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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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MARK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-26776
CLARIFY INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 77-0259235
(STATE OF OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
2560 ORCHARD PARKWAY
SAN JOSE, CALIFORNIA 95131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 965-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.0001 PAR VALUE
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS, NO PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of July 31, 1999 there were 23,166,991 shares of the Registrant's Common
Stock outstanding.
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CLARIFY INC.
FORM 10-Q
TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998....................................... 3
Condensed Consolidated Statements of Income
For the three and six months ended June 30, 1999 and 1998... 4
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 1999 and 1998............. 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 12
PART II. OTHER INFORMATION
Item 4. Submission of Matter to a Vote of Security Holders.......... 22
Item 6. Exhibits and Reports on Form 8-K............................ 23
SIGNATURE............................................................ 24
</TABLE>
2
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CLARIFY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 30,469 $ 31,271
Short-term investments.................................... 31,954 25,917
Accounts receivable, net of allowances of $3,886 in 1999
and $2,757 in 1998..................................... 51,800 45,224
Prepaid expenses and other current assets................. 3,227 2,604
Deferred tax assets....................................... 4,934 4,934
-------- --------
Total current assets.............................. 122,384 109,950
Property and equipment, net................................. 12,878 8,437
Long-term investments....................................... 5,686 516
Non-current deferred tax assets............................. 1,860 1,860
Other non-current assets.................................... 1,724 1,837
-------- --------
TOTAL ASSETS...................................... $144,532 $122,600
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 12,183 $ 5,826
Payroll related accruals.................................. 10,100 9,589
Other accrued liabilities................................. 8,767 8,800
Income taxes payable...................................... 2,400 1,980
Deferred revenue.......................................... 25,103 25,086
-------- --------
Total current liabilities......................... 58,553 51,281
-------- --------
Stockholders' equity:
Preferred stock, $.0001 par value, 5,000 shares
authorized; none outstanding
Common stock, $.0001 par value, 55,000 shares authorized;
shares issued and outstanding: 23,064 in 1999 and
22,168 in 1998......................................... 2 2
Additional paid-in-capital................................ 67,389 59,127
Accumulated other comprehensive deficit................... (336) (602)
Deferred compensation..................................... -- (18)
Retained earnings......................................... 18,924 12,810
-------- --------
Total stockholders' equity........................ 85,979 71,319
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $144,532 $122,600
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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CLARIFY INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
License fees...................................... $28,590 $19,624 $52,840 $35,756
Services.......................................... 23,707 10,202 42,912 18,969
------- ------- ------- -------
Total revenues............................ 52,297 29,826 95,752 54,725
------- ------- ------- -------
Cost of revenues:
License fees...................................... 738 451 1,750 1,115
Services.......................................... 13,216 6,397 24,258 11,418
------- ------- ------- -------
Total cost of revenues.................... 13,954 6,848 26,008 12,533
------- ------- ------- -------
Gross margin........................................ 38,343 22,978 69,744 42,192
Operating expenses:
Product development and engineering............... 6,600 5,094 12,473 9,704
Sales and marketing............................... 23,402 13,939 42,090 25,521
General and administrative........................ 3,357 2,433 6,392 4,736
------- ------- ------- -------
Total operating expenses.................. 33,359 21,466 60,955 39,961
------- ------- ------- -------
Operating income.................................... 4,984 1,512 8,789 2,231
Interest and other income (expense), net............ 645 235 1,233 627
------- ------- ------- -------
Income before income taxes.......................... 5,629 1,747 10,022 2,858
Provision for income taxes.......................... 2,195 646 3,908 1,057
------- ------- ------- -------
Net income................................ $ 3,434 $ 1,101 $ 6,114 $ 1,801
======= ======= ======= =======
Basic net income per share.......................... $ 0.15 $ 0.05 $ 0.27 $ 0.08
======= ======= ======= =======
Shares used in per share computation -- basic....... 22,781 21,602 22,551 21,475
======= ======= ======= =======
Diluted net income per share........................ $ 0.14 $ 0.05 $ 0.25 $ 0.08
======= ======= ======= =======
Shares used in per share computation -- diluted..... 25,122 22,462 24,840 22,364
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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CLARIFY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 6,114 $ 1,801
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization.......................... 3,274 2,681
Provision for doubtful accounts........................ 550 1,145
Other.................................................. -- 47
Changes in assets and liabilities:
Accounts receivable.................................. (7,973) 257
Prepaid expenses and other current assets............ (680) 131
Accounts payable..................................... 6,400 (345)
Payroll related accruals............................. 668 194
Other accrued liabilities............................ 537 8
Deferred revenue..................................... 414 2,083
-------- -------
Net cash provided by operating activities......... 9,304 8,002
-------- -------
Cash flows from investing activities:
Purchase of property and equipment........................ (7,812) (3,411)
Purchase of investments................................... (71,959) (7,770)
Sale and maturities of investments........................ 60,752 9,940
Increase in other assets.................................. 88 42
-------- -------
Net cash used for investing activities............ (18,931) (1,199)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock, net............... 8,262 2,342
-------- -------
Net cash provided by financing activities......... 8,262 2,342
-------- -------
Effect of foreign exchange rate changes on cash............. 563 312
-------- -------
Net (decrease) increase in cash and cash equivalents........ (802) 9,457
Cash and cash equivalents, beginning of period.............. 31,271 20,744
-------- -------
Cash and cash equivalents, end of period.................. $ 30,469 $30,201
======== =======
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 7 $ --
======== =======
Cash paid for taxes....................................... $ 3,512 $ 1,194
======== =======
Supplemental disclosure of noncash investing and financing
activities:
Change in unrealized net holding gain on investments........ $ (29) $ (8)
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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CLARIFY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated balance sheets of Clarify
Inc. and its subsidiaries ("Clarify" or the "Company") as of June 30, 1999 and
December 31, 1998, the related unaudited condensed consolidated statements of
income for the three and six months ended June 30, 1999 and 1998, and the
related unaudited condensed consolidated statements of cash flows for the six
months ended June 30, 1999 and 1998, have been prepared on substantially the
same basis as are the annual consolidated financial statements. The December 31,
1998 balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
The results of operations for the three and six months ended June 30, 1999 are
not necessarily indicative of results to be expected for the entire year.
In the opinion of management, these interim financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position, operating results and cash flows
for those periods presented. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
These unaudited condensed consolidated financial statements should be read in
conjunction with the Company's 1998 Annual Report on Form 10-K.
2. COMPREHENSIVE INCOME
The components of total comprehensive income, net of tax, are as follows
(in thousands):
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1999 1998 1999 1998
------- ------- ------ ------
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Net income...................................... $3,434 $1,101 $6,114 $1,801
Unrealized net holding (loss) gain on
investments................................... (25) 245 (29) 244
Translation adjustment.......................... 44 (2) 295 (5)
------ ------ ------ ------
Total comprehensive income............ $3,453 $1,344 $6,380 $2,040
====== ====== ====== ======
</TABLE>
The components of accumulated other comprehensive deficit are as follows
(in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Unrealized net holding (loss) gain on investments........... $ (19) $ 10
Cumulative translation adjustment........................... (317) (612)
----- -----
Accumulated other comprehensive deficit..................... $(336) $(602)
===== =====
</TABLE>
3. EARNINGS PER SHARE
Basic earnings per share is computed based on the weighted average number
of shares outstanding during the period. Diluted earnings per share is computed
based on the weighted average number of shares outstanding during the period
increased by the effect of dilutive stock options and stock purchase contracts,
using the treasury stock method.
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CLARIFY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents information necessary to calculate basic and
diluted earnings per common and common equivalent share (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding -- basic...................... 22,781 21,602 22,551 21,475
Dilutive common stock equivalents........... 2,341 860 2,289 889
------- ------- ------- -------
Weighted average shares and equivalents --
diluted................................... 25,122 22,462 24,840 22,364
======= ======= ======= =======
Net income for basic and diluted earnings
per share computation..................... $ 3,434 $ 1,101 $ 6,114 $ 1,801
======= ======= ======= =======
</TABLE>
4. HEDGING
In the normal course of business, the Company has exposures to foreign
currency fluctuations arising from foreign currency sales and purchases and
intercompany transactions, among other things. The Company uses foreign exchange
forward contracts to limit its exposure to foreign exchange losses arising from
foreign currency payables and receivables. The Company evaluates its net
exposure therefrom and enters into forward contracts to hedge the net exposure
over a specified amount. These contracts are executed with credit-worthy
financial institutions and are denominated in currencies of major industrial
nations. Gains and losses on these contracts serve as hedges in that they offset
fluctuations that would otherwise impact the Company's financial results. Costs
associated with entering into such contracts are generally amortized over the
life of the instruments and are not material to the Company's financial results.
At June 30, 1999, the Company had foreign currency forward contracts
outstanding to hedge foreign currency intercompany accounts receivable and
accounts payable. These contracts typically have 30 day maturities and are
intended to reduce exposure to foreign currency exchange risk. The total
aggregate fair value of and the net unrealized loss on foreign exchange
contracts were $13.2 million and $39,000, respectively.
5. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognizes all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Management has not yet evaluated the effects of this change on its operations.
SFAS No. 133 will be effective for the Company's fiscal year 2001. Management
believes that this statement will not have a significant impact on the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to historical information, this report on Form 10-Q contains
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially from those projected. Factors that might
cause or contribute to such differences include, but are not limited to, those
discussed in the section entitled "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations" and "Certain Factors
That May Affect Future Results of Operations" in the Company's 1998 Annual
Report on Form 10-K. Readers should carefully review the risks described in
other documents the Company files from time to time with the Securities and
Exchange Commission, including the annual report on Form 10-K and the quarterly
reports on Form 10-Q. Readers are cautioned not to place undue reliance on the
forward-looking statements, including statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future, which
speak only as of the date of this Form 10-Q. The Company undertakes no
obligation to release publicly any updates to the forward-looking statements
included herein after the date of this document.
OVERVIEW
Clarify Inc. ("Clarify" or the "Company"), founded in August 1990, is a
leading developer and provider of enterprise-scale, Internet-ready front office
applications software for high-quality management of customer relationships over
their lifetime. Clarify's software helps companies build service into every
customer interaction across a variety of media with integrated solutions that
automate call center, sales and marketing, technical support, field service and
logistics, quality assurance, and help desk processes. By uniting the entire
virtual enterprise around the customer, including suppliers and partners who
help meet customer needs, Clarify helps companies attract, acquire and retain
customers at significantly reduced costs.
Clarify markets its software and services primarily through its direct
sales organization. Clarify maintains sales and support offices throughout North
America, Europe, and the Asia/Pacific region. A variety of industries employ
Clarify's solutions, including telecommunications, high technology, financial
services, healthcare, consumer products, and travel and entertainment. Clarify's
customers include Automatic Data Processing, Inc., BP Amoco, Cisco Systems,
Inc., General Electric Company, Georgia Pacific, The Gillette Company,
Hewlett-Packard Company, Microsoft Corporation, and Sprint PCS. Clarify
maintains its executive offices at 2560 Orchard Parkway, San Jose, California
95131.
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PERCENT OF TOTAL REVENUES
The following table sets forth the percentage of total revenues for certain
items in the Company's Condensed Consolidated Statements of Income data for the
three and six months ended June 30, 1999 and 1998.
