. Stamm 0 0 20,000 35,000 945,000 0
Ray M. Fritz 68,950 3,221,586 88,382 15,000 4,177,955 0
Donna J.H. 0 0 16,666 15,000 787,469 0
Novitsky
Randy Raynor 1,200 52,650 78,800 5,000 3,723,300 0
Robert A. Spinner 73,400 2,690,732 126,598 22,500 5,936,974 0
<FN>
(1) Based on the fair market value of the Company's Common Stock on the date of
exercise, less the exercise price payable for such shares.
(2) Certain of the options are immediately exercisable for all the option
shares as of the date of grant but any shares purchased thereunder are
subject to repurchase by the Company at the original exercise price paid
per share upon the optionee's cessation of service to the Company prior to
vesting in such shares.
(3) Based on the fair market value of the Company's Common Stock at year-end of
$48.00 per share less the exercise price payable for such shares.
</FN>
</TABLE>
13
<PAGE>
PROPOSAL NO. 2
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
On April 9, 1997, the Board authorized an amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares of Common Stock,
par value $.0001 per share ("Common Stock"), from 25,000,000 to 55,000,000. The
stockholders are being asked to approve this proposed amendment. As of March 31,
1997, approximately 20,760,823 shares of Common Stock were issued and
outstanding and 3,587,801 and 581,091 shares were reserved for issuance under
the Company's Option Plan and Purchase Plan, respectively.
The Board believes that the proposed increase is desirable so that, as the need
may arise, the Company will have more flexibility to issue shares of Common
Stock without the expense and delay of a special stockholders' meeting, in
connection with possible future stock dividends or stock splits, equity
financings, future opportunities for expanding the business through investments
or acquisitions, management incentive and employee benefit plans and for other
general corporate purposes.
Authorized but unissued shares of the Company's Common Stock may be issued at
such times, for such purposes and for such consideration as the Board of
Directors may determine to be appropriate without further authority from the
Company's stockholders, except as otherwise required by applicable law or stock
exchange policies.
The increase in authorized Common Stock will not have any immediate effect on
the rights of existing stockholders. However, the Board will have the authority
to issue authorized Common Stock without requiring future stockholder approval
of such issuances, except as may be required by applicable law or exchange
regulations. To the extent that the additional authorized shares are issued in
the future, they will decrease the existing stockholders' percentage equity
ownership and, depending upon the price at which they are issued, could be
dilutive to the existing stockholders. The holders of Common Stock have no
preemptive rights.
The increase in the authorized number of shares of Common Stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of the Company without further action by the
stockholders. Shares of authorized and unissued Common Stock could (within the
limits imposed by applicable law) be issued in one or more transactions which
would make a change in control of the Company more difficult, and therefore less
likely. Any such issuance of additional stock could have the effect of diluting
the earnings per share and book value per share of outstanding shares of Common
Stock, and such additional shares could be used to dilute the stock ownership or
voting rights of a person seeking to obtain control of the Company. The Company
has previously adopted certain measures that may have the effect of helping to
resist an unsolicited takeover attempt.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION.
PROPOSAL NO. 3
AMENDMENT TO 1995 STOCK OPTION/STOCK ISSUANCE PLAN
The stockholders are being asked to approve an amendment to the Clarify Inc.
1995 Stock Option/Stock Issuance Plan (the "Option Plan") to (i) provide for
automatic annual increases in the share reserve beginning in 1998 and continuing
through 2000 and (ii) make certain other changes and delete provisions as the
result of changes to SEC rules governing option grants to officers and directors
subject to the short-swing profit rules of the Federal securities laws. The
Option Plan was adopted by the Board of Directors and approved by the
stockholders on September 14, 1995. The amendment was adopted by the Board on
April 9, 1997. The Company established the
14
<PAGE>
Option Plan as a successor to the 1991 Stock Option/Stock Issuance Plan
("Predecessor Plan") to provide a means whereby employees, officers, directors,
consultants and independent advisers of the Company or parent or subsidiary
corporations may be given an opportunity to purchase shares of Common Stock. The
Board believes that option grants and the stock issuances under the Option Plan
play an important role in the Company's efforts to attract, employ and retain
employees, directors and consultants of outstanding ability.
The principal terms and provisions of the Option Plan are summarized below. The
summary, however, is not intended to be a complete description of all the terms
of the Option Plan. A copy of the Option Plan will be furnished by the Company
to any stockholder upon written request to the Stock Administration Department
at the Company's offices in San Jose, California.
Administration. The Compensation Committee of the Board, which is comprised of
two (2) or more non-employee Board members ("Committee"), administers the Option
Plan. Committee members serve for such period of time as the Board may
determine. No Board member may serve on the Committee if he or she has received
an option grant or stock award under the Option Plan or under any other stock
plan of the Company or its parent or subsidiary corporations within the twelve
(12) month period preceding his or her appointment to the Committee, other than
grants under the Automatic Option Grant Program. The Option Plan may also be
administered with respect to optionees who are not executive officers subject to
the short-swing profit rules of federal securities laws by the Board or a
secondary committee comprised of one or more Board members. Currently, the Stock
Option Committee has authority to administer the Option Plan with respect to
non-officer employees.
The Committee (or Board or secondary committee to the extent acting as plan
administrator) has full authority (subject to the express provisions of the
Option Plan) to determine the eligible individuals who are to receive grants
under the Option Plan, the number of shares to be covered by each granted
option, the date or dates on which the option is to become exercisable, the
maximum term for which the option is to remain outstanding, whether the granted
option will be an incentive stock option ("Incentive Option") which satisfies
the requirements of Section 422 of the Internal Revenue Code (the "Code") or a
non-statutory option not intended to meet such requirements and the remaining
provisions of the option grant.
Structure. The Option Plan is divided into three separate components: (i) the
Discretionary Option Grant Program, under which employees, non-employee
directors and consultants may, at the discretion of the Committee, be granted
options to purchase shares of Common Stock at an exercise price not less than
eighty-five percent (85%) of their fair market value on the grant date, (ii) the
Stock Issuance Program, under which such persons may, in the Committee's
discretion, be issued shares of Common Stock directly through the purchase of
such shares at a price not less than eighty-five percent (85%) of their fair
market value at the time of their issuance or as a bonus tied to the performance
of services and (iii) the Automatic Option Grant Program, under which option
grants will automatically be made at periodic intervals to eligible non-employee
Board members to purchase shares of Common Stock at an exercise price equal to
their fair market value on the grant date.
Eligibility. Employees (including officers), consultants and independent
contractors who render services to the Company or its subsidiary corporations
(whether now existing or subsequently established) are eligible to receive
option grants under the Discretionary Option Grant Program and Stock Issuance
Program. A non-employee member of the Board or the board of directors of any
parent or subsidiary corporation of the Company is also eligible for option
grants under the Discretionary Option Grant Program and Stock Issuance Program,
providing he or she is not a member of the Committee.
As of April 30, 1997, approximately 408 persons (including 5 officers) were
eligible to participate in the Option Plan.
Securities Subject to Option Plan. The maximum number of shares of Common Stock
that may be issued over the term of the Option Plan shall not exceed 4,127,679
shares. The number of shares of Common Stock available for issuance under the
Option Plan automatically increased on the first trading day of each of the 1996
and 1997 calendar years during the term of the Option Plan by an amount equal to
five percent (5%) of the shares of
15
<PAGE>
Common Stock outstanding on December 31 of the immediately preceding calendar
year. No Incentive Options may be granted under the Option Plan on the basis of
such annual increases. Accordingly, 1,048,244 shares were added to the pool on
January 1, 1996 and 1,158,475 shares were added to the pool on January 1, 1997.
Assuming approval of this Proposal No. 3, the number of shares of Common Stock
available for issuance under the Option Plan shall automatically increase on the
first trading day of each of the 1998, 1999 and 2000 calendar years during the
term of the Option Plan by an amount equal to five percent (5%) of the shares of
Common Stock outstanding on December 31 of the immediately preceding calendar
year.
No one person participating in the Option Plan may receive options, stock
appreciation rights and direct stock issuances for more than 1,000,000 shares of
Common Stock in the aggregate over the term of the Option Plan.
Should an option expire or terminate for any reason prior to exercise in full,
including options incorporated from the Predecessor Plan, the shares subject to
the portion of the option not so exercised will be available for subsequent
option grants under the Option Plan.
Discretionary Option Grant Program
Price and Exercisability. The option exercise price per share in the case of an
Incentive Option may not be less than one hundred percent (100%) of the fair
market value of the Common Stock on the grant date and, in the case of a
non-statutory option, eighty-five percent (85%) of the fair market value of the
Common Stock on the grant date. Options granted under the Discretionary Option
Grant Program become exercisable at such time or times and during such period as
the Committee may determine and set forth in the instrument evidencing the
option grant.
The exercise price may be paid in cash or in shares of Common Stock. Options may
also be exercised through a same-day sale program, pursuant to which a
designated brokerage firm is to effect the immediate sale of the shares
purchased under the option and pay over to the Company, out of the sale proceeds
on the settlement date, sufficient funds to cover the exercise price for the
purchased shares plus all applicable withholding taxes. The Committee may also
assist any optionee (including an officer or director) in the exercise of his or
her outstanding options by (a) authorizing a Company loan to the optionee or (b)
permitting the optionee to pay the exercise price in installments over a period
of years. The terms and conditions of any such loan or installment payment will
be established by the Committee in its sole discretion.
No optionee is to have any stockholder rights with respect to the option shares
until the optionee has exercised the option, paid the exercise price and become
a holder of record of the shares. Options are not assignable or transferable
other than by will or the laws of descent and distribution, and during the
optionee's lifetime, the option may be exercised only by the optionee.
Termination of Service. Any option held by the optionee at the time of cessation
of service will not remain exercisable beyond the designated post-service
exercise period. Under no circumstances, however, may any option be exercised
after the specified expiration date of the option term. Each such option will
normally, during such limited period, be exercisable only to the extent of the
number of shares of Common Stock in which the optionee is vested at the time of
cessation of service. The Committee has complete discretion to extend the period
following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability of
such options in whole or in part. Such discretion may be exercised at any time
while the options remain outstanding, whether before or after the optionee's
actual cessation of service.
The Committee may grant options which are exercisable for unvested shares of
Common Stock. If such shares are exercised prior to vesting, they may be subject
to repurchase by the Company at the original exercise price paid per share upon
the optionee's cessation of service. The Committee has complete discretion in
establishing the vesting schedule to be in effect for any such unvested shares
and may cancel the Company's outstanding repurchase rights with respect to those
shares at any time, thereby accelerating the vesting of the shares subject to
the canceled rights.
16
<PAGE>
Incentive Options. Incentive Options may only be granted to individuals who are
employees of the Company or its parent or subsidiary corporation. During any
calendar year, the aggregate fair market value (determined as of the grant
date(s)) of the Common Stock for which one or more options granted to any
employee under the Option Plan (or any other option plan of the Company or its
parent or subsidiary corporations) may for the first time become exercisable as
incentive stock options under Section 422 of the Code shall not exceed $100,000.
