<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
CLARIFY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
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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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<PAGE> 2
LOGO
CLARIFY INC.
2560 ORCHARD PARKWAY
SAN JOSE, CALIFORNIA 95131
April 30, 1999
TO THE STOCKHOLDERS OF CLARIFY INC.
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
(the "Annual Meeting") of Clarify Inc. (the "Company") to be held at the offices
of the Company, 2560 Orchard Parkway, San Jose, California 95131, on Thursday,
June 10, 1999, at 10:30 a.m., local time.
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 Annual
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-PREPAID 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 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,
/s/ Anthony Zingale
Anthony Zingale
President and Chief Executive Officer
<PAGE> 3
LOGO
CLARIFY INC.
2560 ORCHARD PARKWAY
SAN JOSE, CALIFORNIA 95131
------------------------
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 10, 1999
Notice is hereby given that the 1999 Annual Meeting of Stockholders (the
"Annual Meeting") of Clarify Inc., a Delaware corporation (the "Company"), will
be held at the offices of the Company, 2560 Orchard Parkway, San Jose,
California 95131, on Thursday, June 10, 1999, at 10:30 a.m., local time, for the
following purposes:
1. To elect five directors of the Board of Directors to serve until the
next Annual Meeting of Stockholders or until their respective successors
are duly elected and qualified;
2. To approve the adoption of the Company's 1999 Employee Stock Purchase
Plan, authorize the issuance of 1,000,000 shares of Common Stock
thereunder, and provide for automatic annual increases in the number of
shares reserved thereunder in each of the Company's fiscal years 2000,
2001, 2002, 2003, and 2004 by an amount equal to the lesser of 500,000
shares, 5% of the shares outstanding on the last day of the immediately
preceding fiscal year, or such lesser number of shares as determined by
the Board of Directors;
3. To approve the amendment of the Company's 1995 Stock Option/Stock
Issuance Plan to reserve an additional 500,000 shares of Common Stock
for issuance thereunder and provide for automatic annual increases in
the number of shares of Common Stock reserved thereunder in each of the
Company's fiscal years 2000 and 2001 by an amount equal to 5% of the
shares of Common Stock and options outstanding as of the end of the
preceding fiscal year;
4. To approve the adoption of the Company's Non-Employee Directors' Option
Plan and to authorize the issuance of up to 300,000 shares of Common
Stock thereunder;
5. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent public accountants for the fiscal year ending December 31,
1999; and
6. To transact such other business as may properly come before the Annual
Meeting and any adjournments or postponements thereof.
The foregoing items of business, including the nominees for directors, are
more fully described in the Proxy Statement which is attached and made a part of
this Notice. Only stockholders of record at the close of business on April 15,
1999 will be entitled to notice of and to vote at the Annual Meeting and any
adjournment or postponement thereof.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. HOWEVER, WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN
PERSON, YOU ARE URGED TO MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD AS
PROMPTLY AS POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE PROVIDED IN ORDER TO ENSURE
YOUR REPRESENTATION AND THE PRESENCE OF A QUORUM AT THE ANNUAL MEETING. IF YOU
SEND IN YOUR PROXY CARD AND THEN DECIDE TO ATTEND THE ANNUAL MEETING TO VOTE
YOUR SHARES IN PERSON, YOU MAY STILL DO SO. YOUR PROXY IS REVOCABLE IN
ACCORDANCE WITH THE PROCEDURES SET FORTH IN THE PROXY STATEMENT.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Anthony Zingale
Anthony Zingale
President and Chief Executive Officer
San Jose, California
April 30, 1999
THANK YOU FOR YOUR ATTENTION TO THIS MATTER. YOUR PROMPT RESPONSE WILL GREATLY
FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING.
<PAGE> 4
CLARIFY INC.
2560 ORCHARD PARKWAY
SAN JOSE, CALIFORNIA 95131
------------------------
PROXY STATEMENT
FOR 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 10, 1999
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
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 1999 Annual Meeting of Stockholders (the "Annual Meeting")
to be held on Thursday, June 10, 1999, at 10:30 a.m., local time, and at any
adjournment or postponement thereof, for the purposes set forth in this Proxy
Statement and the accompanying Notice of Annual Meeting of Stockholders. The
Annual Meeting will be held at the Company's principal executive offices,
located at 2560 Orchard Parkway, San Jose, California 95131. The Company's
principal telephone number at that location is (408) 573-3000.
This Proxy Statement, the enclosed proxy card and the Company's Annual
Report to Stockholders for the fiscal year ended December 31, 1998, including
financial statements, were first mailed to all stockholders entitled to vote at
the Annual Meeting on or about April 30, 1999.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it 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 revoke your proxy by attending the Annual
Meeting and voting in person.
RECORD DATE; VOTING SECURITIES
The close of business on April 15, 1999 has been fixed as the record date
(the "Record Date") for determining the holders of shares of Common Stock of the
Company entitled to notice of and to vote at the Annual Meeting. The Company's
Common Stock is the only type of security entitled to vote at the Annual
Meeting. At the close of business on the Record Date, the Company had
approximately 22,484,910 shares of Common Stock outstanding and held of record
by approximately 144 stockholders.
QUORUM REQUIRED
The Company's Bylaws provide that the holders of a majority of the
Company's Common Stock issued, 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, but not voting for purposes of determining the approval of any
matter submitted to the stockholders for a vote.
VOTING AND SOLICITATION
Each stockholder of record on the Record Date is entitled to one vote for
each share of Common Stock held by such stockholder on such date. Shares of
Common Stock may not be voted cumulatively. All votes cast by proxy or in person
at the Annual Meeting will be tabulated by the Inspector of Elections with the
assistance of the Company's transfer agent. The Inspector of Elections will also
determine whether a quorum is present.
<PAGE> 5
Except in certain specific circumstances, the affirmative vote of a
majority of shares represented and voting with respect to a particular item at a
duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the required quorum) is required for
approval of proposals presented to stockholders. With respect to the election of
directors, 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 number of affirmative votes.
The shares represented by the proxies received, properly marked, dated,
signed and not revoked will be voted at the Annual Meeting. Where such proxies
specify a choice with respect to any matter to be acted upon, the shares will be
voted in accordance with the specifications made. Any proxy which is returned
using the form of proxy enclosed and which is not marked as to a particular item
will be voted FOR the director nominees or the item not marked and as the proxy
holders deem advisable on other matters that may come before the Annual Meeting,
as the case may be.
The Company will bear the entire cost of the solicitation of proxies,
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. 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 additional solicitation services. The Company has also retained
Corporate Investor Communications, Inc. ("CIC") to assist in the solicitation of
proxies. CIC will receive a fee for its services of approximately $5,500, plus
reasonable out-of-pocket expenses, which amount will be paid by the Company.
Except as described above, the Company does not presently intend to solicit
proxies other than by mail and telephone.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
The Company's Bylaws currently provide for six directors. At the Annual
Meeting, five directors are to be elected to serve until the next Annual Meeting
of Stockholders or until their respective successors are duly elected and
qualified. Director Mary Jane Elmore has indicated that she does not intend to
seek re-election to the Company's Board of Directors at the Annual Meeting for
reasons unrelated to the Company and will resign immediately prior to the Annual
Meeting. During 1998, James L. Patterson resigned from the Company's Board of
Directors for reasons unrelated to the Company. Therefore, the Board of
Directors has amended the Company's Bylaws, in accordance with the terms
thereof, to reduce the number of directors of the Company to five, effective as
of the Annual Meeting. Unless otherwise instructed, the proxy holders will vote
the proxies received by them FOR the Company's five nominees named below, all of
whom are presently directors of the Company. In the event that any nominee of
the Company is unable or unwilling to serve as a director at the time of the
Annual Meeting, the proxies may be voted for the balance of those nominees named
and for any substitute nominee who shall be designated by the present Board or
the proxy holders to fill the vacancy, or for the balance of the nominees named
without nomination of a substitute, or the size of the Board may be reduced in
accordance with the Bylaws of the Company. The Board has no reason to believe
that any of the persons named below will be unable or unwilling to serve as a
nominee or as a director if elected. Assuming a quorum is present, the five
nominees for director receiving the greatest number of votes cast at the Annual
Meeting will be elected. The term of office of each person elected as a director
will continue until the next Annual Meeting of Stockholders or until his or her
successor has been duly elected and qualified.
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The nominees' names, ages as of December 31, 1998, and certain information
about them are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
<S> <C> <C> <C>
David A. Stamm......................... 46 Chairman of the Board of Directors of the 1990
Company
Anthony Zingale(1)..................... 43 President and Chief Executive Officer of 1998
the Company
Thomas H. Bredt(2)(3).................. 58 Venture Capitalist with Menlo Ventures 1991
Joseph B. Costello..................... 45 Managing Director of Think3 1998
Christopher H. Greendale(2)(3)......... 47 Partner of Internet Capital Group 1998
</TABLE>
- ---------------
(1) Sole Member of Stock Option Committee
(2) Member of Compensation Committee
(3) Member of Audit Committee
Mr. Stamm co-founded the Company in August 1990 and served as President,
Chief Executive Officer and Director of the Company from its inception until
March 1998. In March 1998, Mr. Stamm was appointed Chairman of the Board of
Directors of the Company. From 1980 to 1989, Mr. Stamm served as Executive Vice
President and a member of the Board of Directors of Daisy Systems Corporation
("Daisy Systems"), a computer-aided engineering hardware and software company
which he co-founded in August 1980. Mr. Stamm also serves as a member of the
Board of Directors of Letterdale Software, Inc., a privately-held internet
start-up specializing in meeting scheduling systems. Mr. Stamm holds a B.S.E.E.
degree from Purdue University and holds a patent on single-chip microprocessor
technology.
Mr. Zingale has served as President, Chief Executive Officer and Director
of the Company since March 1998. Prior to joining the Company, from November
1997 to March 1998, Mr. Zingale served as an independent consultant. From May
1989 to November 1997, Mr. Zingale served in a variety of executive management
positions at Cadence Design Systems, Inc. ("Cadence"), an electronic design
automation software and services company, including Senior Vice President of
Worldwide Marketing from April 1995 to November 1997, Vice President and General
Manager High-Level Design Division from 1993 to March 1995, Vice President of
Corporate Marketing from 1991 to 1993 and Vice President of Marketing, Systems
Division 1989 to 1991. Prior to joining Cadence, Mr. Zingale served as Vice
President of Marketing at EDA Systems, Inc., a design automation company
acquired by Digital Equipment Corporation, and held a variety of positions with
Daisy Systems and Intel Corporation, a semiconductor company. Mr. Zingale holds
a B.S. degree in electrical and computer engineering and a B.A. degree in
business administration from the University of Cincinnati.