<TABLE>
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THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues:
License fees............................................ 54.7% 65.8% 55.2% 65.3%
Services................................................ 45.3 34.2 44.8 34.7
----- ----- ----- -----
Total revenues.................................. 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of revenues:
License fees............................................ 1.4 1.5 1.8 2.0
Services................................................ 25.3 21.5 25.3 20.9
----- ----- ----- -----
Total cost of revenues.......................... 26.7 23.0 27.1 22.9
----- ----- ----- -----
Gross margin.............................................. 73.3 77.0 72.9 77.1
Operating expenses:
Product development and engineering..................... 12.6 17.1 13.0 17.7
Sales and marketing..................................... 44.7 46.7 44.0 46.6
General and administrative.............................. 6.4 8.1 6.7 8.7
----- ----- ----- -----
Total operating expenses........................ 63.7 71.9 63.7 73.0
----- ----- ----- -----
Operating income.......................................... 9.6 5.1 9.2 4.1
Interest and other income (expense), net.................. 1.2 0.8 1.3 1.1
----- ----- ----- -----
Income before income taxes................................ 10.8 5.9 10.5 5.2
Provision for income taxes................................ 4.2 2.2 4.1 1.9
----- ----- ----- -----
Net income...................................... 6.6% 3.7% 6.4% 3.3%
===== ===== ===== =====
</TABLE>
Revenues
Total revenues increased $22.5 million (75%) to $52.3 million in the second
quarter of 1999 from $29.8 million in the same period one year ago. Total
revenues increased $41.1 million (75%) to $95.8 million in the first six months
of 1999 from $54.7 million in the same period one year ago. Revenue from the
Americas increased $14.9 million (60%) and $27.2 million (62%) for the second
quarter and six months ended June 30, 1999, respectively, compared to the same
periods one year ago. Other international revenue increased $7.6 million (149%)
and $13.9 million (130%) for the three and six months ended June 30, 1999,
respectively, compared to the corresponding prior year periods. Other
international revenue accounted for approximately 24% and 26% of total revenue
in the second quarter and first six months of 1999, respectively, compared to
17% and 19%, respectively, in the second quarter and first six months of 1998.
The absolute increase in total revenues is a result of growth in both license
fees and service revenues. The Company does not believe that the percentage
increases in revenues achieved in any one period should necessarily be
anticipated in future periods. The Company's revenues are derived primarily from
license fees and charges for services, including maintenance, consulting and
training. License fees revenue consists of revenue from initial licenses for the
Company's products, sales of licenses to existing customers for additional users
of the Company's products, product documentation, and fees from sublicensing
third-party software products. Services revenue consists primarily of
maintenance, consulting, and training revenues. Consulting services consist
primarily of implementation services related to the installation of the
Company's software and do not include significant customization to or
development of the underlying software code.
License Fees. License fees revenue increased $9.0 million (46%) to $28.6
million in the second quarter of 1999 from $19.6 million in the same period a
year ago. License fees revenue increased $17.0 million (48%) to $52.8 million in
the first six months of 1999 from $35.8 million in the same period a year ago.
License fees
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revenue from the Americas increased $4.5 million (28%) and $9.0 million (33%)
compared to the same three and six month periods a year ago. Other international
license fees revenue increased $4.5 million (119%) and $8.0 million (99%),
during the second quarter and first six months of 1999, respectively, compared
to the same periods a year ago. Other international license fees revenue
accounted for approximately 29% and 31% of total license fees revenue in the
second quarter and first six months of 1999 compared to 19% and 23%,
respectively, for the same prior year periods. The increase in license fees
revenue was due to further market acceptance of the Company's existing products,
continued enhancement of such products and increased breadth of the Company's
product offerings. Additionally, the growth was also attributable to increased
follow-on sales to existing customers, sales of the Company's products to new
industry segments and increased sales as a result of the expansion of the
Company's direct sales force and marketing organization. The Company expects
that license fees revenue will fluctuate as a percentage of total revenue in the
future depending on the timing of new product introductions, customer buying
patterns, the Company's pricing actions, competition, and other factors.
Further, the Company does not believe that license fee revenues in any one
period are indicative of license fee revenues in any future period.
Services. Revenue from services increased $13.5 million (132%) to $23.7
million in the second quarter of 1999 from $10.2 million in the same period one
year ago. Revenue from services increased $23.9 million (126%) to $42.9 million
in the first six months of 1999 from $19.0 million in the same period one year
ago. Services revenue from the Americas increased $10.5 million (118%) in the
current quarter and increased $18.1 million (110%) in the first six months of
1999, compared to the same periods last year. Other international services
revenue increased $3.0 million (234%) and $5.8 million (228%) for the second
quarter and first six months of 1999, respectively, compared to the same periods
one year ago. Other international services revenue accounted for approximately
18% and 20% of total services revenue in the second quarter and first six months
of 1999 compared to 13% and 14%, respectively, for the same prior year periods.
The growth in services revenue in absolute dollars was due to an increase in
maintenance and maintenance renewals, and consulting and training services
associated with increased sales of the Company's applications. The Company
expects revenue from services to increase in future periods as the customer
installed base increases, though the percentage increases in services revenue
achieved in any one period should not be anticipated in future periods.
Costs of Revenues
Cost of License Fees. Cost of license fees increased to $0.7 million and
$1.8 million in the second quarter and first six months of 1999, respectively,
from $0.5 million and $1.1 million, respectively, in the same periods in 1998.
Cost of license fees represented 3% of the related license fee revenues for both
the second quarter and first six months of 1999. Cost of license fees as a
percentage of license fees revenue may fluctuate from period to period due to
the increased or decreased sale of royalty bearing software products and related
negotiations for such royalty agreements. Costs related to research, design and
development of products are charged to product development and engineering
expense as incurred.
Cost of Services. Cost of services increased to $13.2 million and $24.3
million in the second quarter and first six months of 1999, respectively, from
$6.4 million and $11.4 million, respectively, in the same periods in 1998. Cost
of services represented 56% and 57% of the related service revenues for the
second quarter and first six months of 1999, respectively. Cost of services
consists primarily of costs incurred in providing telephone support, consulting
services, shipment of product upgrades and training of customers. The absolute
dollar increases are due primarily to the increase in the number of customer
support and training personnel and related overhead costs necessary to support a
larger installed customer base. The Company expects to make continued
investments in its service organization in order to support the Company's
customer installed base and anticipates that cost of services will increase in
absolute dollars in future periods.
Operating Expenses
Product Development and Engineering. Product development and engineering
expenses increased $1.5 million (30%) and $2.8 million (29%) in the second
quarter and first six months of 1999, respectively, compared to the same periods
one year ago. As a percentage of total revenue, product development and
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engineering expense decreased to 13% in both the second quarter and first half
of 1999 from 17% and 18%, respectively, for the same periods one year ago.
Product development and engineering expenses include expenses associated with
the development of new products, enhancements of existing products and quality
assurance activities. These expenses consist primarily of employee salaries,
benefits, consulting expenses and the cost of software development tools. Costs
related to research, design and development of products are charged to product
development and engineering expenses as incurred. The increase in absolute
dollars was primarily attributable to an increase in personnel and related
overhead costs as well as consulting expenses. The Company currently anticipates
that product development and engineering expenses will increase in absolute
dollars as the Company continues to commit substantial resources to product
development and engineering in future periods.
Sales and Marketing. Sales and marketing expenses increased $9.5 million
(68%) and $16.6 million (65%) in the second quarter and first six months of
1999, respectively, compared to the same periods one year ago. As a percentage
of total revenue, sales and marketing expense decreased to 45% and 44% in the
second quarter and first half of 1999 from 47% for both corresponding prior year
periods. Sales and marketing expenses consist primarily of employee salaries,
sales commissions, travel and promotional expenses. The increase in dollar
amount was primarily due to the further expansion of the Company's worldwide
sales and marketing organization, higher sales commissions associated with
increased revenue, and increased marketing activities. The Company intends to
continue to invest substantial resources in expanding its direct sales force,
both domestic and international, expanding its other distribution channels, and
conducting marketing programs to support existing and new product offerings.
Accordingly, sales and marketing expenses are expected to increase in absolute
dollars in future periods.
General and Administrative. General and administrative expenses increased
$0.9 million (38%) and $1.7 million (35%) in the second quarter and first six
months of 1999, respectively, compared to the same periods one year ago. As a
percentage of total revenue, general and administrative expense decreased to 6%
and 7% in the second quarter and first half of 1999 from 8% and 9%,
respectively, for the same periods one year ago. General and administrative
expenses consist primarily of salaries and benefits, and related overhead costs
for the finance, human resources, and executive and administrative personnel of
the Company. The increase in dollar amount was due primarily to increases in
personnel, related overhead costs and expenses related to the Company's
infrastructure expansion. The Company currently expects general and
administrative expenses to increase in absolute dollars in the future as the
Company continues to expand its infrastructure.
Interest and Other Income (Expense), Net. Interest and other income
(expense), net represents interest income earned on the Company's cash, cash
equivalents and investments, and other items including foreign exchange gains
and losses. Interest and other income (expense), net increased to $0.6 million
in the second quarter of 1999 from $0.2 million in the second quarter of 1998
due to higher investment income and higher foreign exchange gains.
Provision for Income Taxes. The Company's effective tax rate for the second
quarter and first six months of 1999 and 1998 was 39% and 37%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and investments totaled $68.1 million
at June 30, 1999 representing about 47% of total assets compared to $57.7
million at December 31, 1998, also representing about 47% of total assets. The
Company has invested its cash in excess of current operating requirements in a
portfolio of both taxable and tax-exempt investment grade securities. The
investments have variable and fixed interest rates and short and long term
maturities. In accordance with Financial Accounting Standards Board Statement
No. 115, "Accounting for Certain Investments in Debt and Equity Securities" such
investments are classified as "available for sale".
The Company believes that cash generated from operations and its existing
cash, cash equivalents and investment balances will satisfy the Company's
projected working capital and other cash requirements for at least the next
twelve months. Although operating activities may provide cash in certain
periods, to the extent the Company grows in the future, its operating and
investing activities may use cash. In the event that cash
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generated from operating activities may not be sufficient to meet future cash
requirements, there can be no assurance that additional financing will be
available to the Company on commercially reasonable terms, or at all.
CHANGES IN FINANCIAL CONDITION
Cash and cash equivalents at June 30, 1999 totaled $30.5 million
representing a decrease of 3% from December 31, 1998. Operations and changes in
exchange rates generated $9.9 million. Investing activities used $18.9 million
including a net increase in investments of $11.2 million, and $7.8 million was
used to acquire property and equipment (net of proceeds from disposition of
property and equipment). Financing activities generated $8.3 million from sales
of shares under employee benefit plans.
Net cash provided by operating activities was $9.3 million in the first six
months of 1999 compared to $8.0 million in the first six months of 1998. In
1999, net cash provided by operating activities was comprised primarily of net
income, increases in accounts payable and payroll related accruals, and
depreciation and amortization. In 1998, net cash provided by operating
activities was comprised primarily of net income, and an increase in accounts
receivable, after adjustment for the provision of doubtful accounts,
depreciation and amortization expense, offset by an increase in deferred
revenue.
Net cash used in investing activities was $18.9 million in the first six
months of 1999 compared to $1.2 million in the first six months of 1998. In 1998
and 1999, net cash used primarily resulted from net purchases of investments and
purchases of property and equipment.
Net cash provided by financing activities was $8.3 million in the first six
months of 1999 compared to $2.3 million in the first six months of 1998. The net
cash provided for both periods resulted primarily from sales of shares under
employee benefit plans.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's risk-management activities
includes "forward-looking statements" that involve risk and uncertainties.