Limited Stock Appreciation Rights. One or more officers of the Company subject
to the short-swing profit restrictions of the federal securities laws may, at
the discretion of the Committee, be granted limited stock appreciation rights in
connection with their option grants under the Option Plan. An optionee holding
an option with such a limited stock appreciation right in effect for at least
six (6) months will have the unconditional right to surrender each such option,
to the extent exercisable for one or more vested option shares, upon the
successful completion of a hostile tender offer for more than 50% of the
Company's outstanding voting stock. In return, the officer will be entitled to a
cash distribution from the Company in an amount per canceled option share equal
to the excess of (i) the highest price per share of Common Stock paid in the
tender offer over (ii) the option exercise price.
Tandem Stock Appreciation Rights. The Committee is authorized to issue tandem
stock appreciation rights in connection with option grants under the
Discretionary Option Grant Program. Tandem stock appreciation rights provide the
holders with the right to surrender their options for an appreciation
distribution from the Company equal in amount to the excess of (a) the fair
market value of the vested shares of Common Stock subject to the surrendered
option over (b) the aggregate exercise price payable for such shares. Such
appreciation distribution may, at the discretion of the Committee, be made in
cash or in shares of Common Stock.
Automatic Option Grant Program
Under the Automatic Option Grant Program, non-employee Board members will
receive option grants at specified intervals over their period of Board service.
These special grants may be summarized as follows:
o Each individual who was a non-employee Board member on the date of the initial
public offering and each individual who becomes a non-employee Board member
after such date, whether through election by the stockholders or appointment by
the Board, will automatically be granted, at the time of the offering or if
later at the time of such initial election or appointment, a non-statutory stock
option to purchase 10,000 shares of Common Stock.
o On the date of each Annual Stockholders Meeting beginning with the 1996 Annual
Meeting, each individual who continues to serve as a non-employee Board member
will receive an additional grant of a non-statutory stock option under the
Option Plan to purchase 6,000 shares of Common Stock, provided such individual
has been a member of the Board for at least six months.
Each option grant under the Automatic Option Grant Program will be subject to
the following terms and conditions:
1. The option price per share will be equal to the fair market
value per share of Common Stock on the automatic grant date and each option is
to have a maximum term of ten years from the grant date. The initial options
granted in connection with the Company's initial public offering had an exercise
price of $6.50, the initial offering price.
2. Each automatic option grant will be immediately exercisable
for all of the option shares; the shares purchasable under the option shall be
subject to repurchase at the original exercise price in the event the optionee's
Board service should cease prior to full vesting. With respect to each automatic
grant, the repurchase right shall lapse and the optionee vest in two (2) equal
and successive annual installments from the grant date.
17
<PAGE>
3. The option will remain exercisable for a 12-month period
following the optionee's termination of service as a Board member for any reason
and may be exercised following the Board member's death by the personal
representatives of the optionee's estate or the person to whom the grant is
transferred by the optionee's will or the laws of inheritance. In no event,
however, may the option be exercised after the expiration date of the option
term. During the applicable exercise period, the option may not be exercised for
more than the number of shares (if any) for which it is exercisable at the time
of the optionee's cessation of Board service.
4. The option shares will become fully vested in the event of
a Corporate Transaction (as defined below) or a Change in Control (as defined
below). The option shares will become fully vested in the event of the
optionee's cessation of Board service by reason of death or permanent
disability.
5. Upon the occurrence of a hostile tender offer, the optionee
shall have a thirty (30) day period in which to surrender to the Company each
automatic option that has been in effect for at least six (6) months and the
optionee will in return be entitled to a cash distribution from the Company in
an amount per canceled option share (whether or not the optionee is otherwise
vested in those shares) equal to the excess of (i) the highest reported price
per share of Common Stock paid in the tender offer over (ii) the option exercise
price payable per share.
6. Option grants under the Automatic Option Grant Program will
be made in strict compliance with the express provisions of that program. The
remaining terms and conditions of the option will in general conform to the
terms described below for option grants under the Discretionary Option Grant
Program and will be incorporated into the option agreement evidencing the
automatic grant.
Stock Issuance Program
Shares may be sold under the Stock Issuance Program at a price per share not
less than eighty-five percent (85%) of fair market value, payable in cash or
through a promissory note payable to the Company. Shares may also be issued
solely as a bonus for past services.
The issued shares may either be immediately vested upon issuance or subject to a
vesting schedule tied to the performance of service or the attainment of
performance goals. The Committee will, however, have the discretionary authority
at any time to accelerate the vesting of any and all unvested shares outstanding
under the Option Plan.
General Provisions
Acceleration of Options/Termination of Repurchase Rights. Upon the occurrence of
either of the following transactions (a "Corporate Transaction"):
(a) the sale, transfer, or other disposition of all or substantially
all of the Company's assets in complete liquidation or dissolution of
the Company, or
(b) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Company's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction,
each outstanding option under the Option Plan will, immediately prior to the
effective date of the Corporate Transaction, become fully exercisable for all of
the shares at the time subject to such option. However, an outstanding option
shall not accelerate if and to the extent: (i) such option is, in connection
with the Corporate Transaction, either to be assumed by the successor
corporation (or parent) or to be replaced with a comparable option to purchase
shares of the capital stock of the successor corporation (or parent), (ii) such
option is to be replaced with a cash incentive program of the successor
corporation that preserves the spread existing on the unvested option shares at
the time of the Corporate Transaction and provides for subsequent payout in
accordance
18
<PAGE>
with the same vesting schedule applicable to such option or (iii) the
acceleration of such option is subject to other limitations imposed by the
Committee at the time of the option grant. Immediately following the
consummation of the Corporate Transaction, all outstanding options will
terminate and cease to be exercisable, except to the extent assumed by the
successor corporation.
Also upon a Corporate Transaction, the Company's outstanding repurchase will
terminate automatically unless assigned to the successor corporation.
Any options that are assumed or replaced in the Corporate Transaction and do not
otherwise accelerate at that time shall automatically accelerate (and any of the
Company's outstanding repurchase rights that do not otherwise terminate at the
time of the Corporate Transaction shall automatically terminate and the shares
of Common Stock subject to those terminated rights shall immediately vest in
full) in the event the optionee's service should subsequently terminate by
reason of an involuntary termination within eighteen (18) months following the
effective date of such Corporate Transaction. Any options so accelerated shall
remain exercisable for fully-vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one (1)-year period
measured from the effective date of the involuntary termination.
The acceleration of options in the event of a Corporate Transaction may be seen
as an anti-takeover provision and may have the effect of discouraging a merger
proposal, a takeover attempt, or other efforts to gain control of the Company.
Upon the occurrence of the following transactions ("Change in Control"):
(a) any person or related group of persons (other than the Company or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Company) acquires beneficial ownership
of more than fifty percent (50%) of the Company's outstanding voting
stock without the Board's recommendation, or
(b) there is a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases by reason of a proxy contest, to be comprised of
individuals who (a) have been Board members continuously since the
beginning of such period or (b) have been elected or nominated for
selection as Board members by a majority of the Board in (a) who were
still in office at the time such election or nomination was approved by
the Board,
the Committee has the discretion to accelerate outstanding options and terminate
the Company's outstanding repurchase rights. The Committee also has the
discretion to terminate the Company's outstanding repurchase rights upon the
subsequent termination of the optionee's service within a specified period
following the Change in Control.
Valuation. For purposes of establishing the option price and for all other
valuation purposes under the Option Plan, the fair market value of a share of
Common Stock on any relevant date will be the closing price per share of Common
Stock on that date, as such price is reported on the Nasdaq National Market. The
closing price of the Common Stock on March 31, 1997 was $24.125 per share.
Changes in Capitalization. In the event any change is made to the Common Stock
issuable under the Option Plan by reason of any stock split, stock dividend,
combination of shares, exchange of shares, or other change affecting the
outstanding Common Stock as a class without the Company's receipt of
consideration, appropriate adjustments will be made to (i) the maximum number
and/or class of securities issuable under the Option Plan, (ii) the maximum
number and/or class of securities for which any one person may be granted
options, stock appreciation rights and direct stock issuances per calendar year,
(iii) the maximum number and/or class of securities for which the share reserve
is to increase automatically each year, (iv) the number and/or class of
securities for which automatic option grants are to be subsequently made per
director under the Automatic Option Grant Program and
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<PAGE>
(v) the number and/or class of securities and the exercise price per share in
effect under each outstanding option (including any option incorporated from the
Predecessor Plan) in order to prevent the dilution or enlargement of benefits
thereunder.
Each outstanding option that is assumed in connection with a Corporate
Transaction will be appropriately adjusted to apply and pertain to the number
and class of securities that would otherwise have been issued, in consummation
of such Corporate Transaction, to the option holder had the option been
exercised immediately prior to the Corporate Transaction. Appropriate
adjustments will also be made to the option price payable per share and to the
class and number of securities available for future issuance under the Option
Plan on both an aggregate and a per-participant basis.
Option Plan Amendments. The Board may amend or modify the Option Plan in any and
all respects whatsoever. However, the Board may not, without the approval of the
Company's stockholders, (i) materially increase the maximum number of shares
issuable under the Option Plan (except in connection with certain changes in
capitalization), (ii) materially modify the eligibility requirements for option
grants, or (iii) otherwise materially increase the benefits accruing to
participants under the Option Plan.
Unless sooner terminated by the Board, the Option Plan will in all events
terminate on September 13, 2005. Any options outstanding at the time of such
termination will remain in force in accordance with the provisions of the
instruments evidencing such grants.
As of March 31, 1997, options covering 2,452,406 shares were outstanding under
the Option Plan, 1,135,395 shares remained available for future option grant,
and 539,878 shares have been issued under the Option Plan. The expiration dates
for all such options range from June 7, 2002 to March 31, 2007.
New Plan Benefits and Option Grant Table
Because the Option Plan is discretionary, benefits to be received by individual
optionees are not determinable. However, each of Messrs. Patterson, Bredt, and
Fluegel and Ms. Elmore will receive an option grant to purchase 6,000 shares
under the Automatic Option Grant Program on the date of the Annual Meeting with
an exercise price per share equal to the closing price per share of Common Stock
on the date of the Annual Meeting. The table below shows, as to each of the
executive officers named in the Summary Compensation Table and the various
indicated groups, the number of shares of Common Stock for which options have
been granted under the Option Plan (including options granted under the
Predecessor Plan), for the one (1)-year period ending December 31, 1996 and the
period through March 31, 1997. No direct stock issuances have been made under
the Option Plan to date.