Mr. Bredt has served as a director of the Company since February 1991. Mr.
Bredt has served as a general partner and managing member of Menlo Ventures, a
private venture capital investment partnership, since 1986. Mr. Bredt is a
director of several privately-held technology companies. 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.
Mr. Costello has served as a director of the Company since October 1998.
Since January 1998, Mr. Costello has served as Managing Director and Chairman of
the Board of Think3 (formerly named Cad.Lab, Inc.), a computer-aided design
company. From 1988 to October 1997, Mr. Costello served as President and Chief
Executive Officer of Cadence. Before the formation of Cadence, Mr. Costello
served as President and Chief Operating Officer of SDA Systems, an electronic
design automation company and predecessor company to Cadence. Mr. Costello also
serves as Chairman of the Board of Zamba (formerly Racotek, Inc.), a systems
integration company; Chairman of the Board of NextNet, a wireless data company;
as a member of the Board of Directors of Reality Fusion, a revolutionary video
interaction company, and Catena Technologies, a broadband DSL company. Mr.
Costello holds a B.S. in mathematics and physics from
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<PAGE> 7
Harvey Mudd College, an M.S. in physics from Yale University, and an M.S. degree
in physics from the University of California, Berkeley.
Mr. Greendale has served as a director of the Company since July 1998.
Since January 1996, Mr. Greendale has served as Executive Vice President of
Marketing of Cambridge Technology Partners ("CTP"), a systems integration
consulting firm which he co-founded in 1991. From 1993 through January 1996, Mr.
Greendale served as Senior Vice President of Sales and Marketing of CTP and,
from 1991 through 1993 served as its Vice President of Sales at Marketing. Prior
to joining CTP, Mr. Greendale served in a variety of executive management
positions, including Vice President of Marketing for Oracle Corporation, a
database software company, and Vice President of Worldwide Marketing for Ingres,
a database software company. Mr. Greendale currently serves on the Board of
Directors of several privately-held technology companies, including Rubric Inc.,
an enterprise marketing automation software company, and ServiceSoft, an
internet-based customer self-help desk software company, and serves as Chairman
of the Board of Directors of Breakaway Solutions, Inc., an e-commerce systems
integration and hosting company, and of Cascade Systems, a multimedia publishing
software company. Mr. Greendale also serves as a Partner of Internet Capital
Group, a business-to-business e-commerce company. Mr. Greendale holds a B.S. in
math and M.S. degree in finance from Southern Illinois University.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1998, the Board of Directors held
eight formal meetings. During 1998, each director attended or participated in at
least 75% of the meetings of the Board of Directors and each committee of the
Board on which such director served, that were held while such person was a
member. The Board of Directors has a standing Audit Committee, Compensation
Committee, and Stock Option Committee. The Board does not have a nominating
committee or a committee performing the functions of a nominating committee.
During the fiscal year ended December 31, 1998, the Audit Committee of the
Board of Directors held two formal meetings. The Audit Committee recommends
engagement of the firm of certified public accountants to audit the financial
statements of the Company and monitors the effectiveness of the audit effort,
the Company's financial and accounting organization and its system of internal
accounting controls. The Audit Committee consists of Ms. Elmore and Mr. Bredt.
Effective immediately prior to the Annual Meeting, Mr. Costello shall replace
Ms. Elmore as a member of the Audit Committee.
During the fiscal year ended December 31, 1998, the Compensation Committee
of the Board of Directors held two formal meetings and acted by unanimous
written consent 19 times. The Compensation Committee reviews the performance and
compensation of the executive officers and certain key employees of the Company,
including salary and cash bonus levels, and administers the 1995 Stock
Option/Stock Issuance Plan. The Compensation Committee consists of Messrs. Bredt
and Greendale.
During the fiscal year ended December 31, 1998, the Stock Option Committee
of the Board of Directors acted by unanimous written consent 93 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 within certain
parameters set by the Board. During 1998, the Stock Option Committee consisted
solely of Mr. Stamm until March 20, 1998 and has consisted solely of Mr. Zingale
from March 21, 1998 until the present.
DIRECTOR COMPENSATION
Except for grants of stock options, directors of the Company generally do
not receive compensation for services provided as a director, attendance at
Board or committee meetings, or participation in special assignments of the
Board of Directors. The Company may reimburse directors for their reasonable
out-of-pocket expenses in attending Board and committee meetings.
Non-employee directors are eligible for stock option grants pursuant to the
provisions of the Automatic Option Grant Program under the Company's 1995 Stock
Option/Stock Issuance Plan (the "Option Plan"). The Non-Employee Directors'
Option Plan (the "Directors' Plan"), submitted for stockholder approval in
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<PAGE> 8
Proposal No. 4 below, shall, if approved, replace and supersede the Automatic
Option Grant Program pursuant to the Option Plan.
During 1998, James L. Patterson, a member of the Board of Directors of the
Company from April 1991 to October 1998, Mr. Bredt and Ms. Elmore were each
granted a stock option to purchase 6,000 shares of Common Stock at an exercise
price of $12.25 per share under the Option Plan. Under the proposed Directors'
Plan, each non-employee Board member who joins the Board of Directors after the
date of the Annual Meeting, whether through election by the stockholders or
appointment by the Board, will automatically be granted, at the time of his or
her initial election or appointment, a non-statutory stock option to purchase
20,000 shares of Common Stock at an exercise price equal to the closing sale
price of the Company's Common Stock on the Nasdaq Stock Market on the date of
grant. Upon stockholder approval of the proposed Directors' Plan, as more fully
described in Proposal No. 4 below, each current non-employee member of the Board
will be granted a non-statutory stock option to purchase 10,000 shares of Common
Stock. On the date of each Annual Meeting of Stockholders thereafter, each
continuing non-employee Board member will receive an additional option to
purchase 10,000 shares of Common Stock under the Directors' Plan.
In addition, non-employee members of the Board not serving on the
Compensation Committee and directors who are employees of the Company are, and
will continue to be, eligible to receive options and be issued shares of Common
Stock directly under the Option 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, in annual cash bonus incentives. In
addition, employee directors shall also be eligible to participate in the 1999
Employee Stock Purchase Plan if approved as described in Proposal No. 2 below.
See "Compensation Committee Report."
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES LISTED
ABOVE.
PROPOSAL NO. 2
APPROVAL OF 1999 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, the Company's stockholders are being asked to
approve the adoption of the Company's 1999 Employee Stock Purchase Plan (the
"1999 Purchase Plan") and the reservation of 1,000,000 shares of Common Stock
for issuance thereunder, plus automatic annual increases to the number of shares
of Common Stock reserved under the 1999 Purchase Plan on the first day of each
of the Company's fiscal years in 2000, 2001, 2002, 2003 and 2004 equal to the
lesser of: (i) 500,000 shares; (ii) five percent (5%) of the shares outstanding
on the last day of the immediately preceding fiscal year; or (iii) such lesser
number of shares as determined by the Board. The 1999 Purchase Plan shall, if
approved, supersede the Company's Employee Stock Purchase Plan currently in
effect (the "Existing Purchase Plan"). The following is a summary of principal
features of the 1999 Purchase Plan. This summary, however, does not purport to
be a complete description of all the provisions of the 1999 Purchase Plan. Any
stockholder of the Company who wishes to obtain a copy of the actual plan
document may do so upon written request to the Equity Compensation Department at
the Company's principal offices in San Jose, California.
GENERAL
The 1999 Purchase Plan was adopted by the Board of Directors in March 1999.
The Board of Directors has reserved 1,000,000 shares of Common Stock for
issuance under the 1999 Purchase Plan. The Board of Directors believes that, in
order to attract qualified employees to the Company and to provide incentives to
its current employees, it is necessary to provide its employees with a
continuing opportunity to purchase Common Stock of the Company pursuant to the
1999 Purchase Plan. Accordingly, the stockholders are being asked to approve the
1999 Purchase Plan.
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<PAGE> 9
The 1999 Purchase Plan will be implemented by a series of twenty-four month
offering periods commencing on November 1 and May 1 of each year, or at such
other time or times as may be determined by the Board of Directors. Each
offering period consists of four consecutive purchase periods of six-month's
duration. The first offering period shall commence on November 1, 1999, on which
date the Existing Purchase Plan shall terminate and be of no further force or
effect. The Purchase Plan is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The 1999 Purchase Plan
is further deemed to contain, and options granted thereunder shall contain, and
the shares issued upon exercise thereof shall be subject to, any additional
conditions and restrictions as may be required by Rule 16b-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to 1999 Purchase Plan
transactions.
PURPOSE
The purpose of the 1999 Purchase Plan is to provide employees (including
officers and employee directors) of the Company and its designated subsidiaries
with an opportunity to purchase Common Stock of the Company through payroll
deductions.
ADMINISTRATION
The 1999 Purchase Plan is to be administered by the Board of Directors of
the Company or a committee appointed by the Board (the "Administrator"). The
1999 Purchase Plan is currently administered by the Board of Directors. All
questions of interpretation or application of the 1999 Purchase Plan shall be
determined by the Administrator.
ELIGIBILITY AND PARTICIPATION
Employees (including officers and employee directors) who are employed by
the Company or any designated subsidiary for at least 20 hours per week and more
than five months in any calendar year and who are employed by the Company as of
the first business day of each offering period of the plan (the "Offering Date")
are eligible to participate in an offering under the 1999 Purchase Plan, subject
to certain limitations imposed by Section 423(b) of the Code and limitations on
stock ownership as set forth in the 1999 Purchase Plan. No employee shall be
granted an option under the 1999 Purchase Plan if (i) immediately after the
grant such employee would own stock and/or hold outstanding options to purchase
stock possessing five percent (5%) or more of the total voting power or value of
all classes of stock of the Company or its subsidiaries, or (ii) such option
would permit such employee to purchase stock under all employee stock purchase
plans of the Company and its subsidiaries to accrue at a rate which exceeds
$25,000 of fair market value of such stock for each calendar year in which such
option is outstanding at any time.
Eligible employees become participants in the 1999 Purchase Plan by filing
with the Equity Compensation Department of the Company a subscription agreement
authorizing payroll deductions prior to the applicable Offering Date, unless a
later time for filing the subscription agreement has been set by the
Administrator. Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the last
day (the "Purchase Date") of the offering period to which the subscription
agreement is applicable, unless sooner terminated by the participant.