Actual results could differ materially from those projected in the
forward-looking statements.
The following tables summarize the financial instruments and derivative
commodity instruments held by the Company at June 30, 1999, which are sensitive
to changes in interest rates and foreign exchange rates. The Company uses
forward foreign exchange contracts to manage these primary market exposures
associated with underlying assets, liabilities and anticipated transactions. The
Company uses these instruments to reduce risk by essentially creating offsetting
market exposures. The instruments held by the Company are not leveraged and are
held for purposes other than trading.
In the normal course of business, the Company also faces risks that are
either nonfinancial or nonquantifiable. Such risks principally included country
risk, credit risk, and legal risk, and are not represented in the following
tables.
INTEREST RATE SENSITIVITY
This table presents descriptions of the maturity dates of the financial
instruments that were held by the Company at June 30, 1999 and which are
sensitive to changes in interest rates (in thousands except percentages):
<TABLE>
<CAPTION>
JUNE 30
-------------------------
2000 2001 2002 TOTAL FAIR VALUE
------- ------ ---- ----------------
<S> <C> <C> <C> <C>
State and municipal securities.................... $22,309 $4,981 $705 $27,995
US Government Agency securities................... 3,445 -- -- 3,445
Corporate debt securities......................... 6,200 -- -- 6,200
------- ------ ---- -------
Total................................... $31,954 $4,981 $705 $37,640
======= ====== ==== =======
Average interest rate............................. 3.76% 3.78% 3.35%
</TABLE>
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FOREIGN CURRENCY EXCHANGE RISK
The Company has international subsidiaries through which the Company's
products are sold in various global markets. As a result, the Company's earnings
and cash flows are exposed to fluctuations in foreign currency exchange rates.
The Company attempts to limit these exposures through operational strategies and
financial market instruments. The Company utilizes hedge instruments, primarily
forward contracts with maturities of approximately 30 days, to manage its
exposure associated with firm intercompany positions denominated in
nonfunctional currencies. The Company does not use derivative financial
instruments for trading purposes.
The Company had $13.2 million of short-term forward exchange contracts,
denominated in major foreign currencies, which approximated the fair value of
such contracts and their underlying transactions at June 30, 1999. Gains and
losses related to these instruments at June 30, 1999 were not material. The
Company does not anticipate any material adverse effect on its consolidated
financial position, results of operations, or cash flows resulting from the use
of these instruments. There can be no assurance that these strategies will be
effective or that transaction losses can be minimized or forecasted accurately.
The following table provides information about the Company's foreign
exchange forward contracts at June 30, 1999. The table presents the value of the
contracts in U.S. dollars at the contract exchange rate as of the contract
maturity date. Due to the short-term nature of these contracts, the fair value
approximates the weighted average contractual foreign currency exchange rate
value of the contracts at June 30, 1999.
Forward contracts to sell foreign currencies for U.S. dollars:
<TABLE>
<CAPTION>
AVERAGE U.S.
CONTRACT NOTIONAL FAIR
RATE AMOUNT VALUE
----------- ----------- ---------
(IN THOUSANDS, EXCEPT CONTRACT RATES)
<S> <C> <C> <C>
Japanese Yen......................................... 120.9850 $4,496 $4,481
German Mark.......................................... 1.8869 2,046 2,059
British Pound Sterling............................... 1.6046 2,576 2,547
Australian Dollar.................................... 0.6460 2,261 2,317
French Franc......................................... 6.3241 1,241 1,248
Singapore Dollar..................................... 1.7255 530 537
</TABLE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks. Other risks are presented elsewhere
in this report and in the Company's periodic filings with the Securities and
Exchange Commission.
Limited and Variable Profitability
The Company was founded in August 1990 and began shipping products in
September 1992. The Company has experienced substantial revenue growth in recent
years, but its profitability, as a percentage of net revenues, has varied widely
on a quarterly and annual basis, including net operating losses in each fiscal
year from inception through 1994. Due to the Company's limited operating history
on a significant international scale, the rate of growth of the Company's
business and the variability of operating results in past periods, there can be
no assurance that the Company's revenues will continue at the current level or
will grow, or that the Company will be able to sustain profitability on a
quarterly or annual basis.
Variability of Quarterly Operating Results
The Company's net revenues and operating results can vary, sometimes
substantially, from quarter to quarter. In general, the Company's revenues, and,
in particular, license fees, are relatively difficult to forecast for a number
of reasons, including (i) the size and timing of individual license
transactions, (ii) the level of
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price and product competition, (iii) demand for the Company's products, (iv) the
potential for deferral or delay of customer implementations of the Company's
software, (v) the timing of the introduction of new products or product
enhancements by the Company or its competitors, (vi) changes in customer
budgets, (vii) changes in pricing policies by the Company or its competitors,
and (viii) seasonality of technology purchases and other general economic
conditions.
The Company's software products generally are shipped as orders are
received. Furthermore, the Company has often recognized a substantial portion of
its revenues in the last month of a quarter, with a concentration of these
revenues in the last half of that month. As a result, license fees in any
quarter are substantially dependent on orders booked and shipped in that
quarter. In addition, there has been and continues to be a trend toward larger
enterprise license transactions, which often require approval by a customer's
upper management. The timing of these transactions are typically difficult to
manage and predict. Failure to close any individually significant anticipated
transaction could cause the Company's revenues and operating results in a period
to fall short of the expectations of securities analysts and investors, and
could result in revenue losses. In addition, revenues in any one quarter are not
indicative of revenues in any future period.
The Company believes the purchase of its products generally involves a
significant commitment of capital. Customers have tended to implement the
Company's products on a large scale and must establish certain minimum hardware
capabilities. As a result, in the event of any downturn in any existing or
potential customer's business or the economy in general, purchases of the
Company's products may be deferred or canceled, which could have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company's business has experienced and is expected to continue to
experience seasonality, in part due to customer buying patterns.
The foregoing factors make estimating quarterly revenues and operating
results prior to the end of a quarter uncertain. The Company's expense levels
are based, in significant part, on the Company's expectations as to future
revenues and are therefore relatively fixed in the short term. If revenue levels
are below expectations, the Company's business, operating results and financial
condition are likely to be adversely affected. Net income may be
disproportionately adversely affected by a reduction in revenues because
substantial portions of the Company's expenses are relatively fixed in any given
quarter. As a result, the Company believes that period-to-period comparisons of
its results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. There can be no assurance that
the Company will be able to achieve or maintain profitability on a quarterly or
annual basis in the future. The Company plans to increase expenditures to fund
continued expansion of international operations, a larger worldwide direct and
indirect sales and marketing staff and related marketing expenditures,
development of new distribution and resale channels, greater levels of research
and development, and broader customer service and support capability, although
annual expenditures will depend upon ongoing operating results and evolving
business needs. To the extent such expenses precede or are not subsequently
followed by increased revenues, the Company's revenues, operating results and
financial condition would be materially adversely affected. Due to all the
foregoing factors, it is likely that in some future quarters the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the market price of the Company's common stock would
likely be materially adversely affected.
Continued Volatility of Stock Price
In the past, the price of the Company's common stock has been volatile.
Future announcements concerning the Company or its competitors, quarterly
variations in operating results, announcements of technological innovations by
the Company or its competitors, the introduction of new products or changes in
product pricing policies by the Company or its competitors, matters involving
the Company's proprietary rights or other litigation, changes in earnings
estimates or purchase recommendations by securities analysts or other factors
could cause the market price of the Company's common stock to fluctuate
substantially, particularly on a quarterly basis. In addition, stock prices for
many technology companies fluctuate widely for
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<PAGE> 15
reasons that may be unrelated to operating results of such companies. These
fluctuations, as well as general economic, market and political conditions, such
as international currency and stock market volatility, recessions or military
conflicts, may materially and adversely affect the market price of the Company's
common stock. In the past, following periods of volatility in the market price
of a company's securities, securities class action litigation has often been
instituted against such companies. Such litigation brought against the Company
could result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect on the Company's business,
results of operations and financial condition.
Management of Growth
The Company has grown rapidly in the last four years. The growth of the
Company's business and the expansion of the Company's customer base have placed
a significant strain on the Company's management and operations. The Company's
recent growth and expansion have resulted in substantial increases in the number
of its employees and the geographic area of its operations. The Company's
ability to support the growth of its operations will be substantially dependent
upon securing highly trained internal and third-party resources to conduct
pre-sales activity, product implementation, training, and other customer support
services. To accommodate this growth and the expected expansion of its staff,
the Company's officers and other key employees will be required to improve and
implement a variety of operational and financial systems and procedures, to
expand, train and manage its employee base, and to engage and work effectively
with third-party implementation providers. There can be no assurance that the
Company will be able to manage its recent or any future expansion successfully.
Any inability to do so would likely have a material adverse effect on the
Company's business, results of operations and financial condition.
Integration of Acquired Businesses or Technologies
The Company may acquire or make investments in complementary businesses,
products, services, or technologies. From time to time, the Company has had
discussions with companies regarding the acquisition of, or investment in, their
businesses, products, services, or technologies. There can be no assurance that
the Company will be able to identify suitable acquisition or investment
candidates. Even if the Company identifies suitable candidates, there can be no
assurance that the Company will be able to make such acquisitions or investments
on commercially acceptable terms, if at all. The Company may have difficulty in
assimilating the personnel and operations of any business that the Company may
acquire. In addition, the key personnel of the acquired company may decide not
to work for the Company. Furthermore, the Company may have difficulty in
converting the business strategy of any acquired company into one that is
consistent with the Company's strategic goals, or assimilating the products,
services, or technologies of companies it may acquire into its operations. These
difficulties could disrupt the Company's ongoing business, distract management
and employees, increase expenses, and adversely affect results of operations due
to accounting requirements such as goodwill recognition. Furthermore, the
Company may incur debt or issue equity securities to pay for any future
acquisitions. The issuance of equity securities could be dilutive to the
Company's existing stockholders.
International Operations
The Company established its European headquarters in the United Kingdom in
1994. Since then, additional offices have been opened in Germany, France, Japan,
Australia, Canada, and Singapore. To support the growth of the Company's
international operations, the Company continues to incur significant costs to
build its service and support infrastructure in advance of anticipated revenues.
Operating costs in many countries, including some of those in which the Company
operates, are often higher than in the United States. As a result of such
international expansion, the Company must continue to implement and improve its
operational and financial systems and procedures and to expand, train and manage
both its employee base and its relationships with third-party implementation
providers. International expansion has placed, and is expected to continue to
place, a significant strain on the Company's management and operations. There
can be no assurance that the Company's international operations will continue to
be successful or that the Company will be able to manage effectively the
increased level of international operations. To the extent that the
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<PAGE> 16
Company is unable to do so in a timely manner or is unable to otherwise manage
these activities effectively, the Company's growth in international revenues, if
any, will be limited, and the Company's business, operating results and
financial condition could be materially adversely affected. In addition, there
can be no assurance that the Company will be able to maintain or increase
international market demand for its products.
Furthermore, future increases in the value of the U.S. dollar abroad could
make the Company's products less competitive in international markets. As the
Company increases its international operations, fluctuations in international
currency exchange rates, increases in duty rates, exchange or price controls or
other restrictions on foreign currencies may individually or in the aggregate
have a material adverse effect on the Company's business, results of operations
and financial condition. While the Company's efforts to hedge foreign currency
denominated intercompany balances are designed to limit its exposure to
fluctuations in foreign currency exchange rates, there can be no assurance that
its efforts will have such an effect. To the extent that any exchange rate
fluctuations would have had a positive impact on the Company's financial
performance, the effect of such hedging transactions could be to eliminate or
reduce the gains that would have otherwise accrued to the Company. Furthermore,
the Company is subject to foreign exchange rate fluctuations as the financial
results of its international subsidiaries are translated into U.S. dollars in
consolidation.