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<PAGE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF OPTION EXERCISE
NAME AND POSITION SHARES PRICE
- ----------------- ------ -----
<S> <C> <C>
David A. Stamm 35,000 51.875
President and Chief Executive Officer
Raymond M. Fritz 15,000 51.875
Vice President, Finance and Chief Financial Officer
Donna J. H. Novitsky 15,000 51.875
Vice President, Marketing
Randy Raynor 5,000 51.875
Vice President, Engineering
Robert A. Spinner 22,500 51.875
Vice President, Sales
All current executive officers as a group 92,500 51.875
(5 persons)
All current directors (other than executive officers) as a group 24,000 23.000
(4 persons)
All employees, including current officers who are not executive 1,182,597 26.680
officers, as a group (351 persons)
</TABLE>
Federal Income Tax Consequences of Options Granted under the Option Plan
Options granted under the Option Plan may be either incentive stock options that
satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options that are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Stock Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The excess of the fair market value of the
purchased shares over the exercise price paid for the shares on the date of
exercise will be includible in alternative minimum taxable income. The optionee
will, however, recognize taxable income in the year in which the purchased
shares are sold or otherwise made the subject of disposition.
For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of such
shares is made after the optionee has held the shares for more than two (2)
years after the grant date of the option and more than one (1) year after the
exercise date. If the optionee fails to satisfy either of these two holding
periods prior to the sale or other disposition of the purchased shares, then a
disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying disposition
of the shares, then the excess of (i) the fair market value of those shares on
the date the option was exercised over (ii) the exercise price paid for the
shares will be taxable as ordinary income. Any additional gain recognized upon
the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares, then
the Company will be entitled to an income tax deduction for the taxable year in
which such disposition occurs equal to the excess of (i) the fair market value
of such shares on the date the option was exercised over (ii) the exercise price
paid for the shares. In no
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<PAGE>
other instance will the Company be allowed a deduction with respect to the
optionee's disposition of the purchased shares. The Company anticipates that any
compensation deemed paid by the Company upon one or more disqualifying
dispositions of incentive stock option shares by the Company's executive
officers will remain deductible by the Company and will not have to be taken
into account for purposes of the $1 million limitation per covered individual on
the deductibility of the compensation paid to certain executive officers of the
Company.
Non-Statutory Options. No taxable income is recognized by an optionee upon the
grant of a non-statutory option. The optionee will in general recognize ordinary
income in the year in which the option is exercised equal to the excess of the
fair market value of the purchased shares on the exercise date over the exercise
price paid for the shares, and the optionee will be required to satisfy the tax
withholding requirements applicable to such income.
Special provisions of the Internal Revenue Code apply to the acquisition of
Common Stock under a non-statutory option if the purchased shares are subject to
repurchase by the Company. These special provisions may be summarized as
follows:
(i) If the shares acquired upon exercise of the
non-statutory option are subject to repurchase by the Company at the original
exercise price in the event of the optionee's termination of service prior to
vesting in such shares, the optionee will not recognize any taxable income at
the time of exercise but will have to report as ordinary income, as and when the
Company's repurchase right lapses, an amount equal to the excess of (a) the fair
market value of the shares on the date such repurchase right lapses with respect
to such shares over (b) the exercise price paid for the shares.
(ii) The optionee may, however, elect under Section
83(b) of the Internal Revenue Code to include as ordinary income in the year of
exercise of the non-statutory option an amount equal to the excess of (a) the
fair market value of the purchased shares on the exercise date (determined as if
the shares were not subject to the Company's repurchase right) over (b) the
exercise price paid for such shares. If the Section 83(b) election is made, the
optionee will not recognize any additional income as and when the repurchase
right lapses. The Company will be entitled to a business expense deduction equal
to the amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee. The Company anticipates that the compensation deemed paid by the
Company upon the exercise of non-statutory options with exercise prices equal to
the fair market value of the option shares on the grant date will remain
deductible by the Company and will not have to be taken into account for
purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company.
Stock Appreciation Rights. An optionee who is granted a stock appreciation right
will recognize ordinary income in the year of exercise equal to the amount of
the appreciation distribution. The Company will be entitled to a business
expense deduction equal to the appreciation distribution for the taxable year of
the Company in which the ordinary income is recognized by the optionee.
Stock Issuances. The tax principles applicable to direct stock issuances under
the Option Plan will be substantially the same as those summarized above for the
exercise of non-statutory option grants.
Accounting Treatment
Under present accounting principles, neither the grant nor the exercise of
options issued with an exercise price equal to the fair market value of the
option shares on the grant date will result in any charge to the Company's
earnings. However, the number of outstanding options may be a factor in
determining the Company's reported earnings per share.
Should one or more optionees be granted stock appreciation rights that have no
conditions upon exercisability other than a service or employment requirement,
then such rights will result in a compensation expense to be
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<PAGE>
charged periodically against the Company's earnings. Accordingly, at the end of
each fiscal quarter, the amount (if any) by which the fair market value of the
shares of Common Stock subject to such outstanding stock appreciation rights has
increased from prior quarter-end will be accrued as compensation expense to the
extent such fair market value is in excess of the aggregate exercise price in
effect for such rights.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO
THE COMPANY'S 1995 STOCK OPTION/STOCK ISSUANCE PLAN.
PROPOSAL NO. 4
PROPOSAL NO. 4 - AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
The stockholders are being asked to approve an amendment to the Clarify
Inc. Employee Stock Purchase Plan (the "Purchase Plan") to increase the number
of shares issuable thereunder by 500,000 shares. The Purchase Plan was adopted
by the Board and approved by the stockholders on September 14, 1995. The Board
approved the amendment to the Purchase Plan on April 9, 1997. The Purchase Plan,
and the right of participants to make purchases thereunder, is intended to meet
the requirements of an "employee stock purchase plan" as defined in Section 423
of the Internal Revenue Code (the "Code").
The following summary of certain Purchase Plan provisions is qualified,
in its entirety, by reference to the Purchase Plan. Copies of the Purchase Plan
document may be obtained by a stockholder upon written request to the Secretary
of the Company at the executive offices in San Jose, California.
Purpose. The purpose of the Purchase Plan is to provide employees of
the Company and designated parent or subsidiary corporations (collectively,
"Participating Companies") an opportunity to participate in the ownership of the
Company by purchasing Common Stock of the Company through payroll deductions.
The Company is the only Participating Company in the Purchase Plan.
The Purchase Plan is intended to benefit the Company as well as its
stockholders and employees. The Purchase Plan gives employees an opportunity to
purchase shares of Common Stock at a favorable price. The Company believes that
the stockholders will correspondingly benefit from the increased interest on the
part of participating employees in the profitability of the Company. Finally,
the Company will benefit from the periodic investments of equity capital
provided by participants in the Purchase Plan.
Administration. The Purchase Plan is administered by the Compensation
Committee of the Board (the "Committee"). All costs and expenses incurred in
plan administration will be paid by the Company without charge to participants.
Cash proceeds received by the Company from payroll deductions under the Purchase
Plan generally shall be credited to a non-interest bearing book account.
Shares and Terms. The stock issuable under the Purchase Plan is the
Company's authorized but unissued or reacquired Common Stock. The maximum number
of shares of Common Stock that may be issued in the aggregate under the Purchase
Plan is 1,370,000, adjusted as described in the "Adjustment" section of this
description, including 500,000 shares which is the subject of this Proposal No.
4. Common Stock subject to a terminated purchase right shall be available for
purchase pursuant to purchase rights subsequently granted.
Adjustments. If any change in the Common Stock occurs (through
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares, or other change affecting the outstanding Common Stock as a class
without the Company's receipt of consideration), appropriate adjustments shall
be made by the Company to
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<PAGE>
the class and maximum number of shares subject to the Purchase Plan, to the
class and maximum number of shares purchasable by each participant on any one
purchase date, and the class and number of shares and purchase price per share
subject to outstanding purchase rights in order to prevent the dilution or
enlargement of benefits thereunder.
Eligibility. Generally, any individual who has completed thirty (30)
days of service and is customarily employed by a Participating Company more than
20 hours per week and for more than five months per calendar year is eligible to
participate in the Purchase Plan and may enter an offering period on the start
date of any purchase period within such offering period. Approximately 341
employees (including 4 officers) were eligible to participate in the Purchase
Plan as of April 30, 1997.
Offering Periods. The Purchase Plan is implemented by a series of
successive offering periods which generally have a duration of twenty-four
months; each offering period is comprised of a series of one or more successive
purchase periods, which will have a duration of six (6) months. The first
offering period began on the date of execution of the underwriting agreement in
connection with the Company's initial public offering and will end on October
31, 1997; the next offering period will commence on the first business day in
November 1997. The purchase periods during the initial offering period ended or
will end on April 30, 1996, October 31, 1996, April 30, 1997 and October 31,
1997. The Committee in its discretion may vary the beginning date and ending
date of the offering periods prior to their commencement, provided no offering
period shall exceed twenty-four (24) months in length.
The participant will have a separate purchase right for each offering
period in which he or she participates. The purchase right will be granted on
the first day of the offering period and will be automatically exercised in
successive installments on the last day of each purchase period within the
offering period.
Purchase Price. The purchase price per share under the Purchase Plan is
85% of the lower of (i) the fair market value of a share of Common Stock on the
first day of the applicable offering period or, if later, the participant's
entry date into the offering period, or (ii) the fair market value of a share of
Common Stock on the purchase date. However, if the participant's entry date is
not the first day of the applicable offering period, the clause (i) amount will
not be less than the fair market value of a share of Common Stock on the start
date of such offering period. Generally, the fair market value of the Common
Stock on a given date is the closing price of the Common Stock, as reported on
the Nasdaq National Market. The market value of the Common Stock as reported on
the Nasdaq National Market as of April 30, 1997, was $_____ per share.
Limitations. The plan imposes certain limitations upon a participant's
rights to acquire Common Stock, including the following:
1. No purchase right shall be granted to any person who immediately
thereafter would own, directly or indirectly, stock or hold outstanding
options or rights to purchase stock possessing five percent (5%) or
more of the total combined voting power or value of all classes of
stock of the Company or any of its parent or subsidiary corporations.
2. In no event shall a participant be permitted to purchase more than
2,000 shares on any one purchase date.
3. The right to purchase Common Stock under the Purchase Plan (or any
other employee stock purchase plan that the Company or any of its
subsidiaries may establish) in an offering intended to qualify under
Section 423 of the Code may not accrue at a rate that exceeds $25,000
in fair market value of such Common Stock (determined at the time such
purchase right is granted) for any calendar year in which such purchase
right is outstanding.
The purchase right shall be exercisable only by the Participant during the
Participant's lifetime and shall not be assignable or transferable by the
Participant.
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<PAGE>
Payment of Purchase Price; Payroll Deductions. Payment for shares by
participants shall be by accumulation of after-tax payroll deductions during the
purchase period. The deductions may not exceed 15% of a participant's cash
earnings paid during a purchase period, up to $12,500 per purchase period.
Earnings for this purpose will include elective pre-tax contributions under a
Code Section 125 or 401(k) plan, bonuses, overtime, commissions, profit-sharing
distributions and other incentive-type payments but will not include
contributions to any deferred compensation plan or welfare benefit program
(except a 125 or 401(k) plan).