GRANT AND EXERCISE OF OPTION
At the beginning of an offering period, each participant is granted an
option to purchase up to that number of shares determined by dividing such
employee's payroll deductions accumulated prior to the end of the offering
period and retained in the participant's account as of the end of the offering
period by the lower of (i) eighty-five percent (85%) of the fair market value of
a share of the Company's Common Stock at the beginning of the offering period or
(ii) eighty-five percent (85%) of the fair market value of a share of the
Company's Common Stock on the last day of the offering period, up to a maximum
of 2,000 shares per purchase period; provided that such purchases shall be
subject to the limitations set forth above. The Company may make a pro rata
reduction in the number of shares subject to options if the total number of
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<PAGE> 10
shares which would otherwise be subject to options granted at the beginning of
an offering period exceeds the number of remaining available shares in the 1999
Purchase Plan. Unless an employee withdraws his or her participation in the 1999
Purchase Plan by giving written notice to the Company of his or her election to
withdraw all accumulated payroll deductions prior to the end of an offering
period, the employee's option for the purchase of shares will be exercised
automatically at the end of the each purchase period in an offering period, and
the maximum number of full shares subject to options which are purchasable with
the accumulated payroll deductions in his or her account will be purchased at
the applicable purchase price determined as provided below. During his or her
lifetime, a participant's option to purchase shares under the 1999 Purchase Plan
is exercisable only by him or her.
PURCHASE PRICE
The purchase price per share at which shares are sold to participating
employees under the 1999 Purchase Plan is the lower of (i) 85% of the fair
market value per share of the Common Stock at the time the option is granted on
the applicable Offering Date, and (ii) 85% of the fair market value per share of
the Common Stock at the time the option is exercised on the applicable Purchase
Date. In certain circumstances, the purchase price may be adjusted during an
offering period in order for the Company to avoid incurring adverse accounting
charges. The fair market value of the Common Stock on a given date shall be
determined by the Board of Directors and will generally be based upon the
closing sales price of the Common Stock on the Nasdaq Stock Market.
PAYROLL DEDUCTIONS
The purchase price of the shares to be acquired under the 1999 Purchase
Plan is accumulated by payroll deductions during the offering period. The
deductions may not be less than 1% or more than 20% of a participant's aggregate
compensation during a purchase period. A participant may discontinue his or her
participation in the 1999 Purchase Plan or, on one occasion only during an
offering period, may increase or decrease his or her rate of payroll deductions.
Payroll deductions for a participant shall commence on the first payroll
following the Offering Date and shall continue until his or her participation is
terminated as provided in the 1999 Purchase Plan.
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including
retirement or death, or the failure of the participant to remain in the
continuous employ of the Company for at least 20 hours per week during the
applicable offering period, cancels his or her option and his or her
participation in the 1999 Purchase Plan immediately. In such event, the payroll
deductions credited to the participant's account will be returned to him or her
or, in the case of death, to the person or persons entitled thereto as provided
in the 1999 Purchase Plan and in the number of shares then-available for grant
under the 1999 Purchase Plan.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change is made in the Company's capitalization in the
middle of an offering period, such as a stock split, stock dividend, combination
or reclassification, that results in an increase or decrease in the number of
shares of Common Stock outstanding without receipt of consideration by the
Company, appropriate adjustment shall be made in the purchase price and in the
number of shares subject to options under the 1999 Purchase Plan.
In the event of a proposed dissolution or liquidation of the Company, the
offering periods then in progress will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Administrator. In the event of a proposed sale of all or substantially all of
the assets of the Company, or the merger of the Company with or into another
corporation, each option under the 1999 Purchase Plan shall be assumed or an
equivalent substitute option shall be substituted by such successor corporation
or a parent or subsidiary of such successor corporation. In the event that the
successor corporation refuses to assume or substitute for outstanding options,
each offering period and purchase period then in process shall be shortened
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and a new Purchase Date shall be set as of which date such offering periods and
purchase periods shall terminate.
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors may at any time for any reason amend or terminate
the 1999 Purchase Plan without the approval of the stockholders, except that
such termination cannot affect options previously granted nor may an amendment
make any change in an option granted prior thereto which adversely affects the
rights of any participant. No amendment may be made to the 1999 Purchase Plan
without approval of the stockholders of the Company if such amendment would
increase the number of shares reserved under the 1999 Purchase Plan, change the
standards of eligibility for participation in the 1999 Purchase Plan or
materially increase the benefits accruing to participants in the 1999 Purchase
Plan.
The 1999 Purchase Plan shall expire in 2019 unless sooner terminated by the
Administrator, provided that the Board of Directors may amend or terminate the
1999 Purchase Plan or an offering period in order for the Company to avoid
incurring adverse accounting charges.
UNITED STATES FEDERAL INCOME TAX INFORMATION
The 1999 Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
until the shares purchased under the 1999 Purchase Plan are sold or otherwise
disposed of. Upon sale or other disposition of the shares, the participant will
generally be subject to tax and the amount of the tax will depend upon how long
the shares have been held by the participant. If the shares are sold or
otherwise disposed of more than two years from the first day of the applicable
Offering Date or more than one year after the applicable Purchase Date, the
participant will recognize ordinary income measured as the lesser of (a) the
excess of the fair market value of the shares at the time of such sale or
disposition over the purchase price, or (b) an amount equal to 15% of the fair
market value of the shares as of the applicable Offering Date. Any additional
gain will be treated as long-term capital gain, taxed at a maximum rate of 20%.
If the shares are sold or otherwise disposed of before the expiration of these
holding periods, the participant will recognize ordinary income generally
measured as the excess of the fair market value of the shares on the date the
shares are purchased over the purchase price. Any additional gain or loss on
such sale or disposition will be long-term or short-term capital gain or loss,
depending on the holding period. The Company is not entitled to a deduction for
amounts taxed as ordinary income or capital gain to a participant except to the
extent of ordinary income recognized by participants upon a sale or disposition
of shares prior to the expiration of the holding period(s) described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased under
the 1999 Purchase Plan. Reference should be made to the applicable provisions of
the Code. In addition, the summary does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which the participant may reside.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE COMPANY'S
1999 EMPLOYEE STOCK PURCHASE PLAN, AUTHORIZE THE ISSUANCE OF 1,000,000 SHARES OF
COMMON STOCK THEREUNDER, AND PROVIDE FOR AUTOMATIC ANNUAL INCREASES IN THE
NUMBER OF SHARES RESERVED THEREUNDER IN EACH OF THE COMPANY'S FISCAL YEARS 2000,
2001, 2002, 2003, AND 2004 BY AN AMOUNT EQUAL TO THE LESSER OF 500,000 SHARES,
5% OF THE SHARES OUTSTANDING ON THE LAST DAY OF THE IMMEDIATELY PRECEDING FISCAL
YEAR, OR SUCH LESSER NUMBER OF SHARES AS DETERMINED BY THE BOARD OF DIRECTORS.
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PROPOSAL NO. 3
AMENDMENT TO 1995 STOCK OPTION/STOCK ISSUANCE PLAN
At the Annual Meeting, the stockholders are being asked to approve the
amendment to the Company's 1995 Stock Option/Stock Issuance Plan (the "Option
Plan") to: (i) provide for automatic annual increases in the number of shares of
Common Stock reserved for issuance thereunder for each of the 2000 and 2001
fiscal years by an amount equal to five percent (5%) of the shares of Common
Stock then outstanding plus then-outstanding options as of December 31 of the
immediately preceding calendar year; and (ii) reserve an additional 500,000
shares of Common Stock for issuance thereunder.
The following is a summary of principal features of the Option Plan. The
summary, however, does not purport to be a complete description of all
provisions of the Option Plan. Any stockholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to the
Equity Compensation Department at the Company's principal offices in San Jose,
California.
GENERAL
The Option Plan was adopted by the Board of Directors and approved by the
stockholders in September 1995. The amendments of the Option Plan submitted
hereunder were adopted by the Board of Directors in December 1998 and March
1999. The Option Plan provides employees, officers, directors, consultants and
independent advisers of the Company, or parent or subsidiary corporations, with
an opportunity to purchase shares of the Company's Common Stock. The purposes of
the Option Plan are to attract and retain the best available personnel for the
Company, to provide additional incentives to the employees, officers, directors,
consultants and independent advisers of the Company, and to promote the success
of the Company's business. The Board believes that option grants and 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. Accordingly, the stockholders are being asked to approve
the amendment of the Option Plan.
The Option Plan provides for the granting to employees of incentive stock
options within the meaning of Section 422 of the Code, and for the granting of
non-statutory stock options and issuance of restricted stock to employees,
consultants and directors. See "United States Federal Income Tax Information"
below for information regarding the tax treatment of both incentive stock
options and non-statutory stock options.
ADMINISTRATION
If permitted by Rule 16b-3 of the Exchange Act and by the legal
requirements of applicable securities laws and the Code (collectively, the
"Applicable Laws"), grants under the Option Plan may (but need not) be made by
different administrative bodies with respect to employees or consultants who are
also officers or directors and employees who are neither directors nor officers.
With respect to grants of options to employees or consultants who are also
officers or directors of the Company, grants under the Option Plan shall be made
by (A) the Board of Directors, if the Board of Directors may make grants under
the Option Plan in compliance with Rule 16b-3 of the Exchange Act and Section
162(m) of the Code as the latter applies so as to qualify grants of options to
"covered employees" as performance-based compensation, or (B) a committee
designated by the Board of Directors to make grants under the Option Plan, which
committee shall be constituted in such a manner as to permit grants under the
Option Plan to comply with Rule 16b-3, to qualify grants of options to "covered
employees" as performance-based compensation under Section 162(m) of the Code
and otherwise so as to satisfy the Applicable Laws.
With respect to grants of options to employees or consultants who are
neither directors nor officers of the Company, the Option Plan will be
administered by (A) the Board of Directors or (B) a committee designated by the
Board of Directors, which committee will be constituted in such a manner so as
to satisfy the Applicable Laws. The Board of Directors or the committee
designated by the Board of Directors to administer the Option Plan is referred
to in this Proxy Statement as the "Option Administrator." The Option
Administrator receives no additional compensation for its services in connection
with the administration of the Option Plan.