Additional risks inherent in the Company's international business
activities include, among others, unexpected changes in regulatory requirements,
economic turmoil in other countries, tariffs and other trade barriers, costs of
localizing products for other countries, lack of acceptance of localized
products in other countries, longer accounts receivable payment cycles,
difficulties in managing international operations, potentially adverse tax
consequences including restrictions on the repatriation of earnings, and the
burdens of complying with a wide variety of international laws. There can be no
assurance that such factors will not have a material adverse effect on the
Company's future international sales and, consequently, the Company's results of
operations and financial condition.
Lengthy Sales and Implementation Cycles
The Company's products are typically intended for use in applications that
may be critical to a customer's business. The license and implementation of the
Company's software products generally involves a significant commitment of
resources by prospective customers. As a result, the Company's sales process is
often subject to customer delays associated with the customer's potentially
lengthy internal approval processes which typically accompany significant
capital expenditures. For these and other reasons, the sales cycle associated
with the license of the Company's products is often lengthy and subject to
significant delays over which the Company has little or no control.
Because of the attendant complexity, larger implementations can involve
multiple-quarter implementation cycles. When the Company has provided consulting
services to implement certain larger projects, a few customers have in the past
delayed payment of a portion of license fees until implementation was complete
and in some cases have disputed the consulting fees charged for implementation.
There can be no assurance that the Company will not experience additional delays
or disputes regarding payment in the future, particularly if the Company
receives orders for large, complex installations. Therefore, the Company
believes that its quarterly operating results are likely to vary significantly
in the future.
Dependence on New Products and Rapid Technological Change
The front-office solutions market, including the markets for customer
service, field service and logistics, quality assurance, help desk, and sales
and marketing applications, is characterized by rapid technological change,
frequent new product introductions, evolving industry standards, and rapid
changes in customer requirements. The introduction of products embodying new
technologies and the emergence of new industry standards can render existing
products obsolete and unmarketable. While the Company believes that it offers
one of the broadest product lines in the front-office solutions market, this
market continues to evolve and customer requirements continue to change. The
Company's future success will depend upon its ability to enhance its current
products and develop and introduce new products in response to technological
developments, evolving industry standards and the increasingly sophisticated
needs of its customers. There can be no
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<PAGE> 17
assurance that the Company will be successful in developing and marketing
product enhancements or new products that respond to technological change or
evolving industry standards, or that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these products, or that its new products and
product enhancements will adequately meet the requirements of the marketplace
and achieve market acceptance. Furthermore, reallocation of resources by the
Company, such as the diversion of research and development personnel to the
development of a particular feature for a potential or existing customer, can
delay new products and certain product enhancements. If the Company is unable,
for technological or other reasons, to develop and introduce new products or
enhancements of existing products in a timely manner in response to changing
market conditions or customer requirements, the Company's business, operating
results and financial condition will be materially adversely affected.
The Company has in the past introduced product upgrades and enhancements on
a frequent basis, and expects to continue to introduce upgrades and enhancements
of its existing products. The Company also currently plans to introduce and
market new products. The upgrades, enhancements and new products are subject to
significant technical risks, including the difficulty of ensuring that such
products will permit successful migration of customer data from a variety of
existing platforms. In the past, the Company has experienced delays in
development, which have resulted in delays in the commencement of commercial
shipments of new products and enhancements. There can be no assurance that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction or marketing of new or enhanced products.
In addition, there can be no assurance that such products will meet the
requirements of the marketplace and achieve market acceptance on a timely basis,
or that the Company's current or future products will conform to industry
requirements. If any potential new products, upgrades or enhancements are
delayed, experience quality problems or do not achieve market acceptance, the
Company's business, operating results and financial condition will be materially
adversely affected.
Dependence upon Key Personnel
The loss of the services of one or more of the Company's executive officers
could have a material adverse effect on the Company's business, operating
results and financial condition. In the past, the Company has experienced
turnover in key personnel. Additions of new, and departures of existing,
personnel, particularly in key positions, could have a material adverse effect
upon the Company's business, operating results, and financial condition. The
Company's future performance depends significantly upon the continued service
and performance of its executive officers and key personnel. The Company's
future success also depends on its continuing ability to attract and retain
highly qualified technical, sales, financial and managerial personnel. The
Company recently hired a significant number of employees, and in order to
maintain its ability to grow in the future, the Company will be required to
further increase the total number of employees significantly in the future.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to retain its key technical, sales, financial and
managerial employees or that it will be able to attract, assimilate or retain
other highly qualified technical, sales, financial and managerial personnel in
the future.
Product Concentration
To date, a significant portion of the Company's revenues have been
attributable to sales of the Clarify eFrontOffice(TM) suite of products. As a
result, factors adversely affecting the pricing of or demand for Clarify
eFrontOffice, such as competition or technological change, could have a material
adverse effect on the Company's business, operating results, and financial
condition. The Company's future financial performance will depend, in
significant part, on the successful development, introduction and customer
acceptance of new and enhanced versions of Clarify eFrontOffice. There can be no
assurance that the Company will continue to be successful in marketing Clarify
eFrontOffice or other products.
Product Liability
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. However, it is possible that the limitation of liability
provisions contained in the Company's license agreements may not be effective
under the laws of certain
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<PAGE> 18
jurisdictions. Although the Company has not experienced any product liability
claims to date, the sale and support of products by the Company entails the risk
of such claims, and there can be no assurance that the Company will not be
subject to such claims in the future. A successful product liability claim
brought against the Company could have a material adverse effect upon the
Company's business, operating results and financial condition.
Expansion of Distribution Channels
The Company has historically sold its products primarily through its direct
sales force. The Company's ability to achieve significant revenue growth in the
future will depend in large part on its success in recruiting and training
sufficient sales personnel and establishing and maintaining relationships with
distributors, resellers and systems integrators. The Company is currently
investing, and plans to continue to invest, significant resources to expand its
domestic and international direct sales force and develop distribution
relationships with certain third-party distributors, resellers and systems
integrators. There can be no assurance that the Company will be able to attract
a sufficient number of third-party distribution partners or that such partners
will be able to successfully distribute the Company's products. Any inability to
establish and maintain successful relationships with distributors, resellers or
systems integrators could have a material adverse effect on the Company's
business, operating results or financial condition. In addition, there can be no
assurance that the Company will be able to successfully expand its direct sales
force or other distribution channels. Any failure by the Company to expand its
direct sales force or other distribution channels would materially adversely
affect the Company's business, operating results and financial condition.
Year 2000 Readiness
As is true for most companies, the Year 2000 computer issue creates a risk
for the Company. If the Company's systems do not accommodate the change in date
to the year 2000, there could be an adverse impact on the Company's operations.
For example, if the Company's computer systems and software products with
date-sensitive functions do not distinguish 21st century dates from 20th century
dates in the date code fields, system failures and erroneous data may result.
The Company has formed a task force to assess its Year 2000 readiness.
REVIEW PROCESS
The Company's Year 2000 review process is divided into four components:
(1) Product Review (including review of third-party embedded software)
(2) Corporate Review (including business processes, hardware, software and
facilities)
(3) Supplier Review
(4) Customer Review
The general phases common to all four component reviews are: (1) analyzing
Year 2000 issues; (2) categorizing any identified risks as fatal, critical or
marginal; (3) assessing the Year 2000 readiness of identified items; (4) testing
of identified items; and (5) repairing, renovating or replacing fatal or
critical items that are not Year 2000 ready.
PRODUCT REVIEW
The Company has completed all phases of its product review. The Company's
products have been developed and tested to accommodate the following Year 2000
issues:
- General integrity -- no value for current date will cause interruptions
in desired operations.
- Data integrity -- all manipulations of time-related data will produce
desired results for all valid date values within the application domain.
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- Implicit century -- for any date element represented without century, the
correct century is unambiguous for all manipulations involving that
element.
- Leap year -- the product recognizes Year 2000 as a leap year.
The Company's current products meet the requirements for general integrity,
data integrity, implicit century recognition and leap year recognition for the
Year 2000 in all material respects. As an added measure of security, the Company
has engaged an independent third-party to certify that the Clarify FrontOffice
98(TM)suite of sales and service applications are Year 2000 ready in all
material respects. The Company expects to complete such third-party
certification by September 1999. Although the company does not warranty version
5.x of the Clarify product, it is testing the suite to provide risk data to
customers who choose to remain on that version. The Company expects to complete
version 5.x testing in September 1999.
THIRD-PARTY EMBEDDED PRODUCTS REVIEW
The Company did not test, and therefore does not warrant, any third-party
embedded products or applications distributed as part of Clarify FrontOffice 98
(CFO98) Bill of Materials to be Year 2000 ready when such embedded products or
applications are run in stand-alone mode. The Company has tested, and therefore
certifies to be Year 2000 ready, only the custom implementations of third-party
embedded products or applications accessible only from within the CFO98
application and only when CFO98 is properly installed and used and unmodified
from its intended use. The Company is, however, seeking assurances from all its
vendors that licensed software contained within the CFO98 distribution is Year
2000 ready. The Company released its next generation product, eFrontOffice(TM),
in April 1999 which incorporates updated versions of third-party software as
well as all patches to base Clarify code, including any and all identified Year
2000-related updates. The Company believes that eFrontOffice, and all subsequent
releases of such product, will continue to be Year 2000-ready in all material
respects.
INFORMATION TECHNOLOGY REVIEW
The Company has completed all assessment and testing of its critical
business systems and is in the process of remediation where necessary. The
Company expects to complete remediation of critical and ancillary systems, if
any, by September 1999. Although the Company currently believes its information
technology is Year 2000-ready in all material respects, current systems and
products may contain undetected errors or defects with Year 2000 date functions
that may result in material costs to the Company.
SUPPLIER REVIEW
The Company has conducted an audit of all suppliers and rated them fatal,
critical or marginal. All of the suppliers ranked as fatal by the Company have
been assessed and/or audited as to the Year 2000 readiness of their products
and/or services. An audit of 90% of the suppliers rated by the Company as
critical or marginal has been completed. The Company maintains a database of its
suppliers and their Year 2000 readiness status. Contingency plans exist for
suppliers that are not Year 2000 ready, which plans include engaging replacement
suppliers that are Year 2000-ready. The Company believes that its suppliers
reviewed to date are Year 2000 ready in all material respects. The Company
expects to complete its supplier review and remediation efforts by September
1999.
CUSTOMER REVIEW
The Company intends to remain proactive in maintaining a Year 2000-ready
installed base. The Company has implemented initiatives to assist clients in
upgrading older versions of the Company's product suite to ensure a Year
2000-ready installed base at the turn of the century. Such initiatives to date
include communications programs for clients on our websites, newsletters, a Year
2000 hotline, survey campaigns and the education of our direct sales force. The
Company maintains a Year 2000 Program Office in conjunction with the
professional services, marketing and sales organizations to develop programs to
assist clients with their Year 2000 migration efforts.
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FACILITIES REVIEW
The Company relocated its headquarters in May 1999 and required all
products and facilities vendors participating in the relocation to warranty
their products and internal systems as being Year 2000 ready.