The participant will receive a purchase right for each offering period
in which he or she participates to purchase up to the number of shares of Common
Stock determined by dividing such participant's payroll deductions accumulated
prior to the purchase date by the applicable purchase price (subject to the
"Limitations" section). Any payroll deductions accumulated in a participant's
account that are not sufficient to purchase a full share will be retained in the
participant's account for the subsequent purchase period. No interest shall
accrue on the payroll deductions of a participant in the Purchase Plan.
Termination and Change to Payroll Deductions. A purchase right shall
terminate at the end of the offering period or earlier if the participant
terminates employment for any reason, and then any payroll deductions which the
participant may have made with respect to a terminated purchase right will be
refunded. A participant may decrease his or her deductions once during a
purchase period and may increase the rate of his or her deductions up to 15% of
earnings, effective as of the start date of the next purchase period.
Amendment and Termination. The Purchase Plan shall continue in effect
until the earlier of (i) the last business day in October 2005, (ii) the date on
which all shares available for issuance under the Purchase Plan shall have been
issued or (iii) a Corporate Transaction, unless the Purchase Plan is earlier
terminated by the Board in its discretion.
The Board may at any time alter, amend, suspend or discontinue the
Purchase Plan, provided that, without the approval of the stockholders, no such
action may (i) alter the purchase price formula so as to reduce the purchase
price payable for shares under the Purchase Plan, (ii) materially increase the
number of shares issuable under the Purchase Plan or the maximum number of
shares purchasable per participant, or (iii) materially increase the benefits
accruing to participants under the Purchase Plan or materially modify the
eligibility requirements.
In addition, the Company has specifically reserved the right,
exercisable in the sole discretion of the Board, to terminate the Purchase Plan
immediately following any six-month purchase period. If such right is exercised
by the Board, then the Purchase Plan will terminate in its entirety and no
further purchase rights will be granted or exercised, and no further payroll
deductions shall thereafter be collected under the Purchase Plan.
Corporate Transaction. In the event of (i) a merger or consolidation in
which securities possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities are transferred to a person
or persons different from the persons holding those securities immediately prior
to such transaction or (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company (a "Corporate Transaction"), each purchase right
under the Purchase Plan will automatically be exercised immediately before
consummation of the Corporate Transaction as if such date were the last purchase
date of the offering period. The purchase price per share shall be equal to
eighty-five percent (85%) of the lower of (i) the fair market value per share of
Common Stock on the start date of the offering period (or on the participant's
entry date, if later) or (ii) the fair market value per share of Common Stock
immediately prior to the effective date of such Corporate Transaction. However,
if the participant's entry date is not the first day of the applicable offering
period, the clause (i) amount will not be less than the fair market value of a
share of Common Stock on the start date of such offering period. Any payroll
deductions not applied to such purchase shall be promptly refunded to the
participant.
The grant of purchase rights under the Purchase Plan will in no way
affect the right of the Company to adjust, reclassify, reorganize, or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
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<PAGE>
Proration of Purchase Rights. If the total number of shares of Common
Stock for which purchase rights are to be granted on any date exceeds the number
of shares then remaining available under the Purchase Plan, the Committee shall
make a pro rata allocation of the shares remaining.
Federal Income Tax Consequences. The following is a general description
of certain federal income tax consequences of the Purchase Plan. This
description does not purport to be complete.
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Code. Under a plan which so qualifies, no taxable
income will be reportable by a participant, and no deductions will be allowable
to the Company, by reason of the grant or exercise of the purchase rights issued
thereunder. A participant will, however, recognize taxable income in the year in
which the purchased shares are sold or otherwise made the subject of
disposition.
A sale or other disposition of the purchased shares will be a
disqualifying disposition if made before the later of two years after the start
of the offering period in which such shares were acquired or one year after the
shares are purchased. If the participant makes a disqualifying disposition of
the purchased shares, then the Company will be entitled to an income tax
deduction, for the taxable year in which such disposition occurs, equal to the
amount by which the fair market value of such shares on the date of purchase
exceeded the purchase price, and the participant will be required to satisfy the
employment and income tax withholding requirements applicable to such income. In
no other instance will the Company be allowed a deduction with respect to the
participant's disposition of the purchased shares.
Any additional gain or loss recognized upon the disposition of the
shares will be a capital gain, which will be long-term if the shares have been
held for more than one (1) year following the date of purchase under the
Purchase Plan.
The foregoing is only a summary of the federal income taxation
consequences to the participant and the Company with respect to the shares
purchased under the Purchase Plan. In addition, the summary does not discuss the
tax consequences of a participant's death or the income tax laws of any city,
state or foreign country in which the participant may reside.
New Purchase Plan Benefits. Since purchase rights are subject to
discretion, including an employee's decision not to participate in the Purchase
Plan, awards under the Purchase Plan for the current fiscal year are not
determinable. On April 30, 1996 and October 31, 1996, each of the Named Officers
purchased the number of shares set forth beside his/her name: Mr. Stamm: 0 and
0; Mr. Fritz: 2,000 and 2,000; Ms. Novitsky: 2,000 and 1,997; Mr. Raynor: 2,000
and 1,979; and Mr. Spinner: 2,000 and 2,000. In addition, each of the Named
Officers, other than Mr. Stamm, but including Ms. Novitsky, and Messrs. Fritz,
Raynor and Spinner, has the right to purchase a maximum of 2,000 shares of
Common Stock at a price that will not exceed $5.525 per share on each of the
April 30, 1997 and October 31, 1997 purchase dates.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO
THE COMPANY'S PURCHASE PLAN.
PROPOSAL NO. 5
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Company is asking the stockholders to ratify the appointment of
Coopers & Lybrand L.L.P. as the Company's independent public accountants for the
fiscal year ending December 31, 1997. The affirmative vote of
26
<PAGE>
the holders of a majority of shares present or represented by proxy and voting
at the Annual Meeting will be required to ratify the appointment of Coopers &
Lybrand L.L.P.
In the event the stockholders fail to ratify the appointment, the Board
of Directors will reconsider its selection. Even if the appointment is ratified,
the Board of Directors, in its discretion, may direct the appointment of a
different independent accounting firm at any time during the year if the Board
of Directors feels that such a change would be in the Company's and its
stockholders' best interests.
Coopers & Lybrand L.L.P. has audited the Company's financial statements
for its last seven fiscal years. Its representatives are expected to be present
at the Annual Meeting, will have the opportunity to make a statement if they
desire to do so, and will be available to respond to appropriate questions.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF COOPERS & LYBRAND L.L.P. TO SERVE AS THE COMPANY'S INDEPENDENT
PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than 10% of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, as amended, which require them to file reports
with respect to their ownership of the Company's Common Stock and their
transactions in such Common Stock. Based upon (i) the copies of Section 16(a)
reports that the Company received from such persons for their 1996 fiscal year
transactions in the Common Stock and their Common Stock holdings and (ii) the
written representations received from one or more of such persons that no annual
Form 5 reports were required to be filed by them for the 1996 fiscal year, the
Company believes that all reporting requirements under Section 16(a) for such
fiscal year were met in a timely manner by its executive officers, Board members
and greater than ten-percent stockholders, except that Messrs. Fritz, Liotta,
Raynor and Spinner and Ms. Novitsky filed one report late reporting one
transaction and Mr. Jorasch filed three reports late reporting five
transactions.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF
THE COMPANY'S FORM 10-K REPORT FOR FISCAL YEAR 1996, INCLUDING THE FINANCIAL
STATEMENTS, SCHEDULE AND LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO CLARIFY
INC., 2125 O'Nel Drive, SAN JOSE, CALIFORNIA 95131, ATTN: RAY M. FRITZ,
CORPORATE FINANCE.
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Stockholder proposals that are intended to be presented at the 1997
Annual Meeting that are eligible for inclusion in the Company's proxy statement
and related proxy materials for that meeting under the applicable rules of the
Securities and Exchange Commission must be received by the Company not later
than January 16, 1997 in order to be included. Such stockholder proposals should
be addressed to Clarify Inc., 2125 O'Nel Drive, San Jose, California 95131,
Attn: Ray M. Fritz, Corporate Finance.
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OTHER MATTERS
The Board knows of no other matters to be presented for stockholder
action at the Annual Meeting. However, if other matters do properly come before
the Annual Meeting or any adjournments or postponements thereof, the Board
intends that the persons named in the proxies will vote upon such matters in
accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS,
David A. Stamm
President and Chief Executive Officer
San Jose, California
May 5, 1997
- --------------------------------------------------------------------------------
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING. IF
YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU
MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE MEETING.
THANK YOU FOR YOUR ATTENTION TO THIS MATTER. YOUR PROMPT RESPONSE WILL GREATLY
FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING.
- --------------------------------------------------------------------------------
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CLARIFY INC.
EMPLOYEE STOCK PURCHASE PLAN
(As amended on April 9, 1997)
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Clarify Inc. by providing eligible employees with the opportunity to acquire
a proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan designed to qualify under
Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such terms
in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock including
shares of Common Stock purchased on the open market. The
maximum number of shares of Common Stock which may be issued
over the term of the Plan shall not exceed 1,370,000
shares.(1)
B. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's
receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of
securities purchasable per Participant on any one Purchase
Date and (iii) the number and class of securities and the
price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of
benefits thereunder.
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(1) All share numbers have been adjusted to reflect a 2 for 1 stock dividend
approved by the Board on September 18, 1996 for stockholders of record on
September 30, 1996.
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IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until
such time as (i) the maximum number of shares of Common Stock
available for issuance under the Plan shall have been
purchased (ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan
Administrator prior to the start date. The initial offering
period shall commence at the Effective Time and terminate on
the last business day in October 1997. The next offering
period shall commence on the first business day in November
1997, and subsequent offering periods shall commence as
designated by the Plan Administrator.
C. Each offering period shall be comprised of a series of one or
more successive Purchase Periods. Purchase Periods shall begin
on the first business day in May and November each year and
terminate on the last business day in October and the
following April, respectively, each year. However, the first
Purchase Period under the initial offering period shall
commence at the Effective Time and terminate on the last
business day in April 1996.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee at the Effective
Time shall be eligible to enter the initial offering period
and any subsequent offering period under the Plan on the start
date of any Purchase Period within that offering period,
provided he or she remains an Eligible Employee on such start
date.
B. Each individual who becomes an Eligible Employee after the
Effective Time shall be eligible to enter an offering period
under the Plan on the start date of any Purchase Period within
that offering period, provided such individual (i) has
completed thirty (30) days of service with the Corporation or
any Corporate Affiliate prior to such start date and (ii)
remains an Eligible Employee on such start date.
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering
period.
D. To participate in the Plan for a particular offering period,
the Eligible Employee must complete the enrollment forms
prescribed by the Plan Administrator (including a stock
purchase agreement and a payroll deduction authorization form)
and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
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VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan
may be any multiple of one percent (1%) of the Eligible
Earnings paid to the Participant during each Purchase Period
within that offering period, up to a maximum of fifteen
percent (15%) but in no event to exceed Twelve Thousand Five
Hundred Dollars ($12,500) per Purchase Period. The deduction
rate so authorized shall continue in effect for the remainder
of the offering period, except to the extent such rate is
changed in accordance with the following guidelines:
1. The Participant may, at any time during the offering
period, reduce his or her rate of payroll deduction
to become effective as soon as possible after filing
the appropriate form with the Plan Administrator. The
Participant may not, however, effect more than one
(1) such reduction per Purchase Period.