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Currently, the Compensation Committee administers the Option Plan, and the
Stock Option Committee administers the Option Plan with respect to non-officer
employees. The Compensation Committee and the Stock Option Committee, as
applicable, have the authority, subject to the provisions of the Option Plan, to
determine the eligible individuals who are to receive grants under the Option
Plan, the number of shares subject to 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 which satisfies the requirements of Section 422 of the Code or a
non-statutory option not intended to meet such requirements, and the remaining
provisions of each 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 Administrator, 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
Administrator'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. The Automatic Option
Grant Program shall terminate in the event that the Directors' Plan is approved
by the stockholders, as described further in Proposal No. 4 herein.
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, provided he
or she is not a member of the Compensation Committee or Stock Option Committee.
As of March 31, 1999, approximately 676 persons (including 8 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 6,561,903 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, 1997, 1998 and 1999
calendar years by an amount equal to five percent (5%) of the shares of Common
Stock then outstanding plus then-outstanding stock options as of December 31 of
the immediately preceding calendar year. Accordingly, the number of shares of
Common Stock reserved under the Option Plan increased by 1,048,244, 1,158,475,
1,226,217, and 1,351,421 on January 1, 1996, 1997, 1998, and 1999, respectively.
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 Company's 2000 and 2001 fiscal year by an
amount equal to five percent (5%) of the shares of Common Stock outstanding as
of December 31 of the immediately preceding fiscal year.
No single individual 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, the shares subject to the portion of the option not so exercised will be
available for subsequent option grants under the Option Plan.
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DISCRETIONARY OPTION GRANT PROGRAM
PRICE AND EXERCISABILITY. The option exercise price per share in the case
of an incentive stock 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 of the Option Plan become exercisable at such time or times
and during such period or periods as the Stock Administrator may determine and
as 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 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 Stock Administrator
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 Stock Administrator 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 generally, 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 Stock Administrator 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.
INCENTIVE STOCK OPTIONS. Incentive stock 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 then-outstanding voting stock. In return, the officer will be entitled
to a cash distribution from the Company in an
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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 Stock Administrator 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 of the Option Plan, non-employee
members of the Board of Directors receive option grants at specified intervals
over their period of Board service. The Directors' Plan, as described in
Proposal No. 4 below shall, if approved by the stockholders, supersede the
Automatic Option Grant Program with respect to non-employee members of the Board
of Directors after the date of the Annual Meeting. The Automatic Grant Program
provides that 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. On the
date of each Annual Meeting of Stockholders, beginning with the 1996 Annual
Meeting of Stockholders, 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 is 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.
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 in two (2) equal
and successive annual installments from the grant date.
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.
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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 Stock Administrator 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: (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, a "Corporate 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 with the same vesting schedule
applicable to such option; or (iii) the acceleration of such option is subject
to other limitations imposed by the Stock Administrator 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 rights 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-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.
In the event that either: (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 (i) have been Board members continuously since the
beginning of
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such period or (ii) have been elected or nominated for selection as Board
members by a majority of the Board in (i) who were still in office at the time
such election or nomination was approved by the Board (each, a "Change in
Control"), then the Administrator has the discretion to accelerate outstanding
options and terminate the Company's outstanding repurchase rights. The
Administrator 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 Stock Market. The
closing price of the Common Stock on March 31, 1999 was $26.688 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 (or the Directors' Plan, as
applicable) and (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, 1999, options covering 5,548,272 shares were outstanding
under the Option Plan, 1,013,631 shares remained available for future option
grant, and 4,954,326 shares have been issued under the Option Plan. The
expiration dates for all such options range from June 7, 2002 to March 31, 2009.
NEW PLAN BENEFITS AND OPTION GRANTS
The actual benefits, if any, to the holders of stock options issued under
the Option Plan are not determinable as all grants to be made under the Option
Plan are discretionary and, prior to exercise, the value, if any, of such stock
options to their holders is represented by the difference between the market
price of a share of the Company's Common Stock on the date of exercise and the
exercise price of a holder's stock option. During the year ended December 31,
1998: (i) options to purchase 150,000 shares of Common Stock were issued
pursuant to the Option Plan, and options to purchase 1,015,000 shares of Common
Stock were issued outside of the Option Plan, to the current executive officers,
as a group (eight persons); (ii) options to purchase 52,000 shares of Common
Stock were issued pursuant to the Option Plan to the current directors
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who are not executive officers, as a group (four persons); and (iii) options to
purchase 1,418,250 shares of Common Stock were issued pursuant to the Option
Plan to all other employees and consultants, including current officers who are
not executive officers, as a group (628 persons). The closing price of the
Common Stock on December 31, 1998 was $24.438 per share.
The Option Plan is not a qualified deferred compensation plan under Section
401(a) of the Code, and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
UNITED STATES FEDERAL INCOME TAX INFORMATION
The following is a brief summary of the U.S. federal income tax
consequences of transactions under the Option Plan based on federal income tax
laws in effect on the date of this Proxy Statement. This summary is not intended
to be exhaustive and does not address all matters which may be relevant to a
particular optionee based on his or her specific circumstances. The summary
addresses only current U.S. federal income tax law and expressly does not
discuss the income tax laws of any state, municipality, non-U.S. taxing
jurisdiction or gift, estate or other tax laws other than federal income tax
law. The Company advises all optionees to consult their own tax advisor
concerning the tax implications of option grants and exercises and the
disposition of stock acquired upon such exercises, under the Option Plan.
Options granted under the Option Plan may be either incentive stock
options, which are intended to qualify for the special tax treatment provided by
Section 422 of the Code, or non-statutory stock options, which will not qualify.
If an option granted under the Option Plan is an incentive stock option, the
optionee will recognize no income upon grant of the incentive stock option and
will incur no tax liability due to the exercise, except to the extent that such
exercise causes the optionee to incur alternative minimum tax. (See discussion
below.) The Company will not be allowed a deduction for federal income tax
purposes as a result of the exercise of an incentive stock option regardless of
the applicability of the alternative minimum tax. Upon the sale or exchange of
the shares more than two years after grant of the option and one year after
exercise of the option by the optionee, any gain will be treated as a long-term
capital gain. If both of these holding periods are not satisfied, the optionee
will recognize ordinary income equal to the difference between the exercise
price and the lower of the fair market value of the Common Stock on the date of
the option exercise or the sale price of the Common Stock. The Company will be
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Any gain or loss recognized on a disposition of the shares prior
to completion of both of the above holding periods in excess of the amount
treated as ordinary income will be characterized as long-term capital gain if
the sale occurs more than one year after exercise of the option or as short-term
capital gain if the sale is made earlier. For individual taxpayers, the current
maximum U.S. federal income tax rate on long-term capital gains is 20%, whereas
the maximum rate on other income is 39.6%. Capital losses for individual
taxpayers are allowed in full against capital gains plus $3,000 of other income.
All other options which do not qualify as incentive stock options are
referred to as non-statutory stock options. An optionee will not recognize any
taxable income at the time he or she is granted a non-statutory stock option.
However, upon its exercise, the optionee will recognize ordinary income for tax
purposes measured by the excess of the fair market value of the shares over the
exercise price. The income recognized by an optionee who is also an employee of
the Company will be subject to income and employment tax withholding by the
Company by payment in cash by the optionee or out of the optionee's current
earnings. Upon the sale of such shares by the optionee, any difference between
the sale price and the fair market value of the shares as of the date of
exercise of the option will be treated as capital gain or loss, and will qualify
for long-term capital gain or loss treatment if the shares have been held for
more than one year from date of exercise.
ALTERNATIVE MINIMUM TAX
The exercise of an incentive stock option may subject the optionee to the
alternative minimum tax under Section 55 of the Code. The alternative minimum
tax is calculated by applying a tax rate of 26% to alternative minimum taxable
income of joint filers up to $175,000 ($87,500 for married taxpayers filing
separately) and 28% to alternative minimum taxable income above that amount.
Alternative minimum taxable income is
15
<PAGE> 19
equal to (i) taxable income adjusted for certain items, plus (ii) items of tax
preference less (iii) an exemption amount of $45,000 for joint returns, $33,750
for unmarried individual returns and $22,500 in the case of married taxpayers
filing separately (which exemption amounts are phased out for upper income
taxpayers). Alternative minimum tax will be due if the tax determined under the
foregoing formula exceeds the regular tax of the taxpayer for the year.
In computing alternative minimum taxable income, shares purchased upon
exercise of an incentive stock option are treated as if they had been acquired
by the optionee pursuant to exercise of a non-statutory stock option. As a
result, the optionee recognizes alternative minimum taxable income equal to the
excess of the fair market value of the Common Stock on the date of exercise over
the option exercise price. Because the alternative minimum tax calculation may
be complex, optionees should consult their own tax advisors prior to exercising
incentive stock options.
Special provisions of the Code apply to the acquisition of Common Stock
under a non-statutory stock option if the purchased shares are subject to
repurchase by the Company. These special provisions may be summarized as
follows: (1) if the shares acquired upon exercise of the non-statutory stock
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; and (2) the
optionee may, however, elect under Section 83(b) of the Code to include as
ordinary income in the year of exercise of the non-statutory stock 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 stock 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 stock 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 stock option grants.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL THE AMENDMENT OF
THE COMPANY'S 1995 STOCK OPTION/STOCK ISSUANCE PLAN TO RESERVE AN ADDITIONAL
500,000 SHARES OF COMMON STOCK FOR ISSUANCE THEREUNDER AND PROVIDE FOR AUTOMATIC
ANNUAL INCREASES IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED THEREUNDER IN
EACH OF THE COMPANY'S FISCAL YEARS 2000 AND 2001 BY AN AMOUNT EQUAL TO 5% OF THE
SHARES OF COMMON STOCK AND OPTIONS OUTSTANDING AS OF THE END OF THE PRECEDING
FISCAL YEAR.
16
<PAGE> 20
PROPOSAL NO. 4
APPROVAL OF NON-EMPLOYEE DIRECTORS' OPTION PLAN
At the Annual Meeting, the Company's stockholders are being asked to
approve the adoption of the Non-Employee Directors' Option Plan (the "Directors'
Plan") and the reservation of an initial pool of 300,000 shares of Common Stock
for issuance thereunder. If approved, the Directors' Plan will replace the
Automatic Option Grant Program under the Option Plan with respect to
non-employee directors. The following is a summary of principal features of the
Directors' Plan. The summary, however, does not purport to be a complete
description of all the provisions of the Directors' Plan. Any stockholder of the
Company who wishes to obtain a copy of the actual plan document may do so upon
written request to the Equity Compensation Department at the Company's principal
offices in San Jose, California.