CONTINGENCY PLANS
The Company is in the process of developing contingency plans for core
business processes to protect against a potential interruption in continuity of
operations in any of its critical operational areas due to Year 2000-related
problems. The Company expects to complete its Year 2000 contingency plans by the
third quarter of fiscal 1999. The Company does not believe that the costs of
developing and implementing its Year 2000 contingency plans will have a material
effect on its results of operations or financial condition.
BUDGET
The Company does not believe that the total costs associated with the
Company's Year 2000 review process and any required modifications to become Year
2000 ready will be material to the Company's results of operations or financial
condition. The Company currently estimates the total costs associated with its
Year 2000 review process to be approximately $500,000. The use of internal
resources or existing infrastructure is not accounted for in this estimate. The
total amount expended through June 30, 1999 was approximately $100,000 to
purchase lab testing equipment and augment staffing. The Company currently
estimates that the future costs of completing the Year 2000 review process will
be approximately $400,000 to augment staff and complete independent third-party
Year 2000 readiness certification of the Company's current products. The Company
has funded and plans to continue to fund its Year 2000 review process from its
operating cash flows. The estimated cost of the Company's Year 2000 review
process does not represent a percentage of the Company's planned 1999 budget for
computer hardware and software. The Company does not anticipate that any
existing information technology review procedures will need to be deferred as of
part of its Year 2000 efforts.
Although the Company's Year 2000 review process is expected to reduce the
Company's level of uncertainty regarding any Year 2000 problems significantly,
failure to correct known or unknown material Year 2000 problems could result in
a delay or loss of revenues, diversion of development resources, damage to the
Company's reputation, or increased service and warranty costs, any of which
could materially adversely affect the Company's business, operating results or
financial condition. The Company does not currently have any information
concerning the Year 2000 readiness status of its customers' business operations,
beyond compliance with respect to the Company's products. As is the case with
other similarly-situated software companies, if the Company's current or future
customers fail to achieve Year 2000 compliance or if they divert technology
expenditures to address Year 2000 compliance problems, the Company's business,
results of operations or financial condition could be materially adversely
affected. In addition, some commentators have predicted significant litigation
regarding Year 2000 compliance issues. Due to the unprecedented nature of such
litigation, the Company is uncertain whether or to what extent it may be
affected by it.
Euro Conversion
The Company's international operations entail certain risks associated with
the formation of the European economic and monetary union (the "EMU"). On
January 1, 1999, EMU member states implemented a single currency, the "Euro". On
that day, the Euro became a functional legal currency within these countries.
During the next three years, business in the EMU member states will be conducted
in both the existing national currency, such as the French Franc or
Deutschemark, and the Euro. As a result, companies operating in or conducting
business in EMU member states will need to ensure that their financial and other
software systems are capable of processing transactions and properly processing
each country's respective currencies as well as the Euro.
The Company is dedicated to addressing issues associated with EMU properly.
By January 1, 2002 all of the Company's customers in EMU member states must
convert all the monetary values in their databases to the Euro, having
previously reflected all values in the respective local currency. The Company
intends to
20
<PAGE> 21
ensure that its internal systems will be able to process the Euro as the single
monetary unit for all EMU member states simultaneously. At this time, it is not
possible to estimate the costs to the Company associated with its Euro
conversion effort and there can be no assurance that the Euro conversion effort
and its related costs will not have a materially adverse effect on the Company's
business, operating results, and financial condition.
Effect of Certain Charter Provisions
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of undesignated preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of such
preferred stock without any further vote or action by the stockholders. The
preferred stock could be issued with voting, liquidation, dividend and other
rights superior to those of the common stock. The rights of the holders of
common stock will be subject to, and may be adversely affected by, the rights of
the holders of any preferred stock that may be issued in the future. The
issuance of preferred stock could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no current plans to issue shares of preferred stock.
Furthermore, certain provisions of the Company's Certificate of Incorporation,
Bylaws, Stockholder Rights Plan, and Delaware law could delay, prevent or make
more difficult a merger, tender offer or proxy contest involving the Company.
21
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 1. MATERIAL DEVELOPMENTS IN CONNECTION WITH LEGAL PROCEEDINGS.
N/A
ITEM 2. MATERIAL MODIFICATION OF RIGHTS OF REGISTRANT'S SECURITIES.
N/A
ITEM 3. DEFAULTS ON SENIOR SECURITIES.
N/A
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Stockholders held on June 10, 1999, the following
proposals were adopted by the margins indicated:
1. To elect a Board of Directors to hold office until the next annual
meeting of stockholders and until their successors have been duly
elected and qualified.
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------------
FOR WITHHELD
---------- --------
<S> <C> <C>
David A. Stamm........................................ 20,563,522 188,400
Anthony Zingale....................................... 20,563,297 188,625
Joseph A. Costello.................................... 20,559,879 192,043
Christopher H. Greendale.............................. 20,551,512 200,410
Thomas H. Bredt....................................... 20,655,782 96,140
</TABLE>
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.
<TABLE>
<S> <C>
For......................................................... 12,382,323
Against..................................................... 4,506,450
Abstain..................................................... 151,972
Broker Non-Votes............................................ 3,711,177
</TABLE>
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.
<TABLE>
<S> <C>
For......................................................... 9,464,830
Against..................................................... 7,427,143
Abstain..................................................... 148,772
Broker Non-Votes............................................ 3,711,177
</TABLE>
22
<PAGE> 23
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.
<TABLE>
<S> <C>
For......................................................... 15,614,628
Against..................................................... 1,266,190
Abstain..................................................... 159,927
Broker Non-Votes............................................ 3,711,177
</TABLE>
5. To ratify the appointment of PricewaterhouseCoopers L.L.P. as the
Company's independent public accountants for the fiscal year ending
December 31, 1999.
<TABLE>
<S> <C>
For......................................................... 20,743,584
Against..................................................... 1,463
Abstain..................................................... 6,875
</TABLE>
ITEM 5. OTHER.
N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
10.1 1999 Employee Stock Purchase Plan
10.2 Amended and Restated 1995 Stock Option/Stock Issuance Plan
10.3 Non-Employee Directors Option Plan
27 Financial data schedule for the six months ended June 30,
1999 (included only in the copy of this report filed
electronically with the Securities and Exchange Commission)
</TABLE>
(b) Reports on Form 8-K.
The Registrant filed no reports on Form 8-K during the second quarter ended
June 30, 1999.
23
<PAGE> 24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CLARIFY INC.
By: /s/ ANTHONY ZINGALE
------------------------------------
Anthony Zingale
President and Chief Executive
Officer
By: /s/ JAN A. PRAISNER
------------------------------------
Jan A. Praisner
Vice President and Chief Financial
Officer
(Duly Authorized Officer and
Principal Financial Officer)
Date: August 12, 1999
24
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<C> <S>
10.1 1999 Employee Stock Purchase Plan
10.2 Amended and Restated 1995 Stock Option/Stock Issuance Plan
10.3 Non-Employee Directors Option Plan
27 Financial data schedule for the six months ended June 30,
1999 (included only in the copy of this report filed
electronically with the Securities and Exchange Commission)
</TABLE>
<PAGE> 1
EXHIBIT 10.1
CLARIFY, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock
Purchase Plan of Clarify, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as
amended.
(c) "COMMON STOCK" means the Common Stock of the Company.
(d) "COMPANY" means Clarify, Inc., a Delaware corporation.
(e) "COMPENSATION" means all cash compensation paid to an
Employee plus any pre-tax contributions made by an Employee to any Code Section
401(k) salary deferral plan or any Code Section 125 cafeteria program now or
hereafter established by the Company or any Designated Subsidiary.
(f) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of
any interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of (i) sick leave;
(ii) military leave; (iii) any other leave of absence approved by the
Administrator, provided that such leave is for a period of not more than 90
days, unless reemployment upon the expiration of such leave is guaranteed by
contract or statute, or unless provided otherwise pursuant to Company policy
adopted from time to time; or (iv) in the case of transfers between locations of
the Company or between the Company and its Designated Subsidiaries.
(g) "CONTRIBUTIONS" means all amounts credited to the
account of a participant pursuant to the Plan.
(h) "CORPORATE TRANSACTION" means a sale of all or
substantially all of the Company's assets, or a merger, consolidation or other
capital reorganization of the Company with or into another corporation.
(i) "DESIGNATED SUBSIDIARIES" means the Subsidiaries which
have been designated by the Board from time to time in its sole discretion as
eligible to participate in the
<PAGE> 2
Plan; provided however that the Board shall only have the discretion to
designate Subsidiaries if the issuance of options to such Subsidiary's Employees
pursuant to the Plan would not cause the Company to incur adverse accounting
charges.
(j) "EMPLOYEE" means any person, including an Officer, who
is customarily employed for at least twenty (20) hours per week and more than
five (5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(k) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(l) "OFFERING DATE" means the first business day of each
Offering Period of the Plan.
(m) "OFFERING PERIOD" means a period of twenty-four (24)
months commencing on November 1 and May 1 of each year.
(n) "OFFICER" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "PLAN" means this Employee Stock Purchase Plan.
(p) "PURCHASE DATE" means the last day of each Purchase
Period of the Plan.
(q) "PURCHASE PERIOD" means a period of six (6) months
within an Offering Period.
(r) "PURCHASE PRICE" means with respect to a Purchase Period
an amount equal to 85% of the Fair Market Value (as defined in Section 7(b)
below) of a Share of Common Stock on the Offering Date or on the Purchase Date,
whichever is lower; provided, however, that in the event (i) of any increase in
the number of Shares available for issuance under the Plan as a result of a
stockholder-approved amendment to the Plan, and (ii) all or a portion of such
additional Shares are to be issued with respect to one or more Offering Periods
that are underway at the time of such increase ("Additional Shares"), and (iii)
the Fair Market Value of a Share of Common Stock on the date of such increase
(the "Approval Date Fair Market Value") is higher than the Fair Market Value on
the Offering Date for any such Offering Period, then in such instance the
Purchase Price with respect to Additional Shares shall be 85% of the Approval
Date Fair Market Value or the Fair Market Value of a Share of Common Stock on
the Purchase Date, whichever is lower.
(s) "SHARE" means a share of Common Stock, as adjusted in
accordance with Section 19 of the Plan.
(t) "SUBSIDIARY" means a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
<PAGE> 3
3. ELIGIBILITY.
(a) Any person who is an Employee as of the Offering Date of
a given Offering Period shall be eligible to participate in such Offering Period
under the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code; provided however that eligible Employees
may not participate in more than one Offering Period at a time.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) if,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of any subsidiary of
the Company, or (ii) if such option would permit his or her rights to purchase
stock under all employee stock purchase plans (described in Section 423 of the
Code) of the Company and its Subsidiaries to accrue at a rate which exceeds
Twenty-Five Thousand Dollars ($25,000) of the Fair Market Value (as defined in
Section 7(b) below) of such stock (determined at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
4. OFFERING PERIODS AND PURCHASE PERIODS.
(a) OFFERING PERIODS. The Plan shall be implemented by a
series of Offering Periods of twenty-four (24) months' duration, with new
Offering Periods commencing on or about November 1 and May 1 of each year (or at
such other time or times as may be determined by the Board of Directors). The
first Offering Period shall commence on November 1, 1999 and continue until
October 31, 2001. The Plan shall continue until terminated in accordance with
Section 19 hereof. The Board of Directors of the Company shall have the power to
change the duration and/or the frequency of Offering Periods with respect to
future offerings without stockholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected.