2. The Participant may, prior to the commencement of any
new Purchase Period within the offering period,
increase the rate of his or her payroll deduction by
filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the
fifteen percent (15%) or Twelve Thousand Five Hundred
Dollars ($12,500) maximum) shall become effective as
of the start date of the Purchase Period following
the filing of such form.
B. Payroll deductions shall begin on the first payday following
the Participant's Entry Date into the offering period and
shall (unless sooner terminated by the Participant) continue
through the payday ending with or immediately prior to the
last day of that offering period. The amounts so collected
shall be credited to the Participant's book account under the
Plan, but no interest shall be paid on the balance from time
to time outstanding in such account. The amounts collected
from the Participant shall not be held in any segregated
account or trust fund and may be commingled with the general
assets of the Corporation and used for general corporate
purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance
with the provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan
on any Purchase Date shall neither limit nor require the
Participant's acquisition of Common Stock on any subsequent
Purchase Date, whether within the same or a different offering
period.
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VII. PURCHASE RIGHTS
A. Grant of Purchase Right. A Participant shall be granted a
separate purchase right for each offering period in which he
or she participates. The purchase right shall be granted on
the Participant's Entry Date into the offering period and
shall provide the Participant with the right to purchase
shares of Common Stock, in a series of successive installments
over the remainder of such offering period, upon the terms set
forth below. The Participant shall execute a stock purchase
agreement embodying such terms and such other provisions (not
inconsistent with the Plan) as the Plan Administrator may deem
advisable.
Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would,
immediately after the grant, own (within the meaning of Code
Section 424(d)) or hold outstanding options or other rights to
purchase stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock
of the Corporation or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall be
automatically exercised in installments on each successive
Purchase Date within the offering period, and shares of Common
Stock shall accordingly be purchased on behalf of each
Participant (other than any Participant whose payroll
deductions have previously been refunded in accordance with
the Termination of Purchase Right provisions below) on each
such Purchase Date. The purchase shall be effected by applying
the Participant's payroll deductions for the Purchase Period
ending on such Purchase Date (together with any carryover
deductions from the preceding Purchase Period) to the purchase
of whole shares of Common Stock (subject to the limitation on
the maximum number of shares purchasable per Participant on
any one Purchase Date) at the purchase price in effect for the
Participant for that Purchase Date.
C. Purchase Price. The purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each
Purchase Date within the offering period shall not be less
than eighty-five percent (85%) of the lower of (i) the Fair
Market Value per share of Common Stock on the Participant's
Entry Date into that offering period or (ii) the Fair Market
Value per share of Common Stock on that Purchase Date.
However, for each Participant whose Entry Date is other than
the start date of the offering period, the clause (i) amount
shall in no event be less than the Fair Market Value per share
of Common Stock on the start date of that offering period. The
Plan Administrator shall determine the percentage for each
Purchase Period prior to the start date.
D. Number of Purchasable Shares. The number of shares of Common
Stock purchasable by a Participant on each Purchase Date
during the offering period shall be the number of whole shares
obtained by dividing the amount collected from the Participant
through payroll deductions during the Purchase Period ending
with that
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Purchase Date (together with any carryover deductions from the
preceding Purchase Period) by the purchase price in effect for
the Participant for that Purchase Date. However, the maximum
number of shares of Common Stock purchasable per Participant
on any one Purchase Date shall not exceed 2,000 shares,
subject to periodic adjustments in the event of certain
changes in the Corporation's capitalization.
E. Excess Payroll Deductions. Any payroll deductions not applied
to the purchase of shares of Common Stock on any Purchase Date
because they are not sufficient to purchase a whole share of
Common Stock shall be held for the purchase of Common Stock on
the next Purchase Date. However, any payroll deductions not
applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the
Participant on the Purchase Date shall be promptly refunded.
F. Termination of Purchase Right. The following provisions shall
govern the termination of outstanding purchase rights:
1. A Participant may, at any time prior to the next
Purchase Date in the offering period, terminate his
or her outstanding purchase right by filing the
appropriate form with the Plan Administrator (or its
designate), and no further payroll deductions shall
be collected from the Participant with respect to the
terminated purchase Right. Any payroll deductions
collected during the Purchase Period in which such
termination occurs shall be immediately refunded.
2. The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently
rejoin the offering period for which the terminated
purchase right was granted. In order to resume
participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a
timely filing of the prescribed enrollment forms) on
or before his or her scheduled Entry Date into that
offering period.
3. Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability
or change in status) while his or her purchase right
remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's
payroll deductions for the Purchase Period in which
the purchase right so terminates shall be immediately
refunded. However, should the Participant cease to
remain in active service by reason of an approved
unpaid leave of absence, then the Participant shall
have the election, exercisable up until the last
business day of the Purchase Period in which such
leave commences, to (a) withdraw all the funds in the
Participant's payroll account at the time of the
commencement of such leave or (b) have such funds
held for the purchase of shares at the end of such
Purchase Period. In no event, however, shall any
further payroll deductions be added to the
Participant's account during
5
<PAGE>
such leave. Upon the Participant's return to active
service, his or her payroll deductions under the Plan
shall automatically resume at the rate in effect at
the time the leave began, provided the Participant
returns to service prior to the expiration date of
the offering period in which such leave began.
G. Corporate Transaction. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective
date of any Corporate Transaction, by applying the payroll
deductions of each Participant for the Purchase Period in
which such Corporate Transaction occurs to the purchase of
whole shares of Common Stock at a purchase price per share
equal to eighty-five percent (85%) of the lower of (i) the
Fair Market Value per share of Common Stock on the
Participant's Entry Date into the offering period in which
such Corporate Transaction occurs or (ii) the Fair Market
Value per share of Common Stock immediately prior to the
effective date of such Corporate Transaction. However, the
applicable limitation on the number of shares of Common Stock
purchasable per Participant shall continue to apply to any
such purchase, and the clause (i) amount above shall not, for
any Participant whose Entry Date for the offering period is
other than the start date of that offering period, be less
than the Fair Market Value per share of Common Stock on such
start date.
The Corporation shall use its best efforts to provide at least
ten (10)-days prior written notice of the occurrence of any
Corporate Transaction, and Participants shall, following the
receipt of such notice, have the right to terminate their
outstanding purchase rights prior to the effective date of the
Corporate Transaction.
H. Proration of Purchase Rights. Should the total number of
shares of Common Stock which are to be purchased pursuant to
outstanding purchase rights on any particular date exceed the
number of shares then available for issuance under the Plan,
the Plan Administrator shall make a pro rata allocation of the
available shares on a uniform and nondiscriminatory basis, and
the payroll deductions of each Participant, to the extent in
excess of the aggregate purchase price payable for the Common
Stock prorated to such individual, shall be refunded.
I. Assignability. During the Participant's lifetime, the purchase
right shall be exercisable only by the Participant and shall
not be assignable or transferable by the Participant.
J. Stockholder Rights. A Participant shall have no stockholder
rights with respect to the shares subject to his or her
outstanding purchase right until the shares are purchased on
the Participant's behalf in accordance with the provisions of
the Plan and the Participant has become a holder of record of
the purchased shares.
VIII. ACCRUAL LIMITATIONS
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<PAGE>
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under
this Plan if and to the extent such accrual when aggregated
with (i) rights to purchase Common Stock accrued under any
other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans
(within the meaning of Code Section 423) of the Corporation or
any Corporate Affiliate, would otherwise permit such
Participant to purchase more than Twenty-Five Thousand Dollars
($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value of
such stock on the date or dates such rights are granted) for
each calendar year such rights are at any time outstanding.
B. For purposes of applying such accrual limitations, the
following provisions shall be in effect:
1. The right to acquire Common Stock under each
outstanding purchase right shall accrue in a series
of installments on each successive Purchase Date
during the offering period on which such right
remains outstanding.
2. No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent
the Participant has already accrued in the same
calendar year the right to acquire Common Stock under
one (1) or more other purchase rights at a rate equal
to Twenty-Five Thousand Dollars ($25,000) worth of
Common Stock (determined on the basis of the Fair
Market Value of such stock on the date or dates of
grant) for each calendar year such rights were at any
time outstanding.
C. If, by reason of such accrual limitations, any purchase right
of a Participant does not accrue for a particular Purchase
Period, then the payroll deductions that the Participant made
during that Purchase Period with respect to such purchase
right shall be promptly refunded.
D. In the event there is any conflict between the provisions of
this Article and one or more provisions of the Plan or any
instrument issued thereunder, the provisions of this Article
shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on September 14, 1995 and
became effective on November 3, 1995. The Plan was amended on
April 29, 1996 to increase the number of shares issuable by
160,000 shares. The stockholders approved the amendment on
June 25, 1996. The Plan was amended again on April 4, 1997 to
increase the number of shares issuable thereunder by 500,000
shares, provided no purchase rights granted under the Plan on
the basis of the share increase shall be exercised, and no
shares of Common Stock shall be issued hereunder, until (i)
the Plan amendment shall have been approved by the
stockholders of the Corporation and (ii) the Corporation shall
have complied with all applicable requirements of the
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<PAGE>
1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S registration
statement filed with the Securities and Exchange Commission),
all applicable listing requirements of any stock exchange (or
the Nasdaq National Market, if applicable) on which the Common
Stock is listed for trading and all other applicable
requirements established by law or regulation. In the event
such stockholder approval is not obtained, or such compliance
is not effected within twelve (12) months after the date on
which the Plan amendment is adopted by the Board, then the
share increase shall not take effect and the Plan shall
terminate when all shares authorized by the Board and
stockholders have been issued pursuant to purchase rights
under the Plan. Upon issuance of all authorized shares, the
Plan shall have no further force or effect and all sums
collected from Participants that cannot be applied to the
purchase of shares hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest of (i) the last business day in
October 2005, (ii) the date on which all shares available for
issuance under the Plan shall have been sold pursuant to
purchase rights exercised under the Plan or (iii) the date on
which all purchase rights are exercised in connection with a
Corporate Transaction. No further purchase rights shall be
granted or exercised, and no further payroll deductions shall
be collected, under the Plan following its termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at any time
to become effective immediately following the close of any Purchase Period.
However, the Board may not, without the approval of the Corporation's
stockholders, (i) materially increase the number of shares of Common Stock
issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in the
event of certain changes in the Corporation's capitalization, (ii) alter the
purchase price formula so as to reduce the purchase price payable for the shares
of Common Stock purchasable under the Plan, or (iii) materially increase the
benefits accruing to Participants under the Plan or materially modify the
requirements for eligibility to participate in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the
Plan shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any
right to continue in the employ of the Corporation or any
Corporate Affiliate for any period of specific duration or
interfere with or otherwise restrict in any way the rights of
the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby
expressly reserved by each, to terminate such person's
employment at any time for any reason, with or without cause.