GENERAL AND PURPOSE
The Directors' Plan was adopted by the Board of Directors in October 1998
and the Board has reserved a total of 300,000 shares of Common Stock for
issuance thereunder.
The Directors' Plan provides for the grant of non-statutory stock options
to non-employee directors of the Company. It is designed to work automatically
and not to require administration; however, to the extent administration is
necessary, it will be provided by the Board of Directors or a committee of the
Board of Directors. Neither the Board nor any committee of the Board may
exercise any discretionary functions with respect to option grants made pursuant
to the Directors' Plan.
The purpose of the Directors' Plan is to promote the interests of the
Company by providing non-employee directors with the opportunity to acquire a
proprietary interest in the Company as an incentive for them to remain in the
service of the Company.
GRANT AND EXERCISE OF OPTION
The Directors' Plan provides that each person who becomes a nonemployee
director after the effective date of the Directors' Plan shall be automatically
granted a "First Option" to purchase 20,000 shares of Common Stock on the date
on which such person first becomes a non-employee director, whether through
election by the stockholders of the Company or appointment by the Board of
Directors to fill a vacancy. Thereafter, an "Annual Option" to purchase 10,000
shares of Common Stock is automatically granted to each non-employee director on
the date of each Annual Meeting of the Stockholders on which the director
remains on the Board. On the date of each Annual Meeting of Stockholders,
beginning with the Annual Meeting, each non-employee director at the time of
such Annual Meeting, whether or not standing for re-election, shall
automatically be granted an Annual Option. An otherwise eligible director who
resigns effective at an Annual Meeting of Stockholders, including the Annual
Meeting, shall not be eligible to be granted a non-statutory option at that time
to purchase an additional 10,000 shares of Common Stock.
The Directors' Plan provides for neither a maximum nor a minimum number of
shares subject to options that may be granted to any one non-employee director,
but does provide for the number of shares that may be included in any grant and
the method of making a grant. No option granted under the Directors' Plan is
transferable by the optionee other than by will or the laws of descent or, and
each option is exercisable, during the lifetime of the optionee, only by such
optionee.
The Directors' Plan provides that each automatic grant under the Directors'
Plan is fully exercisable on the date of grant; provided, however, that all
shares of Common Stock purchased upon exercise of options granted under the
Directors' Plan shall be subject to repurchase by the Company, at the exercise
price paid per share, upon the optionee's cessation of Board service prior to
release of such repurchase right in favor of the Company. The Directors' Plan
provides that each First Option granted thereunder shall be released from the
Company's repurchase right in installments of one-third of the number of shares
subject to the First Option on each of the first, second and third anniversaries
of the date of grant of the First Option, and each Annual Option granted
thereunder shall be released from the Company's repurchase right in installments
of one-third of the shares subject to the Annual Option on each of the first,
second and third anniversaries of the
17
<PAGE> 21
date of grant of the Annual Option. Release from the Company's repurchase right
is dependent upon continued service on the Company's Board of Directors.
The options that have been released from the Company's repurchase option
remain exercisable for twelve months following the optionee's cessation of
service as a director of the Company, provided that if such cessation is a
result of death or disability, in which case all shares subject to the option
shall be released from the Company's repurchase right and shall remain
exercisable for such one year period following the optionee's termination due to
death or disability.
EXERCISE PRICE AND TERM OF OPTIONS
The exercise price of all stock options granted under the Directors' Plan
shall be equal to the fair market value of a share of the Company's Common Stock
on the date of grant of the option, which is defined to be the closing sale
price of the Company's Common Stock on the Nasdaq Stock Market on the date of
grant. Options granted under the Directors' Plan have a term of ten years.
MERGER OR SALE OF ASSETS
In the event of the dissolution or liquidation of the Company, a sale of
all or substantially all of the assets of the Company, or the merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving corporation or any other capital reorganization in
which more than 50% of the shares of the Company entitled to vote are exchanged,
the shares issued pursuant to an Initial Grant or an Annual Grant that remain
subject to the repurchase right in favor of the Company shall be fully released
from such repurchase right, and upon the effectiveness of such dissolution,
liquidation, sale, merger or reorganization, the option shall terminate.
AMENDMENT AND TERMINATION
The Board of Directors may at any time amend or modify the Directors' Plan,
except that such amendment or modification cannot adversely affect options
previously granted without the agreement of any optionee so affected.
Stockholder approval shall be obtained for any amendment to the Directors' Plan
to the extent required by applicable law.
If not terminated earlier, the Directors' Plan will expire in 2019.
U.S. FEDERAL INCOME TAX INFORMATION
The following is a brief summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Directors' Plan, does not purport to be complete, and does not
discuss the income tax laws of any municipality, state or foreign country in
which an optionee may reside. The Company advises all eligible directors to
consult their own tax advisors concerning tax implications of option grants and
exercises and the disposition of stock acquired upon such exercises under the
Directors' Plan.
Options granted under the Directors' Plan are non-statutory stock options.
An optionee will not recognize any taxable income at the time he or she is
granted a non-statutory stock option. However upon its exercise, the optionee
will recognize ordinary income for tax purposes measured by the excess of the
then fair market value of the shares over the option price. Upon resale of such
shares by the optionee, any difference between the sale price and the exercise
price, to the extent not recognized as ordinary income as provided above will be
treated as capital gain (or loss), and will be long-term capital gain (or loss)
if the optionee has held the shares more than one year. For individual
taxpayers, the maximum U.S. federal income tax rate on long-term capital gains
is 20%, whereas the maximum rate on other income is 39.6%. Capital losses for
individual taxpayers are allowed under U.S. tax laws in full against capital
gains plus $3,000 of other income. The Company will be entitled to a tax
deduction in the amount and at the time that the optionee recognizes ordinary
income with respect to shares acquired upon exercise of a non-statutory stock
option.
18
<PAGE> 22
REQUIRED VOTE
The affirmative vote of the holders of a majority of the Company's Common
Stock present at the Annual Meeting in person or by proxy and entitled to vote
is required to approve the adoption of the Directors' Plan and the reservation
of 300,000 shares of Common Stock for issuance thereunder.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE DIRECTORS'
PLAN AND THE RESERVATION OF 300,000 SHARES OF COMMON STOCK FOR ISSUANCE
THEREUNDER.
PROPOSAL NO. 5
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending December 31, 1999 and recommends that the stockholders vote for
ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
PricewaterhouseCoopers LLP has audited the financial statements of the Company
since 1991. Representatives of PricewaterhouseCoopers LLP are expected to be
present at the Annual Meeting and will have the opportunity to make a statement
if they desire to do so. They are also expected to 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 PRICEWATERHOUSECOOPERS LLP TO SERVE AS THE COMPANY'S INDEPENDENT
PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
19
<PAGE> 23
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to shares
beneficially owned as of March 31, 1999 as to: (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; (iii) each Named Executive Officer named in the Summary Compensation
Table; and (iv) all directors and executive officers as a group. Beneficial
ownership has been determined in accordance with Rule 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. 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.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
------------------------
5% STOCKHOLDERS, DIRECTORS, NAMED EXECUTIVE PERCENT OF
OFFICERS, AND OFFICERS AND DIRECTORS AS A GROUP NUMBER TOTAL CLASS
----------------------------------------------- --------- -----------
<S> <C> <C>
Fidelity Management Research Co.(2)......................... 2,210,200 9.83%
82 Devonshire Street
Boston, MA 02109-3614
David A. Stamm(3)........................................... 1,384,581 6.16%
Thomas H. Bredt(4).......................................... 92,715 *
Mary Jane Elmore(5)......................................... 107,074 *
Joseph B. Costello(6)....................................... 20,000 *
Christopher H. Greendale(7)................................. 20,000 *
Anthony Zingale(8).......................................... 175,992 *
Jan Praisner(9)............................................. 61,901 *
Kirsten Berg-Painter(10).................................... 0 --
Jeanne Urich(11)............................................ 0 --
Senya Rahmil(12)............................................ 81,595 *
Tanya Johnson(13)........................................... 39,456 *
Randy Raynor(14)............................................ 136,842 *
Robert A. Spinner(15)....................................... 127,283 *
Joseph J. Tyler(16)......................................... 0 --
All officers and directors as a group (14 persons)(17)...... 2,247,439 10.0%
</TABLE>
- ---------------
* Less than 1%
(1) To the Company's knowledge, the persons named in this table have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable and the information contained in the footnotes to this
table. Unless otherwise indicated, the address of each of the named
individuals is: c/o Clarify Inc., 2560 Orchard Parkway, San Jose,
California 95131.
(2) Based solely on information contained in the Schedule 13G dated April 10,
1999 filed by the named stockholder with the Securities and Exchange
Commission.
(3) Based solely on information contained in the Form 4 dated February 1999
filed by the named stockholder with the Securities and Exchange Commission.
Includes 71,459 shares of Common Stock subject to stock options exercisable
within 60 days of March 31, 1999. Mr. Stamm resigned as President and Chief
Executive Officer of the Company in March 1998.
(4) Based solely on information contained in the Form 4 dated June 1998 filed
by the named stockholder with the Securities and Exchange Commission.
Includes 28,000 shares of Common Stock subject to stock options exercisable
within 60 days of March 31, 1999.
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<PAGE> 24
(5) Based solely on information contained in the Form 4 dated February 1999
filed by the named stockholder with the Securities and Exchange Commission.
Includes 28,000 shares of Common Stock subject to stock options exercisable
within 60 days of March 31, 1999.
(6) Includes 20,000 shares of Common Stock subject to stock options exercisable
within 60 days of March 31, 1999.
(7) Includes 20,000 shares of Common Stock subject to stock options exercisable
within 60 days of March 31, 1999.
(8) Includes 175,000 shares of Common Stock subject to stock options
exercisable within 60 days of March 31, 1999.
(9) Includes 60,938 shares of Common Stock subject to stock options exercisable
within 60 days of March 31, 1999.
(10) Ms. Berg-Painter joined the Company on July 6, 1998 as Vice President of
Worldwide Marketing.
(11) Ms. Urich joined the Company on July 15, 1998 as Senior Vice President of
Worldwide Professional Services.
(12) Based solely on information contained in the Form 4 dated February 1999
filed by the named stockholder with the Securities and Exchange Commission.
Includes 65,416 shares of Common Stock subject to stock options exercisable
within 60 days of March 31, 1999.
(13) Based solely on information contained in the Form 4 dated November 1998
filed by the named stockholder with the Securities and Exchange Commission.