(b) PURCHASE PERIODS. Each Offering Period shall consist of
four (4) consecutive purchase periods of six (6) months' duration. The last day
of each Purchase Period shall be the "Purchase Date" for such Purchase Period. A
Purchase Period commencing on November 1 shall end on the next April 30. A
Purchase Period commencing on May 1 shall end on the next October 31. The first
Purchase Period shall commence on November 1, 1999 and shall end on April 30,
2000. The Board of Directors of the Company shall have the power to change the
duration and/or frequency of Purchase Periods with respect to future purchases
without stockholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Purchase Period to be affected.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the
Plan by completing a subscription agreement on the form provided by the Company
and filing it with the Company's
<PAGE> 4
Equity Compensation Department prior to the applicable Offering Date, unless a
later time for filing the subscription agreement is set by the Board for all
eligible Employees with respect to a given Offering Period. The subscription
agreement shall set forth the percentage of the participant's Compensation
(subject to Section 6(a) below) to be paid as Contributions pursuant to the
Plan.
(b) 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 Purchase Period of the Offering Period to which the subscription
agreement is applicable, unless sooner terminated by the participant as provided
in Section 10.
6. METHOD OF PAYMENT OF CONTRIBUTIONS.
(a) A participant shall elect to have payroll deductions
made on each payday during the Offering Period in an amount not less than one
percent (1%) and not more than twenty percent (20%) (or such greater percentage
as the Board may establish from time to time before an Offering Date). All
payroll deductions made by a participant shall be credited to his or her account
under the Plan. A participant may not make any additional payments into such
account.
(b) A participant may discontinue his or her participation
in the Plan as provided in Section 10, or, on one occasion only during a
Purchase Period may increase and on one occasion only during a Purchase Period
may decrease the rate of his or her Contributions with respect to the Offering
Period by completing and filing with the Company a new subscription agreement
authorizing a change in the payroll deduction rate. A change increasing the
payroll deduction rate shall be effective as of the beginning of the next
Purchase Period following the date of filing of the new subscription agreement.
A change decreasing the payroll deduction rate shall be effective as soon as
possible following the date of filing of the new subscription agreement.
(c) Notwithstanding the foregoing, to the extent necessary
to comply with Section 423(b)(8) of the Code and Section 3(b) herein, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall re-commence at Purchase
Offering Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10.
7. GRANT OF OPTION.
(a) On the Offering Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Purchase Date a number of Shares of the Company's
Common Stock determined by dividing such Employee's Contributions accumulated
prior to such Purchase Date and retained in the participant's account as of the
Purchase Date by the applicable Purchase Price; provided however that the
maximum number of Shares an Employee may purchase during each Purchase Period
shall be 2,000 Shares (subject to any adjustment pursuant to Section 19 below),
and provided further that such purchase shall be subject to the limitations set
forth in Sections 3(b) and 13.
<PAGE> 5
(b) The fair market value of the Company's Common Stock on a
given date (the "Fair Market Value") shall be determined by the Board in its
discretion based on the closing sales price of the Common Stock for such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market or, if such
price is not reported, the mean of the bid and asked prices per share of the
Common Stock as reported by Nasdaq or, in the event the Common Stock is listed
on a stock exchange, the Fair Market Value per share shall be the closing sales
price on such exchange on such date (or, in the event that the Common Stock is
not traded on such date, on the immediately preceding trading date), as reported
in The Wall Street Journal.
8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan
as provided in Section 10, his or her option for the purchase of Shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account. No fractional Shares shall be issued. The Shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the Purchase Date. During his or her lifetime, a participant's
option to purchase Shares hereunder is exercisable only by him or her.
9. DELIVERY. As promptly as practicable after each Purchase Date of
each Offering Period, the Company shall deposit the Shares purchased upon
exercise of a participant's option into the participant's account with the
broker selected by the Company for administration of the Plan stock purchases.
Any payroll deductions accumulated in a participant's account which are not
sufficient to purchase a full Share shall be retained in the participant's
account for the subsequent Purchase Period or Offering Period, subject to
earlier withdrawal by the participant as provided in Section 10 below. Any other
amounts left over in a participant's account after a Purchase Date shall be
returned to the participant.
10. VOLUNTARY WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
Contributions for the purchase of Shares will be made during the Offering
Period.
(b) Upon termination of the participant's Continuous Status
as an Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto, and his or her option will be automatically
terminated.
(c) In the event an Employee fails to remain in Continuous
Status as an Employee of the Company for at least twenty (20) hours per week
during the Offering Period in
<PAGE> 6
which the employee is a participant, he or she will be deemed to have elected to
withdraw from the Plan and the Contributions credited to his or her account will
be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not
have any effect upon his or her eligibility to participate in a succeeding
offering or in any similar plan which may hereafter be adopted by the Company.
11. AUTOMATIC WITHDRAWAL. If the Fair Market Value of the Shares on
any Purchase Date of an Offering Period is less than the Fair Market Value of
the Shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of Shares for such Purchase Period,
and (ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period.
12. INTEREST. No interest shall accrue on the Contributions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment as provided in Section 19, the
maximum number of Shares which shall be made available for sale under the Plan
shall be 1,000,000 Shares, plus an annual increase on the first day of each of
the Company's fiscal years beginning 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 is determined by the Board. If the Board
determines that, on a given Purchase Date, the number of shares with respect to
which options are to be exercised may exceed (i) the number of shares of Common
Stock that were available for sale under the Plan on the Offering Date of the
applicable Offering Period, or (ii) the number of shares available for sale
under the Plan on such Purchase Date, the Board may in its sole discretion
provide (x) that the Company shall make a pro rata allocation of the Shares of
Common Stock available for purchase on such Offering Date or Purchase Date, as
applicable, in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Purchase Date, and continue
all Offering Periods then in effect, or (y) that the Company shall make a pro
rata allocation of the shares available for purchase on such Offering Date or
Purchase Date, as applicable, in as uniform a manner as shall be practicable and
as it shall determine in its sole discretion to be equitable among all
participants exercising options to purchase Common Stock on such Purchase Date,
and terminate any or all Offering Periods then in effect pursuant to Section 20
below. The Company may make pro rata allocation of the Shares available on the
Offering Date of any applicable Offering Period pursuant to the preceding
sentence, notwithstanding any authorization of additional Shares for issuance
under the Plan by the Company's stockholders subsequent to such Offering Date.
(b) The participant shall have no interest or voting right
in Shares covered by his or her option until such option has been exercised.
<PAGE> 7
(c) Shares to be delivered to a participant under the Plan
will be registered in the name of the participant only.
14. ADMINISTRATION. The Board, or a committee named by the Board,
shall supervise and administer the Plan and shall have full power to adopt,
amend and rescind any rules deemed desirable and appropriate for the
administration of the Plan and not inconsistent with the Plan, to construe and
interpret the Plan, and to make all other determinations necessary or advisable
for the administration of the Plan.
15. TRANSFERABILITY. Neither Contributions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive Shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such attempt
at assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 10.
16. USE OF FUNDS. All Contributions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such Contributions.
17. REPORTS. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees at least annually, which statements will set forth the amounts of
Contributions, the per Share Purchase Price, the number of Shares purchased and
the remaining cash balance, if any.
18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE
TRANSACTIONS.
(a) ADJUSTMENT. Subject to any required action by the
stockholders of the Company, the number of Shares covered by each option under
the Plan which has not yet been exercised and the number of Shares which have
been authorized for issuance under the Plan but have not yet been placed under
option (collectively, the "Reserves"), as well as the maximum number of shares
of Common Stock which may be purchased by a participant in a Purchase Period,
the number of shares of Common Stock set forth in Section 13(a)(i) above, and
the price per Share of Common Stock covered by each option under the Plan which
has not yet been exercised, shall be proportionately adjusted for any increase
or decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common Stock
(including any such change in the number of Shares of Common Stock effected in
connection with a change in domicile of the Company), or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company; provided however that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an option.
<PAGE> 8
(b) CORPORATE TRANSACTIONS. In the event of a dissolution or
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such action,
unless otherwise provided by the Board. In the event of a Corporate Transaction,
each option outstanding under the Plan shall be assumed or an equivalent option
shall be substituted by the 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 Purchase Period and
Offering Period then in progress shall be shortened and a new Purchase Date
shall be set (the "New Purchase Date"), as of which date any Purchase Period and
Offering Period then in progress will terminate. The New Purchase Date shall be
on or before the date of consummation of the transaction and the Board shall
notify each participant in writing, at least ten (10) days prior to the New
Purchase Date, that the Purchase Date for his or her option has been changed to
the New Purchase Date and that his or her option will be exercised automatically
on the New Purchase Date, unless prior to such date he or she has withdrawn from
the Offering Period as provided in Section 10. For purposes of this Section 19,
an option granted under the Plan shall be deemed to be assumed, without
limitation, if, at the time of issuance of the stock or other consideration upon
a Corporate Transaction, each holder of an option under the Plan would be
entitled to receive upon exercise of the option the same number and kind of
shares of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the
transaction if the holder had been, immediately prior to the transaction, the
holder of the number of Shares of Common Stock covered by the option at such
time (after giving effect to any adjustments in the number of Shares covered by
the option as provided for in this Section 19); provided however that if the
consideration received in the transaction is not solely common stock of the
successor corporation or its parent (as defined in Section 424(e) of the Code),
the Board may, with the consent of the successor corporation, provide for the
consideration to be received upon exercise of the option to be solely common
stock of the successor corporation or its parent equal in Fair Market Value to
the per Share consideration received by holders of Common Stock in the
transaction.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per Share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of Shares of its outstanding Common
Stock, and in the event of the Company's being consolidated with or merged into
any other corporation.
19. AMENDMENT OR TERMINATION.
(a) The Board may at any time and for any reason terminate
or amend the Plan. Except as provided in Section 19, no such termination of the
Plan may affect options previously granted, provided that the Plan or an
Offering Period may be terminated by the Board on a Purchase Date or by the
Board's setting a new Purchase Date with respect to an Offering Period and
Purchase Period then in progress if the Board determines that termination of the
Plan and/or the Offering Period is in the best interests of the Company and the
stockholders or if continuation of the Plan and/or the Offering Period would
cause the Company to incur adverse accounting charges as a result of a change
after the effective date of the Plan in the generally
<PAGE> 9
accepted accounting rules applicable to the Plan. Except as provided in Section
19 and in this Section 20, no amendment to the Plan shall make any change in any
option previously granted which adversely affects the rights of any participant.
In addition, to the extent necessary to comply with Rule 16b-3 under the
Exchange Act, or under Section 423 of the Code (or any successor rule or
provision or any applicable law or regulation), the Company shall obtain
stockholder approval in such a manner and to such a degree as so required.
(b) Without stockholder consent and without regard to
whether any participant rights may be considered to have been adversely
affected, the Board (or its committee) shall be entitled to change the Offering
Periods and Purchase Periods, limit the frequency and/or number of changes in
the amount withheld during an Offering Period, establish the exchange ratio
applicable to amounts withheld in a currency other than U.S. dollars, permit
payroll withholding in excess of the amount designated by a participant in order
to adjust for delays or mistakes in the Company's processing of properly
completed withholding elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure that amounts
applied toward the purchase of Common Stock for each participant properly
correspond with amounts withheld from the participant's Compensation, and
establish such other limitations or procedures as the Board (or its committee)
determines in its sole discretion advisable which are consistent with the Plan.
20. NOTICES. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
22. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective
upon its approval by the Company's stockholders. It shall continue in effect for
a term of twenty (20) years unless sooner terminated under Section 20.