8
<PAGE>
C. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's
conflict-of-laws rules.
9
<PAGE>
Schedule A
Corporations Participating in
Employee Stock Purchase Plan
As of the Effective Time
Clarify Inc.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
B. Code shall mean the Internal Revenue Code of 1986, as amended.
C. Common Stock shall mean the Corporation's common stock.
D. Corporate Affiliate shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance
with Code Section 424), whether now existing or subsequently
established.
E. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is
a party:
1. a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's
outstanding securities are transferred to a person or
persons different from the persons holding those
securities immediately prior to such transaction, or
2. the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in
complete liquidation or dissolution of the
Corporation.
F. Corporation shall mean Clarify Inc., a Delaware corporation,
and any corporate successor to all or substantially all of the
assets or voting stock of Clarify Inc. that shall by
appropriate action adopt the Plan.
G. Effective Time shall mean the time at which the Underwriting
Agreement is executed and finally priced. Any Corporate
Affiliate that becomes a Participating Corporation after such
Effective Time shall designate a subsequent Effective Time
with respect to its employee-Participants.
H. Eligible Earnings shall mean the (i) regular base salary paid
to a Participant by one or more Participating Companies during
such individual's period of participation in the Plan, plus
(ii) any pre-tax contributions made by the Participant to any
Code Section 401(k) salary deferral plan or any Code Section
125 cafeteria benefit program now or hereafter established by
the Corporation or any Corporate Affiliate, plus (iii) all of
the following amounts to the extent paid in cash: overtime
payments, bonuses, commissions, profit-sharing distributions
and other incentive-type payments. However, Eligible Earnings
shall not include any contributions (other than Code Section
401(k) or Code Section 125 contributions) made on the
Participant's behalf by the Corporation or any Corporate
Affiliate to
A-1
<PAGE>
any deferred compensation plan or welfare benefit program now
or hereafter established.
I. Eligible Employee shall mean any person who is engaged, on a
regularly scheduled basis of more than twenty (20) hours per
week for more than five (5) months per calendar year, in the
rendition of personal services to any Participating
Corporation as an employee for earnings considered wages under
Code Section 3401(a).
J. Entry Date shall mean the date an Eligible Employee first
commences participation in the offering period in effect under
the Plan. The earliest Entry Date under the Plan shall be the
Effective Time.
K. Fair Market Value per share of Common Stock on any relevant
date shall be determined in accordance with the following
provisions:
1. If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value
shall be the closing selling price per share of
Common Stock on the date in question, as such price
is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any
successor system. If there is no closing selling
price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing
selling price on the last preceding date for which
such quotation exists.
2. If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be
the closing selling price per share of Common Stock
on the date in question on the Stock Exchange
determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is
officially quoted in the composite tape of
transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the
closing selling price on the last preceding date for
which such quotation exists.
3. For purposes of the initial offering period which
begins at the Effective Time, the Fair Market Value
shall be deemed to be equal to the price per share at
which the Common Stock is sold in the initial public
offering pursuant to the Underwriting Agreement.
L. 1933 Act shall mean the Securities Act of 1933, as amended.
M. Participant shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the
Plan.
N. Participating Corporation shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from
time to time by the Board to extend the benefits of the Plan
to their Eligible Employees. The Participating Corporations in
the Plan as of the Effective Time are listed in attached
Schedule A.
A-2
<PAGE>
O. Plan shall mean the Corporation's Employee Stock Purchase
Plan, as set forth in this document.
P. Plan Administrator shall mean the committee of two (2) or more
Board members appointed by the Board to administer the Plan.
Q. Purchase Date shall mean the last business day of each
Purchase Period. The initial Purchase Date shall be April 30,
1996.
R. Purchase Period shall mean each successive period within the
offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.
S. Stock Exchange shall mean either the American Stock Exchange
or the New York Stock Exchange.
T. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters managing the
initial public offering of the Common Stock.
A-3
<PAGE>
CLARIFY INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option/Stock Issuance Plan is intended to
promote the interests of Clarify Inc., a Delaware corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity
programs:
(i) the Discretionary Option Grant Program
under which eligible persons may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under
which eligible persons may, at the discretion of the Plan
Administrator, be issued shares of Common Stock directly, either
through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary), and
(iii) the Automatic Option Grant Program
under which Eligible Directors shall automatically receive option
grants at periodic intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall apply to all
equity programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive
authority to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders. No non-employee Board member shall
be eligible to serve on the Primary Committee if such individual has, during the
twelve (12)-month period immediately preceding the date of his or her
appointment to the Committee or (if shorter) the period commencing with the
Section 12(g) Registration Date and ending with the date of his or her
appointment to the Primary Committee, received an option grant or direct stock
issuance under the Plan or any stock option,
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stock appreciation, stock bonus or other stock plan of the Corporation (or any
Parent or Subsidiary), other than pursuant to the Automatic Option Grant
Program.
B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of the
Secondary Committee may be Board members who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary
Committee shall serve for such period of time as the Board may determine and may
be removed by the Board at any time. The Board may also at any time terminate
the functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant and Stock Issuance Programs and
to make such determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the
Discretionary Option Grant or Stock Issuance Program under its jurisdiction or
any option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary
Committee shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No member of
the Primary Committee or the Secondary Committee shall be liable for any act or
omission made in good faith with respect to the Plan or any option grants or
stock issuances under the Plan.
F. Administration of the Automatic Option Grant Program shall
be self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to option
grants made thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
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(ii) non-employee members of the Board
(other than those serving as members of the Primary Committee) or the
board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent
advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to the
provisions of the Plan) to determine, (i) with respect to the option grants
under the Discretionary Option Grant Program, which eligible persons are to
receive option grants, the time or times when such option grants are to be made,
the number of shares to be covered by each such grant, the status of the granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times at which each option is to become exercisable, the vesting schedule (if
any) applicable to the option shares and the maximum term for which the option
is to remain outstanding and (ii) with respect to stock issuances under the
Stock Issuance Program, which eligible persons are to receive stock issuances,
the time or times when such issuances are to be made, the number of shares to be
issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration to be paid for such shares.
C. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Discretionary Option Grant
Program or to effect stock issuances in accordance with the Stock Issuance
Program.
D. The individuals eligible to participate in the Automatic
Option Grant Program shall be (i) those individuals who are serving as
non-employee Board members on the Plan Effective Date or who are first elected
or appointed as non-employee Board members after the Plan Effective Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as non-employee
Board members after one or more Annual Stockholders Meetings held after the Plan
Effective Date. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant under the Automatic Option Grant Program on the Plan
Effective Date or at the time he or she first becomes a non-employee Board
member, but such individual shall be eligible to receive periodic option grants
under the Automatic Option Grant Program upon his or her continued service as a
non-employee Board member following one or more Annual Stockholders Meetings.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall initially not exceed
4,127,679* shares. Such authorized share reserve is comprised
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* Includes 1,048,244 shares added to the pool on January 1, 1996 and 1,158,475
shares added to the pool on January 1, 1997. Reflects stock split approved on
September 18, 1996, for stockholders of record on September 30, 1996.
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<PAGE>
of the estimated number of shares which remained available for issuance, as of
the Plan Effective Date, under the Predecessor Plan as last approved by the
Corporation's stockholders prior to such date, including the shares subject to
the outstanding options incorporated into the Plan and any other shares which
would have been available for future option grants under the Predecessor Plan.
B. The number of shares of Common Stock available for
issuance under the Plan shall automatically increase on the first trading day of
each of the 1996 and 1997 calendar years by an amount equal to five percent (5%)
of the shares of Common Stock and Common Stock equivalents (that is, options,
warrants and securities convertible into Common Stock) outstanding on December
31 of the immediately preceding calendar year. The number of shares of Common
Stock available for issuance under the Plan shall automatically increase on the
first trading day of each of the 1998, 1999 and 2000 calendar years by an amount
equal to five percent (5%) of the shares of Common Stock and Common Stock
equivalents (that is, options, warrants and securities convertible into Common
Stock) outstanding on December 31 of the immediately preceding calendar year. No
Incentive Options may be granted on the basis of the additional shares of Common
Stock resulting from such annual increases.
C. No one person participating in the Plan may receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 1,000,000 shares of Common Stock in the aggregate over
the term of the Plan.
D. Shares of Common Stock subject to outstanding options
shall be available for subsequent issuance under the Plan to the extent (i) the
options (including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
canceled in accordance with the cancellation-regrant provisions of Article Two.
All shares issued under the Plan (including shares issued upon exercise of
options incorporated from the Predecessor Plan), whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan. In addition,
should the exercise price of an option under the Plan (including any option
incorporated from the Predecessor Plan) be paid with shares of Common Stock or
should shares of Common Stock otherwise issuable under the Plan be withheld by
the Corporation in satisfaction of the withholding taxes incurred in connection
with the exercise of an option or the vesting of a stock issuance under the
Plan, then the number of shares of Common Stock available for issuance under the
Plan shall be reduced by the gross number of shares for which the option is
exercised or which vest under the stock issuance, and not by the net number of
shares of Common Stock issued to the holder of such option or stock issuance.
E. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the number and/or class of securities for which
any one person may be granted options, separately exercisable stock appreciation
rights and direct stock issuances over the term of the Plan, (iii) the number
and/or class of securities for which automatic option grants are to be
subsequently made per Eligible Director under the Automatic Option
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Grant Program and (iv) the number and/or class of securities and the exercise
price per share in effect under each outstanding option (including any option
incorporated from the Predecessor Plan) in order to prevent the dilution or
enlargement of benefits thereunder. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in
the form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by
the Plan Administrator but shall not be less than eighty-five percent (85%) of
the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due
upon exercise of the option and shall, subject to the provisions of Section I of
Article Five and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(iii) to the extent the option is
exercised for vested shares, through a special sale and remittance
procedure pursuant to which the Optionee shall concurrently provide
irrevocable written instructions to (a) a Corporation-designated
brokerage firm to effect the immediate sale of the purchased shares and
remit to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate exercise price
payable for the purchased shares plus all applicable Federal, state and
local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale transaction.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. Exercise and Term of Options. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in excess
of ten (10) years measured from the option grant date.
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C. Effect of Termination of Service.
1. The following provisions shall govern the
exercise of any options held by the Optionee at the time of cessation of Service
or death:
(i) Any option outstanding at the time of
the Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing the
option, but no such option shall be exercisable after the expiration of
the option term.
(ii) Any option exercisable in whole or in
part by the Optionee at the time of death may be subsequently exercised
by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution.
(iii) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and cease
to be outstanding for any vested shares for which the option has not
been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding
to the extent it is not exercisable for vested shares on the date of
such cessation of Service.
(iv) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options held by the
Optionee shall terminate immediately and cease to be outstanding.