Includes 35,642 shares of Common Stock subject to stock options exercisable
within 60 days of March 31, 1999.
(14) Based solely on information contained in the Form 4 dated February 1999
filed by the named stockholder with the Securities and Exchange Commission.
Includes 65,175 shares of Common Stock subject to stock options exercisable
within 60 days of March 31, 1999.
(15) Based solely on information contained in the Form 4 dated November 1998
filed by the named stockholder with the Securities and Exchange Commission.
Includes 106,373 shares of Common Stock subject to stock options
exercisable at December 31, 1998. Mr. Spinner resigned as the Company's
Senior Vice President of Worldwide Sales as of January 1, 1999, but remains
a part-time employee of the Company.
(16) Mr. Tyler joined the Company on January 11, 1999 as Senior Vice President
of Worldwide Sales.
(17) Includes 569,630 shares of Common Stock subject to stock options
exercisable within 60 days of March 31, 1999.
21
<PAGE> 25
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following report and
the Performance Graph set forth herein shall not be incorporated by reference
into any such filings.
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 and bonuses payable to the Chief Executive Officer ("CEO"), the
executive officers and certain key employees of the Company and has authority to
administer the Company's 1995 Stock Option/Stock Issuance Plan (the "1995 Plan")
and Employee Stock Purchase Plan (the "ESPP"). During 1998, the process utilized
by the Compensation Committee in determining executive officer compensation
levels took into account both qualitative and quantitative factors. Among the
factors considered by the Compensation Committee were comparisons to the
compensation programs of other companies of comparable size within similar
industries and the recommendations of the Company's CEO. However, the
Compensation Committee makes the final compensation decisions concerning such
officers.
GENERAL COMPENSATION POLICY. The Compensation Committee's fundamental
policy is to offer the Company's executive officers and key employees
competitive compensation opportunities based upon overall Company performance,
individual contribution to the financial success of the Company and personal
performance. Accordingly, each executive officer's compensation package is
comprised of three elements: (i) base salary; (ii) variable bonus awards payable
in cash; and (iii) long-term stock-based incentive awards designed to align the
interests of the executive officers and the Company's stockholders. The summary
below describes in more detail the factors which the Compensation Committee
considers in establishing each of these three primary components of the
compensation package provided to the Company's executive officers.
BASE SALARY. The base salary for each executive officer is determined on
the basis of personal performance and the salary levels in effect for comparable
positions at companies that compete with the Company for executive talent, as
derived from executive management surveys conducted by the Company. Actual base
salary decisions are based upon such comparative data and vary based upon the
performance, contribution and experience of the individual executive and the
incentives necessary to attract and retain qualified management.
ANNUAL CASH BONUS INCENTIVES. The Company's cash bonus program seeks to
motivate executive officers to achieve the Company's financial performance
objectives by rewarding each executive officer based upon achieving individual
performance goals related to the Company's success and specific Company-wide
goals, such as customer satisfaction, quality, operating profit, revenue
performance and cash management. The cash bonus incentive plan is reevaluated
annually and new individual performance goals are established based upon the
Company's financial performance objectives for such year.
LONG-TERM STOCK-BASED INCENTIVE COMPENSATION. The Company's long-term
stock-based incentive compensation program seeks to: (i) align executive
officers' interests with stockholder interests by creating a direct link between
compensation and stockholder return; (ii) provide executive officers with a
significant, long-term interest in the Company's success; and (iii) attract and
retain executive officers in a competitive market for executive talent. During
1998, the Compensation Committee, in its discretion, made option grants to
Anthony Zingale, Jan Praisner, Kirsten Berg-Painter, Jeanne Urich and Rick
Fluegel, a former director of the Company, of 400,000, 225,000, 220,000, 170,000
and 3,000 shares of Common Stock, respectively. The referenced option grants to
Mr. Zingale, Ms. Praisner, Ms. Berg-Painter and Ms. Urich were made outside of
the Option Plan upon their commencement of employment with the Company, while
the option grant to Mr. Fluegel was made pursuant to the Option Plan. Generally,
a significant option grant is made upon commencement of the executive officer's
employment with the Company. In subsequent years, option grants are made based
upon individual performance measures established for each individual. Options
are not necessarily granted to each executive officer each year. Generally, the
size of the initial grant and each subsequent grant, if any, is set at a level
that the Compensation Committee deems appropriate to create and
22
<PAGE> 26
sustain 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 Compensation Committee's discretion.
Each grant allows the executive officer to acquire shares of the Company's
Common Stock at a fixed price per share equal to the fair market value on the
grant date. The shares subject to the stock option vest in periodic installments
over a two to five year period, contingent upon the executive officer's
continued employment with the Company, in order to provide 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
Company's employ, and then only if the market price of the Company's Common
Stock appreciates over the option term.
CHIEF EXECUTIVE OFFICER COMPENSATION. Anthony Zingale has served as the
Company's President and Chief Executive Officer since March 1998. Mr. Zingale's
annualized base salary for fiscal 1998 was $225,000 and his base salary for
fiscal 1999 is $280,000, with a target bonus of 60% of base salary. During 1998,
Mr. Zingale received the following compensation: (i) $186,672 in base salary
actually paid; (ii) a performance bonus in the amount of $29,757; and (iii) a
stock option grant exercisable for 400,000 shares of Common Stock. Mr. Zingale's
stock option grant was not made pursuant to the Option Plan. The factors
discussed above in "Base Salary," "Annual Cash Bonus Incentives," and "Long-Term
Stock-Based Incentive Compensation" were also applied by the Compensation
Committee in establishing the amounts of Mr. Zingale's salary and bonus and
number of shares subject to his stock option grant. Mr. Zingale's compensation
was the result of arm's-length negotiation between the Company and Mr. Zingale
and was approved by the Compensation Committee. Significant factors in
establishing Mr. Zingale's compensation included: (i) an assessment of the scope
of his responsibilities; (ii) an evaluation of his level of experience; and
(iii) a review of the compensation of chief executive officers for competitive
companies. The remaining component in determining Mr. Zingale's annual incentive
compensation was the Company's financial performance and provided no dollar
guarantees.
David A. Stamm served as the Company's President and Chief Executive
Officer from January to March 1998. Mr. Stamm remained an employee of the
Company until October 31, 1998. Mr. Stamm received $158,510 in salary paid in
fiscal 1998. Mr. Stamm received no stock option grants during 1998, as the
Compensation Committee did not believe such action was necessary given Mr.
Stamm's ownership position in the Company. During fiscal 1998, Mr. Stamm did not
receive a cash bonus incentive. Mr. Stamm remains on the Board of Directors of
the Company as Chairman.
COMPENSATION OF OTHER EXECUTIVE OFFICERS. The Compensation Committee
annually assesses the performance of all other executive officers and determines
compensation increases based on a number of factors, such as performance
evaluations, comparative data and other relevant factors. See "Summary
Compensation Table" below.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION. The Compensation Committee has
considered the impact of Section 162(m) of the Code adopted under the Omnibus
Budget Reconciliation Act of 1993, which section disallows a deduction for any
publicly-held corporation for individual compensation exceeding $1 million in
any taxable year for the Chief Executive Officer and four other most highly
compensated executive officers, respectively, unless such compensation meets the
requirements for the "performance-based" exception to Section 162(m). As the
cash compensation paid by the Company to each of its executive officers is
expected to be below $1 million annually and the Compensation Committee believes
that options granted under the Company's Option Plan to such officers will meet
the requirements for qualifying as performance-based, the Compensation Committee
believes that Section 162(m) will not affect the tax deductions available to the
Company with respect to the compensation of its executive officers. The
Compensation Committee's policy is to qualify, to the extent reasonable, its
executive officers' compensation for deductibility under applicable tax
23
<PAGE> 27
law. However, the Company may from time to time pay compensation to its
executive officers that may not be deductible.
Compensation Committee
Thomas H. Bredt
Christopher H. Greendale
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are currently no employee directors serving on the Compensation
Committee and no member of the Compensation Committee or executive officer of
the Company has a relationship that would constitute an interlocking
relationship with executive officers or directors of another entity.
See "Proposal No. 1 -- Election of Directors -- Compensation of Directors"
for a discussion of certain information with respect to all non-employee
directors, including directors serving on the Compensation Committee.
24
<PAGE> 28
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, 1998 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*
<TABLE>
<CAPTION>
NASDAQ STOCK HAMBRECHT & QUIST
CLARIFY INC. MARKET (U.S.) COMPUTER SOFTWARE
------------ ------------- -----------------
<S> <C> <C> <C>
11/3/95 100 100 100
12/95 135 93 96
12/96 431 115 116
12/97 104 140 140
12/98 220 198 183
</TABLE>
* Assumes that the value of the investment in Clarify Inc. Common Stock and
each index was $100 on November 3, 1995, including reinvestment of
dividends, if any.
25
<PAGE> 29
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following Summary Compensation Table sets forth the compensation earned
by: (i) the Company's current Chief Executive Officer; (ii) the four other most
highly compensated individuals who served as an executive officer of the Company
during the fiscal year ended December 31, 1998, each of whose salary and bonus
for fiscal year 1998 exceeded $100,000; and (iii) the Company's former Chief
Executive Officer (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION OPTIONS(#)(1) COMPENSATION($)(2)
--------------------------- ---- --------- -------- ------------ ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
David A. Stamm(3)............. 1998 158,510 0 -- 0 37
Chairman of the Board 1997 174,923 0 -- 135,000 468
1996 173,269 111,540 -- 35,000 336
Anthony Zingale(4)............ 1998 186,672 29,757 -- 400,000 75
President and Chief 1997 -- -- -- -- --
Executive Officer 1996 -- -- -- -- --
Jan Praisner.................. 1998 140,462 15,430 -- 225,000 50
Vice President of Finance 1997 -- -- -- -- --
and Chief Financial Officer 1996 -- -- -- -- --
Randy Raynor.................. 1998 156,069 12,035 -- 50,000 0
Chief Technology Officer 1997 149,980 0 -- 25,000 456
1996 149,623 59,826 -- 5,000 339
Robert A. Spinner(5).......... 1998 336,940(6) 0 -- 0 30
Former Senior Vice 1997 340,902(6) 0 -- 102,500 432
President of Worldwide Sales 1996 308,426(6) 27,040 -- 22,500 327
Tanya Johnson................. 1998 172,790 13,501 -- 50,000 25
Senior Vice President 1997 97,494 0 -- 90,000 468
of Engineering 1996 -- -- -- -- --
</TABLE>
- ---------------
(1) Each option grant to a Named Executive Officer during fiscal year 1996 was
repriced through the cancellation of such option and the grant of a
replacement option to each such Named Executive Officer on May 9, 1997.