23. ADDITIONAL RESTRICTIONS OF RULE 16b-3. The terms and conditions
of options granted hereunder to, and the purchase of Shares by, persons subject
to Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be
<PAGE> 10
deemed to contain, and such options shall contain, and the Shares issued upon
exercise thereof shall be subject to, such additional conditions and
restrictions as may be required by Rule 16b-3 to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to Plan transactions.
<PAGE> 1
EXHIBIT 10.2
CLARIFY INC.
AMENDED AND RESTATED
1995 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option/Stock Issuance Plan is intended to promote
the interests of Clarify Inc., a Delaware corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms
in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two separate equity programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock, and
(ii) the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such shares or
as a bonus for services rendered the Corporation (or any Parent or Subsidiary.
B. The provisions of Articles One and Four shall apply to all
equity programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. No non-employee Board member shall be eligible
to serve on the Primary Committee if such individual does not qualify as a
Non-Employee Director, as such term is defined in Rule 16b-2 of the 1934 Act.
B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of the
Secondary Committee may be Board members who are Employees eligible to
receive discretionary option grants or direct stock issuances under the Plan or
any stock option,
<PAGE> 2
stock appreciation, stock bonus or other stock plan of the Corporation (or any
Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant and Stock Issuance Programs and
to make such determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the
Discretionary Option Grant or Stock Issuance Program under its jurisdiction or
any option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary who provide services to the Company in a
capacity other than solely as a member of the Board or the board of directors of
any Parent or Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to the
provisions of the Plan) to determine, (i) with respect to the option grants
under the Discretionary Option Grant Program, which eligible persons are to
receive option grants, the time or times when such option grants are to be made,
the number of shares to be covered by each such grant, the status of the granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times at which each option is to become exercisable, the vesting schedule (if
any) applicable to the option shares and
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<PAGE> 3
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
to be paid for such shares.
C. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Discretionary Option Grant
Program or to effect stock issuances in accordance with the Stock Issuance
Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 6,705,317
shares. Such authorized share reserve include the estimated number of shares
which remained available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders prior to
such date, including the shares subject to the outstanding options incorporated
into the Plan and any other shares which would have been available for future
option grants under the Predecessor Plan.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of each of
the 2000 and 2001 fiscal years by an amount equal to five percent (5%) of the
shares of Common Stock outstanding on the last day of the immediately preceding
fiscal year. No Incentive Options may be granted on the basis of the additional
shares of Common Stock resulting from such annual increases.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 1,000,000 shares of Common Stock in the aggregate over the term of the
Plan.
D. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full. All shares issued under the
Plan (including shares issued upon exercise of options incorporated from the
Predecessor Plan), whether or not those shares are subsequently repurchased by
the Corporation pursuant to its repurchase rights under the Plan, shall reduce
on a share-for-share basis the number of shares of Common Stock available for
subsequent issuance under the Plan. In addition, should the exercise price of an
option under the Plan (including any option incorporated from the Predecessor
Plan) be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Corporation in satisfaction
of the withholding taxes incurred in connection with the exercise of an option
or the vesting of a stock issuance under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised or which vest under the stock
issuance, and not by the net number of shares of Common Stock issued to the
holder of such option or stock issuance.
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<PAGE> 4
E. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities for which any one
person may be granted options, separately exercisable stock appreciation rights
and direct stock issuances over the term of the Plan, and (iii) the number
and/or class of securities and the exercise price per share in effect under each
outstanding option (including any option incorporated from the Predecessor Plan)
in order to prevent the dilution or enlargement of benefits thereunder. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date, provided that
the maximum number of shares issuable under the Discretionary Option Grant
Program with an exercise price per share that is less than one hundred percent
(100%) of the Fair Market Value on the option grant date, when added to any
shares issued under the Stock Issuance Program with a purchase price of less
than one hundred percent (100%) of the Fair Market Value on the issuance date,
shall not exceed ten percent (10%) of the shares which may be issued over the
term of the Plan.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Four and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for
vested shares, through a special sale and remittance procedure pursuant to which
the Optionee shall
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<PAGE> 5
concurrently provide irrevocable written instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in order
to complete the sale transaction.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of
any options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator and
set forth in the documents evidencing the option, but no such option shall be
exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by
the Optionee at the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution.
(iii) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable exercise
period or (if earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares for which the option
has not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding to the
extent it is not exercisable for vested shares on the date of such cessation of
Service.
(iv) Should the Optionee's Service be terminated
for Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(v) In the event of an Involuntary Termination
following a Corporate Transaction, the provisions of Section III of this Article
Two shall govern the period
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<PAGE> 6
for which the outstanding options are to remain exercisable following the
Optionee's cessation of Service and shall supersede any provisions to the
contrary in this section.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option
is to remain exercisable following the Optionee's cessation of Service from the
period otherwise in effect for that option to such greater period of time as the
Plan Administrator shall deem appropriate, but in no event beyond the expiration
of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at the time
of the Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested under the option
had the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option may
be assigned in whole or in part during Optionee's lifetime in accordance with
the terms of a Qualified Domestic Relations Order. The assigned portion may only
be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to such Qualified Domestic Relations Order. The terms applicable
to the assigned portion shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Four shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
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<PAGE> 7
A. Eligibility. Incentive Options may only be granted to
Employees.
B. Exercise Price. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive Option
is granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not so accelerate
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or parent
thereof) or to be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation (or parent thereof), (ii) such option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested option shares at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option or (iii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
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<PAGE> 8
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan on both an aggregate and per
Optionee basis following the consummation of such Corporate Transaction and (ii)
the exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same.
E. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time shall automatically
accelerate (and any of the Corporation's outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction shall
automatically terminate and the shares of Common Stock subject to those
terminated rights shall immediately vest in full) in the event the Optionee's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of such Corporate
Transaction. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination.
F. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Change in Control or (ii)
condition any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent Involuntary Termination of the Optionee's
Service within a specified period following the effective date of such Change in
Control. Any options accelerated in connection with a Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
H. The grant of options under the Discretionary Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change
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<PAGE> 9
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall be prohibited from effecting at any
time the cancellation of any or all outstanding options under the Discretionary
Option Grant Program (including outstanding options incorporated from the
Predecessor Plan) and to grant in substitution new options covering the same or
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new option grant
date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of
tandem stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to elect
between the exercise of the underlying option for shares of Common Stock and the
surrender of that option in exchange for a distribution from the Corporation in
an amount equal to the excess of (a) the Fair Market Value (on the option
surrender date) of the number of shares in which the Optionee is at the time
vested under the surrendered option (or surrendered portion thereof) over (b)
the aggregate exercise price payable for such shares.
(ii) No such option surrender shall be effective unless it
is approved by the Plan Administrator. If the surrender is so approved, then the
distribution to which the Optionee shall be entitled may be made in shares of
Common Stock valued at Fair Market Value on the option surrender date, in cash,
or partly in shares and partly in cash, as the Plan Administrator shall in its
sole discretion deem appropriate.
(iii) If the surrender of an option is rejected by the
Plan Administrator, then the optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
(a) five (5) business days after the receipt of the rejection notice or (b) the
last day on which the option is otherwise exercisable in accordance with the
terms of the documents evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
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(ii) Upon the occurrence of a Hostile Take-Over, each such
individual holding one or more options with such a limited stock appreciation
right in effect for at least six (6) months shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile Take-Over) to
surrender each such option to the Corporation, to the extent the option is at
the time exercisable for vested shares of Common Stock. In return for the
surrendered option, the Optionee shall receive a cash distribution from the
Corporation in an amount equal to the excess of (A) the Take-Over Price of the
shares of Common Stock which are at the time vested under each surrendered
option (or surrendered portion thereof) over (B) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five (5)
days following the option surrender date.
(iii) Neither the approval of the Plan Administrator nor
the consent of the Board shall be required in connection with such option
surrender and cash distribution.
(iv) The balance of the option (if any) shall continue in
full force and effect in accordance with the documents evidencing such option.
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the issuance date, provided that the
maximum number of shares issuable under the Stock Issuance Program with a
purchase price per share that is less than one hundred percent (100%) of the
Fair Market Value on the issuance date, when added to any shares issued under
the Discretionary Option Grant Program with an exercise price of less than one
hundred percent (100%) of the Fair Market Value on the option grant date, shall
not exceed ten percent (10%) of the shares which may be issued over the term of
the Plan.
2. Subject to the provisions of Section I of Article Four,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation,
or
(ii) past services rendered to the Corporation (or
any Parent or Subsidiary).
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B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock Issuance
Program shall vest in one or more installments over the Participant's period of
Service or upon attainment of specified performance objectives. The elements of
the vesting schedule applicable to any unvested shares of Common Stock issued
under the Stock Issuance Program, namely:
(i) the Service period to be completed by the
Participant or the performance objectives to be attained,
(ii) the number of installments in which the shares
are to vest,
(iii) the interval or intervals (if any) which are
to lapse between installments, and
(iv) the effect which death, Permanent Disability
or other event designated by the Plan Administrator is to have upon the vesting
schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement, provided that the minimum period of Service for vesting
shall not be less than three (3) years from the date of issuance and the minimum
period for achievement of specified performance objectives shall not be less
than one (1) year from the date of issuance.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the
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<PAGE> 12
surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to such
surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
cessation of the Participant's Service or the non-completion of the vesting
schedule applicable to such shares. Such waiver shall result in the immediate
vesting of the Participant's interest in the shares of Common Stock as to which
the waiver applies. Such waiver may be effected at any time, whether before or
after the Participant's cessation of Service or the attainment or non-attainment
of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the outstanding repurchase rights under the Stock
Issuance Program shall terminate automatically, and all the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Corporate Transaction, except to the extent (i) those repurchase
rights are assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed in the Stock Issuance Agreement.
B. Any repurchase rights that are assigned in the Corporate
Transaction shall automatically terminate, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
the Participant's Service should subsequently terminate by reason of an
Involuntary Termination within eighteen (18) months following the effective date
of such Corporate Transaction.
C. The Plan Administrator shall have the discretion, exercisable
either at the time the unvested shares are issued or at any time while the
Corporation's repurchase right remains outstanding, to (i) provide for the
automatic termination of one or more outstanding repurchase rights and the
immediate vesting of the shares of Common Stock subject to those rights upon the
occurrence of a Change in Control or (ii) condition any such accelerated vesting
upon the subsequent Involuntary Termination of the Participant's Service within
a specified period following the effective date of such Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be
held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
ARTICLE FOUR
MISCELLANEOUS
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I. FINANCING
A. The Plan Administrator may permit any Optionee or Participant
to pay the option exercise price under the Discretionary Option Grant Program or
the purchase price for shares issued under the Stock Issuance Program by
delivering a promissory note payable in one or more installments. The terms of
any such promissory note (including the interest rate and the terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In all events, the maximum credit available to the Optionee or
Participant may not exceed the sum of (i) the aggregate option exercise price or
purchase price payable for the purchased shares plus (ii) any Federal, state and
local income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise or share purchase.
B. The Plan Administrator may, in its discretion, determine that
one or more such promissory notes shall be subject to forgiveness by the
Corporation in whole or in part upon such terms as the Plan Administrator may
deem appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or stock appreciation rights or upon the issuance
or vesting of such shares under the Plan shall be subject to the satisfaction of
all applicable Federal, state and local income and employment tax withholding
requirements.