(v) In the event of an Involuntary
Termination following a Corporate Transaction, the provisions of
Section III of this Article Two shall govern the period for which the
outstanding options are to remain exercisable following the Optionee's
cessation of Service and shall supersede any provisions to the contrary
in this section.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which
the option is to remain exercisable following the Optionee's cessation
of Service from the period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
(ii) permit the option to be exercised,
during the applicable post-Service exercise period, not only with
respect to the number of vested shares of Common Stock for which such
option is exercisable at the time of the Optionee's
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cessation of Service but also with respect to one or more additional
installments in which the Optionee would have vested under the option
had the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of
the Optionee, the option shall be exercisable only by the Optionee and shall not
be assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option may
be assigned in whole or in part during Optionee's lifetime in accordance with
the terms of a Qualified Domestic Relations Order. The assigned portion may only
be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to such Qualified Domestic Relations Order. The terms applicable
to the assigned portion shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS.
The terms specified below shall be applicable to all
Incentive Options. Except as modified by the provisions of this Section II, all
the provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to
Employees.
B. Exercise Price. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the
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first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive
Option is granted is a 10% Stockholder, then the exercise price per share shall
not be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each
outstanding option shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable for all of the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. However, an outstanding option shall not so
accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation (or
parent thereof) or to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation (or parent thereof), (ii) such
option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested option shares at
the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such option or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant. The determination of option
comparability under clause (i) above shall be made by the Plan Administrator,
and its determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to (i) the number and
class of securities available for issuance under the Plan on both an aggregate
and per Optionee basis following the consummation of such Corporate Transaction
and (ii) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same.
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E. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time shall automatically
accelerate (and any of the Corporation's outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction shall
automatically terminate and the shares of Common Stock subject to those
terminated rights shall immediately vest in full) in the event the Optionee's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of such Corporate
Transaction. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination.
F. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to (i) provide for the automatic acceleration of one
or more outstanding options (and the automatic termination of one or more
outstanding repurchase rights with the immediate vesting of the shares of Common
Stock subject to those rights) upon the occurrence of a Change in Control or
(ii) condition any such option acceleration (and the termination of any
outstanding repurchase rights) upon the subsequent Involuntary Termination of
the Optionee's Service within a specified period following the effective date of
such Change in Control. Any options accelerated in connection with a Change in
Control shall remain fully exercisable until the expiration or sooner
termination of the option term.
G. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One Hundred
Thousand Dollar limitation is not exceeded. To the extent such dollar limitation
is exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.
H. The grant of options under the Discretionary Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Discretionary
Option Grant Program (including outstanding options incorporated from the
Predecessor Plan) and to grant in substitution new options covering the same or
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new option grant
date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority
to grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
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B. The following terms shall govern the grant and exercise of
tandem stock appreciation rights:
(i) One or more Optionees may be granted
the right, exercisable upon such terms as the Plan Administrator may
establish, to elect between the exercise of the underlying option for
shares of Common Stock and the surrender of that option in exchange
for a distribution from the Corporation in an amount equal to the
excess of (a) the Fair Market Value (on the option surrender date) of
the number of shares in which the Optionee is at the time vested under
the surrendered option (or surrendered portion thereof) over (b) the
aggregate exercise price payable for such shares.
(ii) No such option surrender shall be
effective unless it is approved by the Plan Administrator. If the
surrender is so approved, then the distribution to which the Optionee
shall be entitled may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in
shares and partly in cash, as the Plan Administrator shall in its sole
discretion deem appropriate.
(iii) If the surrender of an option is
rejected by the Plan Administrator, then the Optionee shall retain
whatever rights the Optionee had under the surrendered option (or
surrendered portion thereof) on the option surrender date and may
exercise such rights at any time prior to the later of (a) five (5)
business days after the receipt of the rejection notice or (b) the
last day on which the option is otherwise exercisable in accordance
with the terms of the documents evidencing such option, but in no
event may such rights be exercised more than ten (10) years after the
option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be
granted limited stock appreciation rights with respect to their
outstanding options.
(ii) Upon the occurrence of a Hostile
Take-Over, each such individual holding one or more options with such
a limited stock appreciation right in effect for at least six (6)
months shall have the unconditional right (exercisable for a thirty
(30)-day period following such Hostile Take-Over) to surrender each
such option to the Corporation, to the extent the option is at the
time exercisable for vested shares of Common Stock. In return for the
surrendered option, the Optionee shall receive a cash distribution
from the Corporation in an amount equal to the excess of (A) the
Take-Over Price of the shares of Common Stock which are at the time
vested under each surrendered option (or surrendered portion thereof)
over (B) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the
option surrender date.
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(iii) Neither the approval of the Plan
Administrator nor the consent of the Board shall be required in
connection with such option surrender and cash distribution.
(iv) The balance of the option (if any)
shall continue in full force and effect in accordance with the
documents evidencing such option.
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ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed by
the Plan Administrator, but shall not be less than eighty-five percent (85%) of
the Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article
Five, shares of Common Stock may be issued under the Stock Issuance Program for
any of the following items of consideration which the Plan Administrator may
deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the
Corporation (or any Parent or Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock
Issuance Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by
the Participant or the performance objectives to be attained,
(ii) the number of installments in which
the shares are to vest,
(iii) the interval or intervals (if any)
which are to lapse between installments, and
(iv) the effect which death, Permanent
Disability or other event designated by the Plan Administrator is to
have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
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2. Any new, substituted or additional securities or
other property (including money paid other than as a regular cash dividend)
which the Participant may have the right to receive with respect to the
Participant's unvested shares of Common Stock by reason of any stock dividend,
stock split, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder
rights with respect to any shares of Common Stock issued to the Participant
under the Stock Issuance Program, whether or not the Participant's interest in
those shares is vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service
while holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion
waive the surrender and cancellation of one or more unvested shares of Common
Stock (or other assets attributable thereto) which would otherwise occur upon
the cessation of the Participant's Service or the non-completion of the vesting
schedule applicable to such shares. Such waiver shall result in the immediate
vesting of the Participant's interest in the shares of Common Stock as to which
the waiver applies. Such waiver may be effected at any time, whether before or
after the Participant's cessation of Service or the attainment or non-attainment
of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the outstanding repurchase rights under the Stock
Issuance Program shall terminate automatically, and all the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Corporate Transaction, except to the extent (i) those repurchase
rights are assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed in the Stock Issuance Agreement.
B. Any repurchase rights that are assigned in the Corporate
Transaction shall automatically terminate, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
the Participant's Service should subsequently terminate
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by reason of an Involuntary Termination within eighteen (18) months following
the effective date of such Corporate Transaction.
C. The Plan Administrator shall have the discretion,
exercisable either at the time the unvested shares are issued or at any time
while the Corporation's repurchase right remains outstanding, to (i) provide for
the automatic termination of one or more outstanding repurchase rights and the
immediate vesting of the shares of Common Stock subject to those rights upon the
occurrence of a Change in Control or (ii) condition any such accelerated vesting
upon the subsequent Involuntary Termination of the Participant's Service within
a specified period following the effective date of such Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
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ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates
specified below:
1. Each Eligible Director who is a non-employee
Board member on the Plan Effective Date and each Eligible Director who is first
elected or appointed as a non-employee Board member after such date shall
automatically be granted, on the Plan Effective Date or on the date of such
initial election or appointment (as the case may be), a Non-Statutory Option to
purchase 10,000 shares of Common Stock.
2. On the date of each Annual Stockholders Meeting,
beginning with the 1996 Annual Meeting, each individual who is to continue to
serve as an Eligible Director after such meeting, shall automatically be
granted, whether or not such individual is standing for re-election as a Board
member at that Annual Meeting, a Non-Statutory Option to purchase an additional
6,000 shares of Common Stock, provided such individual has served as a
non-employee Board member for at least six (6) months prior to the date of such
Annual Meeting. There shall be no limit on the number of such 6,000-share option
grants any one Eligible Director may receive over his or her period of Board
service.
B. Exercise Price.
1. The exercise price per share shall be equal to
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise price shall be payable in one or
more of the alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.
C. Option Term. Each option shall have a term of ten (10)
years measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each automatic grant shall vest, and
the Corporation's repurchase right shall lapse, in a series of two (2) equal and
successive annual installments over the Optionee's period of continued service
as a Board member, with one such installment to vest upon each of the first and
second anniversaries of the option grant date.
E. Effect of Termination of Board Service. The following
provisions shall govern the exercise of any options held by the Optionee at the
time the Optionee ceases to serve as a Board member:
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(i) The Optionee (or, in the event of
Optionee's death, the personal representative of the Optionee's estate
or the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following the date
of such cessation of Board service in which to exercise each such
option.
(ii) During the twelve (12)-month exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares of Common Stock for which the option is
exercisable at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve
as a Board member by reason of death or Permanent Disability, then all
shares at the time subject to the option shall immediately vest so
that such option may, during the twelve (12)-month exercise period
following such cessation of Board service, be exercised for all or any
portion of such shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain
exercisable after the expiration of the option term. Upon the
expiration of the twelve (12)-month exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service, terminate and cease to be
outstanding to the extent it is not exercisable for vested shares on
the date of such cessation of Board service.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of such shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Change in Control, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of such shares as
fully-vested shares of Common Stock. Each such option shall remain exercisable
for such fully-vested option shares until the expiration or sooner termination
of the option term or the surrender of the option in connection with a Hostile
Take-Over.
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C. Upon the occurrence of a Hostile Take-Over, the Optionee
shall have a thirty (30)-day period in which to surrender to the Corporation
each automatic option held by him or her for a period of at least six (6)
months. The Optionee shall in return be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of the
shares of Common Stock at the time subject to the surrendered option (whether or
not the Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board shall be required in connection
with such option surrender and cash distribution.
D. The grant of options under the Automatic Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the
Automatic Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
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ARTICLE FIVE
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee or
Participant to pay the option exercise price under the Discretionary Option
Grant Program or the purchase price for shares issued under the Stock Issuance
Program by delivering a promissory note payable in one or more installments. The
terms of any such promissory note (including the interest rate and the terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In all events, the maximum credit available to the Optionee or
Participant may not exceed the sum of (i) the aggregate option exercise price or
purchase price payable for the purchased shares plus (ii) any Federal, state and
local income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise or share purchase.
B. The Plan Administrator may, in its discretion, determine
that one or more such promissory notes shall be subject to forgiveness by the
Corporation in whole or in part upon such terms as the Plan Administrator may
deem appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common
Stock upon the exercise of options or stock appreciation rights or upon the
issuance or vesting of such shares under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any
or all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan (other than the options granted or the shares issued under the
Automatic Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
(i) Stock Withholding: The election to
have the Corporation withhold, from the shares of Common Stock
otherwise issuable upon the exercise of such Non-Statutory Option or
the vesting of such shares, a portion of those shares with an
aggregate Fair Market Value equal to the percentage of the Taxes (not
to exceed one hundred percent (100%)) designated by the holder.