Accordingly, a portion of each 1997 option grant to a Named Executive
Officer represents the repricing of the 1996 option grant to such
individual. All options were granted at an exercise price equal to the fair
market value as reported on the Nasdaq Stock Market on the date of grant or
regrant, as applicable.
(2) Amounts represent life insurance premiums paid by the Company on behalf of
such Named Executive Officer during the period indicated.
(3) During 1998, Mr. Stamm served as President and Chief Executive Officer of
the Company until March 1998, but remains on the Company's Board of
Directors as Chairman.
(4) Mr. Zingale joined the Company as President and Chief Executive Officer in
March 1998. On March 19, 1999, Mr. Zingale was granted a non-statutory
stock option exercisable for up to 200,000 shares of Common Stock pursuant
to the Option Plan. Such stock option vests at the rate of 25% on March 2,
1999 and 2% of the remaining shares each month thereafter for three years.
(5) Mr. Spinner resigned as the Company's Senior Vice President of Worldwide
Sales as of January 1, 1999, but remains a part-time employee of the
Company.
(6) Includes commissions earned in the amount of $146,838, $159,094 and
$131,083 during 1998, 1997 and 1996, respectively.
26
<PAGE> 30
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers of the Company, including their ages as of December 31, 1998:
<TABLE>
<CAPTION>
OFFICERS AGE POSITIONS AND OFFICES HELD WITH THE COMPANY
- -------------------------- --- --------------------------------------------------------
<S> <C> <C>
Anthony Zingale........... 43 President, Chief Executive Officer and Director
Jan Praisner.............. 47 Vice President of Finance and Chief Financial Officer
Joseph J. Tyler........... 44 Senior Vice President of Worldwide Sales
Tanya Johnson............. 45 Senior Vice President of Engineering
Randy Raynor.............. 50 Chief Technology Officer
Samuel Rahmil............. 45 Vice President of Customer Services
Kirsten Berg-Painter...... 39 Vice President of Worldwide Marketing
Jeanne Urich.............. 46 Senior Vice President of Worldwide Professional Services
</TABLE>
Mr. Zingale has served as President, Chief Executive Officer and Director
of the Company since March 1998. Prior to joining the Company, from November
1997 to March 1998, Mr. Zingale served as an independent consultant. From May
1989 to November 1997, Mr. Zingale served in a variety of executive management
positions at Cadence Design Systems, Inc. ("Cadence"), an electronic design
automation software and services company, including Senior Vice President of
Worldwide Marketing from April 1995 to November 1997, Vice President and General
Manager High-Level Design Division from 1993 to March 1995, Vice President of
Corporate Marketing from 1991 to 1993 and Vice President of Marketing, Systems
Division 1989 to 1991. Prior to joining Cadence, Mr. Zingale served as Vice
President of Marketing at EDA Systems, Inc., a design automation company
acquired by Digital Equipment Corporation, and held a variety of positions with
Daisy Systems and Intel Corporation, a semiconductor company. Mr. Zingale holds
a B.S. degree in electrical and computer engineering and a B.A. degree in
business administration from the University of Cincinnati.
Ms. Praisner has served as the Company's Vice President of Finance and
Chief Financial Officer since April 1998. Prior to joining the Company, from
January 1997 to April 1998, Ms. Praisner was a Venture Partner with
Institutional Venture Partners, a Silicon Valley-based venture capital firm.
From January 1996 to January 1997, Ms. Praisner served as Chief Financial
Officer of OnStream Networks, Inc., a manufacturer of wide area network access
devices, which was acquired by 3Com in late 1996. From 1988 to January 1995, Ms.
Praisner held a variety of executive management positions at Aspect
Telecommunications Corporation, a manufacturer of computer-based telephone
systems and related software ("Aspect"), including as its Chief Financial
Officer and Vice President of Marketing. Ms. Praisner holds an M.B.A. and a B.A.
degree in German from Southern Methodist University. Ms. Praisner is a certified
public accountant.
Mr. Tyler has served as Senior Vice President of Worldwide Sales of the
Company since January 1999. Prior to joining the Company, from 1994 to January
1999, Mr. Tyler served as Group Vice President at Gartner Group, an information
technology research, analysis, and consulting services company. Prior to joining
Gartner Group, Mr. Tyler served in a variety of sales and marketing management
positions at Xerox for almost 20 years. Mr. Tyler has a B.S. in business
administration from California State University at Chico.
Ms. Johnson has served as Senior Vice President of Engineering of the
Company since April 1997. Prior to joining the Company, from February 1992 to
February 1997, Ms. Johnson was Senior Director of Groupware Development at
Oracle Corporation, a database software company. From 1987 to 1992, Ms. Johnson
worked at Wang Laboratories, Inc., a software and hardware company. Ms. Johnson
holds a B.S. degree in mathematics and an M.S. degree in statistics from
Oklahoma State University.
Mr. Raynor has served as Chief Technology Officer of the Company since
March 1998. From March 1997 to March 1998, Mr. Raynor served as the Company's
Vice President of Research and Design and, from September 1992 to March 1997,
served as the Company's Vice President of Engineering. From August 1991 to
August 1992, Mr. Raynor was Vice President of Engineering at Alisa Systems, a
client-server software company. Prior to joining Alisa Systems, Mr. Raynor was
Vice President of Engineering at Computer
27
<PAGE> 31
Associates, a software company supporting mainframe computers, and Inference
Corporation, a software and services company for customer self-service across
the Web. Mr. Raynor also worked as Development Manager at Texas Instruments,
Inc., a diversified electronics manufacturer. Mr. Raynor has a B.S. degree in
computer science from North Carolina State University and M.S. and Ph.D. degrees
in computer science from Georgia Institute of Technology.
Mr. Rahmil has served as the Company's Vice President of Customer Services
since March 1998. From August 1995 to March 1998, Mr. Rahmil served as the
Company's Vice President of Product Quality Assurance, and from March 1992 to
August 1995 served as the Company's Manager of Product Quality Assurance. From
August 1991 to March 1992, Mr. Rahmil was employed as a Senior Test Engineer by
Netlabs, a software development company. From 1987 to 1991, Mr. Rahmil also
worked as a Senior Test Engineer and Test Manager at Convergent Technologies, a
computer system manufacturer. Mr. Rahmil has a B.A. degree in computer science
and mathematics from Ben Gurion University of Negev, Beer-Sheva, Israel.
Ms. Berg-Painter has served as Vice President of Worldwide Marketing of the
Company since July 1998. Prior to joining the Company, from November 1989 to
July 1998, Ms. Berg-Painter served in a variety of management positions at
Aspect, including General Manager of the Call Center Business Unit, Director of
Product Marketing and most recently as Vice President of the Interactive
Communication Systems Group. Ms. Berg-Painter has a B.A. degree in business and
economics from the University of California at Los Angeles and attended business
school at Handleshoyskolen in Bergen, Norway.
Ms. Urich has served as Senior Vice President of Worldwide Professional
Services of the Company since July 1998. Prior to joining the Company, from July
1997 to July 1998, Ms. Urich served as Worldwide Director of Technology
Consulting Services at Compaq Computer Corporation, a global supplier of
computing systems including hardware, software, solutions and services. From
July 1996 to July 1997, Ms. Urich served as Worldwide Director of Technology
Consulting Services at Tandem Computers, Inc., a manufacturer of computer
systems ("Tandem"). Prior to serving at Tandem, from 1976 to July 1996, Ms.
Urich served in a variety of positions in sales, marketing, finance and services
at Digital Equipment Corporation, a networked business solutions company,
including as Director of Services Marketing and Business Development from 1993
to July 1996. Ms. Urich holds a B.A. in mathematics and computer science from
Vanderbilt University.
OPTION GRANTS IN FISCAL YEAR 1998
The following table sets forth information for the Named Executive Officers
with respect to grants of options to purchase Common Stock of the Company made
during fiscal year 1998 and the value of all options held by such executive
officers on December 31, 1998. No stock appreciation rights were granted to
these individuals during such year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANT
--------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES ANNUAL RATES OF
UNDERLYING % OF TOTAL STOCK PRICE APPRECIATION
OPTIONS OPTIONS GRANTED EXERCISE FOR OPTION TERM(4)
GRANTED TO EMPLOYEES OR BASE EXPIRATION -----------------------------
NAME (#)(1) IN 1998(%)(2) PRICE ($/SH)(3) DATE 5% ($) 10% ($)
---- ---------- --------------- --------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
David A. Stamm(5)...... 0 0 0 n/a 0 0
Anthony Zingale(6)..... 400,000 15.664% $14.8750 3/1/08 $3,741,923.03 $9,482,767.64
Jan Praisner........... 225,000 8.811% 13.0625 4/12/08 1,848,360.61 4,684,108.70
Randy Raynor........... 50,000 1.9580% 12.2500 7/2/08 385,197.96 976,167.26
Robert A. Spinner(7)... 0 0 0 n/a 0 0
Tanya Johnson.......... 50,000 1.9580% 12.2500 7/2/08 385,197.96 976,167.26
</TABLE>
- ---------------
(1) 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 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
option will become fully exercisable and any unvested option
28
<PAGE> 32
shares will vest immediately upon an acquisition of the Company by merger or
asset sale unless assumed or replaced by the acquiring entity. Any options
which are assumed or replaced in such a transaction which do not otherwise
accelerate at that time shall automatically accelerate (and any unvested
option shares which do not otherwise vest at that time shall automatically
vest) in the event the optionee's service terminates by reason of an
involuntary or constructive termination generally within 18 months following
the transaction. Each option has 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.
(2) The Company granted stock options to employees for an aggregate of 2,553,626
shares of Common Stock during 1998.
(3) 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.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the Securities and Exchange 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.
(5) During 1998, Mr. Stamm served as President and Chief Executive Officer of
the Company until March 1998, but remains on the Company's Board of
Directors as Chairman.
(6) Mr. Zingale joined the Company as President and Chief Executive Officer in
March 1998.
(7) Mr. Spinner resigned as the Company's Senior Vice President of Worldwide
Sales as of January 1, 1999, but remains a part-time employee of the
Company.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1998 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information for the Named Executive Officers
with respect to shares acquired and the value realized upon the exercise of
stock options during fiscal year 1998 and the year-end number and value of
unexercised options. No stock appreciation rights were exercised by the Named
Executive Officers in fiscal year 1998, nor were any outstanding at such time.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 1998 (#) AT DECEMBER 31, 1998 ($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David A. Stamm(3)...... 0 0 57,396 97,604 $ 943,735 $1,250,405
Anthony Zingale(4)..... 0 0 0 400,000 $ 0 $3,825,200
Jan Praisner........... 0 0 0 225,000 $ 0 $2,559,488
Randy Raynor........... 0 0 62,571 88,229 $1,408,039 $1,319,111
Robert A. Spinner(5)... 30,000 $399,970 106,373 75,225 $2,188,065 $1,168,533
Tanya Johnson.......... 4,983 $ 55,435 27,517 107,500 $ 418,096 $1,465,991
</TABLE>
- ---------------
(1) Based on the fair market value of the Company's Common Stock as reported on
The Nasdaq Stock Market on the date of exercise, less the exercise price
payable for such shares, and does not necessarily indicate that the optionee
sold such stock.
(2) Based on the closing sale price of the Company's Common Stock of $24.4380
per share as reported on The Nasdaq Stock Market on December 31, 1998, less
the exercise price payable for such shares, multiplied by the number of
shares underlying the option.
(3) During 1998, Mr. Stamm served as President and Chief Executive Officer of
the Company until March 1998, but remains on the Company's Board of
Directors as Chairman.
29
<PAGE> 33
(4) Mr. Zingale joined the Company as President and Chief Executive Officer in
March 1998. On March 19, 1999, Mr. Zingale was granted a non-statutory stock
option exercisable for up to 200,000 shares of Common Stock pursuant to the
Option Plan. Such stock option vests at the rate of 25% on March 2, 1999 and
2% of the remaining shares each month thereafter for three years.
(5) Mr. Spinner resigned as the Company's Senior Vice President of Worldwide
Sales as of January 1, 1999, but remains a part-time employee of the
Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Non-employee members of the Company's Board of Directors are eligible to
receive stock options to purchase shares of Common Stock in connection with
their service on the Board of Directors. See "Proposal No. 1 -- Election of
Directors -- Director Compensation."
The Company has entered into indemnification agreements with each of its
directors and executive officers, which may require the Company, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers, to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' liability insurance if
available on reasonable terms.
Christopher Greendale, a member of the Company's Board of Directors, serves
as Chairman of the Board of Directors of Breakaway Solutions, Inc.
("Breakaway"). The Company is a party to a non-exclusive subcontracting
agreement with Breakaway dated December 29, 1998 pursuant to which Breakaway
provides professional services delivery capacity to the Company. The agreement
is renewable annually. To date, no amounts have been paid to Breakaway under
such subcontracting agreement. In addition, the Company and Breakaway are
presently negotiating a non-exclusive consulting arrangement whereby Breakaway
would represent the Company's products and provide direct professional services
to Breakaway customers for the Company's products on a worldwide basis. Such
consulting arrangement, if consummated, would permit Breakaway to resell the
Company's applications and engage in collaborative joint marketing and sales
activities. The Company believes that the subcontracting agreement dated
December 29, 1998 and the consulting agreement being negotiated contain or are
expected to contain terms consistent with those negotiated at arms' length with
other professional services providers and resellers.
Joseph Costello, a member of the Company's Board of Directors since October
1998, serves as Chairman of the Board of Directors of Zamba (previously known as
Racotek, Inc.). In September 1998, Racotek merged with the Quicksilver Group and
was renamed Zamba. The Company is party to a non-exclusive consulting partner
agreement with the Quicksilver Group dated February 1, 1998. The consulting
agreement with the Quicksilver Group was assigned to Zamba and is renewable
annually. The consulting agreement allows Zamba to represent the Company's
products and provide direct professional services to Zamba customers for the
Company's products on a worldwide basis. The consulting agreement does not
permit Zamba to resell Company software or services, but does provide for
collaborative joint marketing and sales activities. Zamba does not receive
compensation for recommending or referring customers to the Company. In
addition, the Company contracts with Zamba on a purchase order basis for
delivery of certain Company customer training courses. Amounts paid to Zamba by
the Company in fiscal 1998 under such arrangements equal $15,000 and in fiscal
1999 are expected to be approximately $300,000. In addition, the Company is
party to a subcontractor agreement with Zamba dated February 1, 1999 pursuant to
which Zamba provides professional services on a fixed-contract basis for a
specific Clarify customer. The net value of such contract to Clarify (customer
payments less amounts paid to Zamba) is expected to be approximately $487,000.
The consulting partner agreement dated February 1, 1998 was negotiated at arms'
length prior to Mr. Costello joining the Board of Directors of the Company or
Zamba acquiring the Quicksilver Group. The Company believes the subcontractor
agreement with Zamba dated February 1, 1999 contains terms consistent with those
negotiated at arms' length with other professional services providers and
resellers.
On October 21, 1998, the Company entered into a Separation Agreement with
Robert A. Spinner, the Company's former Senior Vice President of Worldwide
Sales. The Agreement provides, among other things,
30
<PAGE> 34
that effective January 2, 1999, Mr. Spinner resign his position as Senior Vice
President of Worldwide Sales and serve in the part-time position of Major
Accounts Strategist for the Company. Mr. Spinner's aggregate salary for the
period January 2, 1999 through January 1, 2000 shall be $90,000. All outstanding
stock options held by Mr. Spinner shall continue to vest during such period and
Mr. Spinner shall continue to be eligible for certain other employee benefits.
Under the terms of the agreement, Mr. Spinner may terminate his employment for
any reason and the Company retains the right to terminate him for cause, but his
employment with the Company shall, in any event, terminate effective January 1,
2000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who own more than
ten percent of the Company's Common Stock (collectively, "Reporting Persons") to
file with the Securities and Exchange Commission ("SEC") initial reports of
ownership and changes in ownership of the Company's Common Stock. Reporting
Persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) reports that they file.
To the Company's knowledge, based solely on its review of the copies of
such reports received or written representations from certain Reporting Persons
that no other reports were required, the Company believes that during its fiscal
year ended December 31, 1998, all Reporting Persons complied with all applicable
filing requirements.
STOCKHOLDER PROPOSALS FOR THE COMPANY'S ANNUAL MEETING OF
STOCKHOLDERS FOR THE YEAR 2000
Stockholder proposals for inclusion in the Company's Proxy Statement and
form of proxy relating to the Company's Annual Meeting of Stockholders for the
year 2000 must be received by the Company by January 3, 2000. If the Company is
not notified of a stockholder proposal by March 17, 2000, then the proxies held
by management of the Company may provide the discretion to vote against such
stockholder proposal, even though such proposal is not discussed in the Proxy
Statement. Such stockholder proposals should be addressed to Clarify Inc., 2560
Orchard Parkway, San Jose, California 95131, Attn: Corporate Finance.
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,
/s/ Anthony Zingale
Anthony Zingale
President and Chief Executive Officer
San Jose, California
April 30, 1999
31
<PAGE> 35
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF CLARIFY INC.
1999 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Clarify Inc., a Delaware corporation, hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement, each dated April 30, 1999, and hereby appoints Anthony Zingale
and Jan Praisner, or either of them, as proxies and attorneys-in-fact, with
full power to each of substitution, on behalf and in the name of the
undersigned to represent the undersigned at the 1999 Annual Meeting of
Stockholders of Clarify Inc. to be held on June 10, 1999, at 10:30 a.m., local
time, at 2560 Orchard Parkway, San Jose, California 95131, and at any
postponement or adjournment thereof, and to vote all shares of Common Stock
which the undersigned would be entitled to vote if then and there personally
present, on the matters set forth below:
SEE REVERSE
SIDE
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 36
CLARIFY, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY [X]
For Withheld For All
All All Except nominee(s) crossed out
1. Election of Directors [ ] [ ] [ ]
Nominees: Thomas H. Bredt, Joseph B. Costello,
Christopher H. Greendale, David A. Stamm,
Anthony Zingale
If you wish to withhold authority to vote for any individual nominee, strike
a line through that nominee's name in the list above.
2. To approve the adoption of the Company's 1999 For Against Abstain
Employee Stock Purchase Plan, authorize the [ ] [ ] [ ]
issuance of 1,000,000 shares of Common Stock
thereunder, and provide for automatic annual
increases in the number of shares reserved
thereunder in each of the company's fiscal years
2000, 2001, 2002, 2003, and 2004 by an amount
equal to the lesser of 500,000 shares, 5% of the
shares outstanding on the last day of the
immediately preceding fiscal year, or such lesser
number of shares as determined by the Board of
Directors.
3. To approve the amendment of the Company's 1996 For Against Abstain
Stock Option/Stock Issuance Plan to reserve an [ ] [ ] [ ]
additional 500,000 shares of Common Stock for
issuance thereunder and provide for automatic
annual increases in the number of shares of
Common Stock reserved thereunder in each of the
Company's fiscal years 2000 and 2001 by an amount
equal to 5% of the shares of Common Stock and
options outstanding as of the end of the preceding
fiscal year.
4. To approve the adoption of the Company's Non- For Against Abstain
Employee Directors' Option Plan and to authorize [ ] [ ] [ ]
the issuance of up to 300,000 shares of Common
Stock under such Plan.
5. To ratify the appointment of PricewaterhouseCoopers For Against Abstain
LLP as the Company's independent public accountants [ ] [ ] [ ]
for the fiscal year ended December 31, 1999.
6. In their discretion, upon such other matter or matters
that may properly come before the Annual Meeting and
any postponement(s) or adjournment(s) thereof.
_____________________________________________________
Signature
_____________________________________________________
Signature (if held jointly)
Dated:______________________________, 1999
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE ADOPTION OF THE 1999
EMPLOYEE STOCK PURCHASE PLAN, FOR THE AMENDMENT OF THE 1996 STOCK OPTION/STOCK
ISSUANCE PLAN, FOR THE ADOPTION OF THE NON-EMPLOYEE DIRECTORS' OPTION PLAN, FOR
THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
AUDITORS, AND AS SAID PROXY DEEMS ADVISABLE ON SUCH OTHER MATTERS AS MAY COME
BEFORE THE ANNUAL MEETING.
NOTE: (This Proxy should be recorded, dated, signed by the stockholder(s)
exactly as his or her name appears hereon, and returned promptly in the
enclosed envelope. Persons signing in a fiduciary capacity should so
indicate. If shares are held by joint tenants or as community property,
both should sign.)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