(ii) Stock Delivery: The election to
deliver to the Corporation, at the time the Non-Statutory Option is
exercised or the shares vest, one or more shares of Common Stock
previously acquired by such holder (other than in connection with the
option exercise or share vesting triggering the Taxes) with an
aggregate Fair Market Value equal to the percentage of the Taxes (not
to exceed one hundred percent (100%)) designated by the holder.
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III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective on the Plan Effective Date, The
Plan was amended on April 4, 1997 to increase the duration of the annual share
increases provided in Article One, Section V.B, and to effect certain other
changes. However, no options granted under the Plan may be exercised, and no
shares shall be issued under the Plan, on the basis of the additional 5%
increase authorized for the 1998 and later calendar years, until the amendment
has been approved by the Corporation's stockholders. If such stockholder
approval is not obtained within twelve (12) months after the date of the Board's
approval of the Plan amendment, then all options previously granted under this
Plan on the basis of the amendment shall terminate and cease to be outstanding,
and no further options shall be granted and no shares shall be issued under the
Plan on the basis of such amendment. Except as so limited, options may be
granted and shares issued from the Effective Date.
B. The Plan shall serve as the successor to the Predecessor
Plan, and no further option grants or stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan as of such date shall, immediately upon approval of the
Plan by the Corporations's stockholders, be incorporated into the Plan and
treated as outstanding options under the Plan. However, each outstanding option
so incorporated shall continue to be governed solely by the terms of the
documents evidencing such option, and no provision of the Plan shall be deemed
to affect or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest of (i)
September 13, 2005, (ii) the date on which all shares available for issuance
under the Plan shall have been issued pursuant to the exercise of the options or
the issuance of shares (whether vested or unvested) under the Plan or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all options and unvested stock
issuances outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the documents evidencing such
options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, (i) no
such amendment or modification shall adversely affect the rights and obligations
with respect to options, stock appreciation rights or unvested stock issuances
at the time outstanding under the Plan unless the Optionee or the Participant
consents to such amendment or modification, and (ii) any amendment made to the
Automatic Option Grant Program (or any options outstanding thereunder) shall be
in compliance
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with the limitations of that program. In addition, the Board shall not, without
the approval of the Corporation's stockholders, (i) materially increase the
maximum number of shares issuable under the Plan, the number of shares for which
options may be granted under the Automatic Option Grant Program or the maximum
number of shares for which any one person may be granted options, separately
exercisable stock appreciation rights and direct stock issuances per calendar
year, except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) materially modify the eligibility
requirements for Plan participation or (iii) materially increase the benefits
accruing to Plan participants.
B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant Program and shares of Common Stock may be
issued under the Stock Issuance Program that are in each instance in excess of
the number of shares then available for issuance under the Plan, provided any
excess shares actually issued under those programs are held in escrow until
there is obtained stockholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such stockholder approval is not obtained within twelve (12) months after the
date the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically canceled and cease to
be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale
of shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option
or stock appreciation right under the Plan and the issuance of any shares of
Common Stock (i) upon the exercise of any option or stock appreciation right or
(ii) under the Stock Issuance Program shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options and stock appreciation rights
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued
or delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws, including
the filing and effectiveness of the Form S-8 registration statement for the
shares of Common Stock issuable under the Plan, and all applicable listing
requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
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VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option
grant program in effect under the Plan.
B. Board shall mean the Corporation's Board of Directors.
C. Change in Control shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation), of
beneficial ownership (within the meaning of Rule 13d-3 of the 1934
Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept, or
(ii) a change in the composition of the
Board over a period of thirty-six (36) consecutive months or less such
that a majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
E. Common Stock shall mean the Corporation's common stock.
F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons holding
those securities immediately prior to such transaction; or
(ii) the sale, transfer or other
disposition of all or substantially all of the Corporation's assets in
complete liquidation or dissolution of the Corporation.
G. Corporation shall mean Clarify Inc., a Delaware corporation.
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H. Discretionary Option Grant Program shall mean the discretionary
option grant program in effect under the Plan.
I. Domestic Relations Order shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
J. Eligible Director shall mean a non-employee Board member eligible
to participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
K. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. Exercise Date shall mean the date on which the Corporation shall
have received written notice of the option exercise.
M. Fair Market Value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time
traded on the Nasdaq National Market, then the Fair Market Value shall
be the closing selling price per share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time
listed on any Stock Exchange, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan Administrator to
be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(iii) For purposes of option grants made
on the date the Underwriting Agreement is executed and the initial
public offering price of the Common Stock is established, the Fair
Market Value shall be deemed to be equal to the established initial
offering price per share.
N. Hostile Take-Over shall mean a change in ownership of the
Corporation effected through the following transaction:
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(i) the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation) of
beneficial ownership (within the meaning of Rule 13d-3 of the 1934
Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept, and
(ii) more than fifty percent (50%) of the
securities so acquired are accepted from persons other than Section 16
Insiders.
O. Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.
P. Involuntary Termination shall mean the termination of the Service
of any individual which occurs by reason of:
(i) such individual's involuntary
dismissal or discharge by the Corporation for reasons other than
Misconduct, or
(ii) such individual's voluntary
resignation following (A) a change in his or her position with the
Corporation which materially reduces his or her level of
responsibility, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place
of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without
the individual's consent.
Q. Misconduct shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 Act shall mean the Securities Exchange Act of 1934, as
amended.
S. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.
T. Optionee shall mean any person to whom an option is granted under
the Discretionary Option Grant or Automatic Option Grant Program.
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U. Parent shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. Participant shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
W. Permanent Disability or Permanently Disabled shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for the purposes of the Automatic Option
Grant Program, Permanent Disability or Permanently Disabled shall mean the
inability of the non-employee Board member to perform his or her usual duties as
a Board member by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more.
X. Plan shall mean the Corporation's 1995 Stock Option/Stock Issuance
Plan, as set forth in this document.
Y. Plan Administrator shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Z. Plan Effective Date shall mean the date on which the Underwriting
Agreement is executed and the initial public offering price of the Common Stock
is established.
AA. Predecessor Plan shall mean the Corporation's existing 1991 Stock
Option/Stock Issuance Plan.
BB. Primary Committee shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
CC. Qualified Domestic Relations Order shall mean a Domestic Relations
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.
DD. Secondary Committee shall mean a committee of one (1) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
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EE. Section 16 Insider shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
FF. Section 12(g) Registration Date shall mean the first date on which
the Common Stock is registered under Section 12(g) of the 1934 Act.
GG. Service shall mean the provision of services to the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
HH. Stock Exchange shall mean either the American Stock Exchange or
the New York Stock Exchange.
II. Stock Issuance Agreement shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
JJ. Stock Issuance Program shall mean the stock issuance program in
effect under the Plan.
KK. Subsidiary shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
LL. Take-Over Price shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
MM. Taxes shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
NN. 10% Stockholder shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
OO. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
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APPENDIX A
CLARIFY INC.
ANNUAL MEETING OF STOCKHOLDERS, JUNE 11, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CLARIFY INC.
The undersigned revokes all previous proxies, acknowledges receipt of the notice
of stockholders meeting to be held June 11, 1997 and the proxy statement, and
appoints David A. Stamm and Ray M. Fritz or either of them the proxy of the
undersigned, with full power of substitution, to vote all shares of Common Stock
of Clarify Inc. that the undersigned is entitled to vote, either on his or her
own behalf or on behalf of an entity or entities, at the Annual Meeting of
Stockholders of the Company to be held at the offices of the Company, 2125 O'Nel
Drive, San Jose, California 95131, on Wednesday, June 11, 1997 at 10:00 a.m.,
and at any adjournment or postponement thereof, with the same force and effect
as the undersigned might or could do if personally present thereat. The Shares
represented by this proxy shall be voted in the manner set forth on the reverse
side.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
PLEASE MARK VOTES AS IN THIS EXAMPLE. /X/
THE BOARD OF DIRECTORS RECOMMEND A VOTE FOR EACH OF THE MATTERS LISTED BELOW.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED BELOW. THIS WILL BE
VOTED FOR PROPOSALS NO. 1, 2, 3, 4, 5 AND 6, IF NO SPECIFICATION IS MADE.
1. Election of all nominees listed below to the Board of Directors to serve
until the next Annual Meeting and until their successors have been duly elected
and qualified, except as noted (write the names, if any, of nominees for whom
you withhold authority to vote.)
Nominees: James L. Patterson, David A. Stamm, Thomas H. Bredt, Mary Jane Elmore
and Frederick Fluegal
For / / Withheld / / Abstain / /
For all nominees except as note above.
2. Proposal to amend the Company's Certificate of Incorporation increasing the
number of the Company's Common Stock reserved for issuance thereunder from
25,000,000 to 55,000,000 shares.
For / / Withheld / / Abstain / /
3. Proposal to amend the Company's 1995 Stock Option/Stock Issuance Plan, which
among other things, would provide for automatic annual increases in the share
reserve beginning in 1998 and continuing through 2000.
For / / Withheld / / Abstain / /
4. Proposal to amend the Company's Employee Stock Purchase Plan, including an
increase by 500,000 shares to the number of shares available.
For / / Withheld / / Abstain / /
5. Proposal to ratify the selection of Coopers Lybrand L.L.P. as the Company's
independent auditors for the fiscal year ending December 31, 1997.
For / / Withheld / / Abstain / /
6. Proposal to transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
Please sign your name exactly as it appears hereon. If acting as attorney,
executor, trustee, or in their representative capacity, sign name and title.
Signature:_______________________________ Date:________________
Signature:_______________________________ Date:________________
<PAGE>
APPENDIX B
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
CLARIFY INC.
A Delaware corporation
(Pursuant to Section 242 and 245
of the Delaware General Corporation Law)
CLARIFY INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, hereby certifies as
follows:
FIRST: That the name of the corporation is Clarify Inc. and that the
corporation was originally incorporated on August 27, 1990 pursuant to the
General Corporation Law.
SECOND: The Amended and Restated Certificate of Incorporation of this
corporation shall be restated to read in full as follows:
ARTICLE I
The name of this corporation is Clarify Inc.
ARTICLE II
The address of the registered office of this corporation in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent as such address is The Corporation
Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which coporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
This corporation is authorized to issue two classes of stock to be
designated common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The number of shares of Common Stock authorized to be issued is
Fifty-Five Million (55,000,000), par value $0.0001 per share, and the number of
shares of Preferred Stock authorized to be issued is Five Million (5,000,000),
par value $0.0001 per share.
The Preferred Stock may be issued from time to time in one or more
series, without further stockholder approval. The Board of Directors is hereby
authorized, in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any wholly unissued series of Preferred Stock, within
the limitations and restrictions stated in this Amended and Restated Certificate
of Incorporation, to fix or alter the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation preferences of
any wholly unissued series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or any of them, and to
increase or decrease the number of shares of any series subsequent to the issue
of shares of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