B. The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan with the right to use shares of Common Stock in satisfaction of all or
part of the Taxes incurred by such holders in connection with the exercise of
their options or the vesting of their shares. Such right may be provided to any
such holder in either or both of the following formats:
(i) Stock Withholding: The election to have the
Corporation withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%)) designated by
the holder.
(ii) Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised or the shares
vest, one or more shares of Common Stock previously acquired by such holder
(other than in connection with the option exercise or share vesting triggering
the Taxes) with an aggregate Fair Market Value equal to the percentage of the
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective on the Plan Effective Date.
However, no options granted under the Plan may be exercised, and no shares shall
be issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not
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obtained within twelve (12) months after the Plan Effective Date, then all
options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan as of such date shall, immediately upon approval of the
Plan by the Corporation's stockholders, be incorporated into the Plan and
treated as outstanding options under the Plan. However, each outstanding option
so incorporated shall continue to be governed solely by the terms of the
documents evidencing such option, and no provision of the Plan shall be deemed
to affect or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest of (i) September
13, 2005, (ii) the date on which all shares available for issuance under the
Plan shall have been issued pursuant to the exercise of the options or the
issuance of shares (whether vested or unvested) under the Plan or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all options and unvested stock
issuances outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the documents evidencing such
options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to options, stock appreciation rights or unvested stock issuances at the
time outstanding under the Plan unless the Optionee or the Participant consents
to such amendment or modification. In addition, the Board shall not, without the
approval of the Corporation's stockholders, (i) materially increase the maximum
number of shares issuable under the Plan or the maximum number of shares for
which any one person may be granted options, separately exercisable stock
appreciation rights and direct stock issuances per calendar year, except for
permissible adjustments in the event of certain changes in the Corporation's
capitalization, (ii) materially modify the eligibility requirements for Plan
participation or (iii) materially increase the benefits accruing to Plan
participants.
B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant Program and shares of Common Stock may be
issued under the Stock Issuance Program that are in each instance in excess of
the number of shares then available for issuance under the Plan, provided any
excess shares actually issued under those programs are held in escrow until
there is obtained stockholder approval of an amendment sufficiently
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<PAGE> 15
increasing the number of shares of Common Stock available for issuance under the
Plan. If such stockholder approval is not obtained within twelve (12) months
after the date the first such excess issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall terminate
and cease to be outstanding and (ii) the Corporation shall promptly refund to
the Optionees and the Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically canceled and cease
to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or
stock appreciation right under the Plan and the issuance of any shares of Common
Stock (i) upon the exercise of any option or stock appreciation right or (ii)
under the Stock Issuance Program shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options and stock appreciation rights
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person
or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Corporation), of beneficial ownership (within the meaning of Rule
13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for Board,
membership, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been elected
or nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in office
at the time the Board approved such election or nomination.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Clarify Inc., a Delaware corporation.
G. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
H. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or
order (including approval of a property settlement agreement) which provides or
otherwise conveys,
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<PAGE> 17
pursuant to applicable State domestic relations laws (including community
property laws), marital property rights to any spouse or former spouse of the
Optionee.
I. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of transactions
on such exchange. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(iii) For purposes of option grants made on the date the
Underwriting Agreement is executed and the initial public offering price of the
Common Stock is established, the Fair Market Value shall be deemed to be equal
to the established initial offering price per share.
L. HOSTILE TAKE-OVER shall mean a change in ownership of the
Corporation effected through the following transaction:
(i) the acquisition, directly or indirectly, by any person
or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3
of the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities pursuant
to a tender or exchange offer made directly to the Corporation's stockholders
which the Board does not recommend such stockholders to accept, and
(ii) more than fifty percent (50%) of the securities so
acquired are accepted from persons other than Section 16 Insiders.
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<PAGE> 18
M. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
N. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge
by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A)
a change in his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more than fifteen
percent (15%) or (C) a relocation of such individual's place of employment by
more than fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without the individual's consent.
O. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
P. 1934 Act shall mean the Securities Exchange Act of 1934, as
amended.
Q. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
R. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant Program.
S. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
T. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
U. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more
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<PAGE> 19
V. PLAN shall mean the Corporation's 1995 Stock Option/Stock
Issuance Plan, as set forth in this document.
W. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Primary Committee, the Board or the Secondary Committee, which is authorized
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
X. PLAN EFFECTIVE DATE shall mean the date on which the
Underwriting Agreement is executed and the initial public offering price of the
Common Stock is established.
Y. PREDECESSOR PLAN shall mean the Corporation's existing 1991
Stock Option/Stock Issuance Plan.
Z. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
AA. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic
Relations Order which substantially complies with the requirements of Code
Section 414(p). The Plan Administrator shall have the sole discretion to
determine whether a Domestic Relations Order is a Qualified Domestic Relations
Order.
BB. SECONDARY COMMITTEE shall mean a committee of two (2) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
CC. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
DD. SECTION 12(G) REGISTRATION DATE shall mean the first date on
which the Common Stock is registered under Section 12(g) of the 1934 Act.
EE. SERVICE shall mean the provision of services to the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
FF. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
GG. STOCK ISSUANCE AGREEMENT shall mean the agreement entered
into by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
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HH. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.
II. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
JJ. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
KK. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
LL. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
MM. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
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EXHIBIT 10.3
CLARIFY INC.
NON-EMPLOYEE DIRECTORS OPTION PLAN
ARTICLE 1. PURPOSE OF THE PLAN
The Plan is intended to promote the interests of the Corporation by
providing the non-employee members of the Board with the opportunity to acquire
a proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in the service of the
Corporation.
ARTICLE 2. ADMINISTRATION
The terms and conditions of each automatic option grant (including the
timing and pricing of the option grant) shall be determined by the express terms
and conditions of the Plan, and neither the Board nor any committee of the Board
shall exercise any discretionary functions with respect to option grants made
pursuant to the Plan.
ARTICLE 3. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the
Plan and shall be drawn from either the Corporation's authorized but unissued
shares of Common Stock or from reacquired shares of Common Stock, including
shares repurchased by the Corporation on the open market. The number of shares
of Common Stock reserved for issuance over the term of the Plan shall be fixed
at 300,000 shares.
B. Should one or more outstanding options under this Plan expire or
terminate for any reason prior to exercise in full, then the shares subject to
the portion of each option not so exercised shall be available for subsequent
option grant under the Plan. In addition, should the exercise price of an
outstanding option under the Plan be paid with shares of Common Stock, then the
number of shares of Common Stock available for issuance under the Plan shall be
reduced by the net number of shares of Common Stock actually issued to the
holder of such option.
C. Should any change be made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
for which automatic option grants are to be subsequently made to each
newly-elected or continuing non-employee Board member under the Plan, and (iii)
the number and/or class of securities and price per share in effect under each
option outstanding under the Plan. The adjustments to the outstanding options
shall be made by the Board in a manner which shall preclude the enlargement or
dilution of rights and benefits under such options and shall be final, binding
and conclusive.
ARTICLE 4. ELIGIBILITY
<PAGE> 2
The individuals eligible to receive automatic option grants pursuant to
the provisions of this Plan shall be limited to (i) those individuals serving as
non-employee Board members on the Effective Date and (ii) those individuals who
are first elected or appointed as non-employee Board members after the Effective
Date, whether through appointment by the Board or election by the Corporation's
stockholders. A non-employee Board member shall not be eligible to receive the
initial automatic option grant if such individual has previously been in the
employ of the Corporation (or any parent or subsidiary). However, a non-employee
Board member shall be eligible to receive one or more annual option grants,
whether or not he or she has previously been in the employ of the Corporation
(or any parent or subsidiary). Each non-employee Board member eligible to
participate in the Plan pursuant to the foregoing criteria is hereby designated
an Eligible Director.
ARTICLE 5. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Date. Option grants shall be made on the dates specified
below:
- Each individual who first becomes an Eligible Director
on or after the Effective Date, whether through election by the Corporation's
stockholders or appointment by the Board, shall automatically be granted, at the
time of such initial election or appointment, a non-statutory option to purchase
20,000 shares of Common Stock (an "Initial Option").
- On the date of each Annual Meeting, beginning with the
1999 Annual Meeting, each Eligible Director who serves on the Board at the time
of that Annual Meeting, whether or not standing for re-election, shall
automatically be granted a non-statutory option to purchase 10,000 shares of
Common Stock (an "Annual Option"). An Eligible Director who resigns effective at
an 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.
There shall be no limit on the number of Annual Option grants
any one Eligible Director may receive over his or her period of continued Board
service.
B. Exercise Price. The exercise price per share of Common Stock
subject to each automatic option grant shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the automatic grant
date.
C. Payment.
The exercise price shall become immediately due upon exercise of
the option and shall be payable in one of the alternative forms specified below;
(i) full payment in cash or check made payable to the
Corporation's order; or
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's earnings for
financial-reporting purposes and valued at Fair Market Value on the Exercise
Date (as such term is defined below); or
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(iii) full payment in a combination of shares of Common Stock
held for the requisite period necessary to avoid a charge to the Corporation's
earnings for financial-reporting purposes and valued at Fair Market Value on the
Exercise Date and cash or check payable to the Corporation's order; or
(iv) full payment through a broker-dealer sale and remittance
procedure pursuant to which the non-employee Board member (i) shall provide
irrevocable written instructions to a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the Corporation,
out of the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares and (ii)
shall concurrently provide written directives to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in order
to complete the sale transaction.
For purposes of this Section 5.C, the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure specified
above is used, payment of the exercise price for the purchased shares must
accompany the exercise notice.
D. Exercisability/Vesting. Each automatic grant shall be
immediately exercisable for all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each Initial Option Grant shall vest,
and the Corporation's repurchase right shall lapse, in a series of three (3)
equal annual installments over the Optionee's period of continued service as a
Board Member, with each installment to vest upon each of the successive
anniversaries of the Initial Option Grant date. Each Annual Option grant shall
vest, and the Corporation's repurchase right shall lapse, in a series of three
(3) equal annual installments over the Optionee's period of continued service as
a Board member, with each installment to vest on the day preceding the Annual
Meeting date on each of the three (3) years following the Annual Option Grant
date.
Exercisability of the option shall be subject to acceleration as
provided in Section 5.G and Article 6. In no event, however, shall the option
become exercisable for any additional option shares after the Optionee's
cessation of Board service.
E. Option Term. Each automatic grant under the Plan shall have a
maximum term of ten (10) years measured from the automatic grant date.
F. Non-Transferability. During the lifetime of the Optionee, each
automatic option grant shall be exercisable only by the Optionee and shall not
be assignable or transferable by the Optionee other than a transfer of the
option effected by will or by the laws of descent and distribution following
Optionee's death.
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<PAGE> 4
G. Effective of Termination of Board Service.
1. The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or persons to
whom the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution) shall have a twelve (12)-month period
following the date of such cessation of Board service in which to exercise each
such option.
2. During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of vested shares
of Common Stock for which the option is exercisable at the time of the
Optionee's cessation of Board service.
3. Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time subject to
the option shall immediately vest so that such option may, during the twelve
(12)-month exercise period following such cessation of Board service, be
exercised for all or any portion of such shares as fully-vested shares of Common
Stock.
4. In no event shall the option remain exercisable after
the expiration of the option term. Upon the expiration of the twelve (12)-month
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares for
which the option has not been exercised. However, the option shall, immediately
upon the Optionee's cessation of Board service, terminate and cease to be
outstanding to the extent it is not exercisable for vested shares on the date of
such cessation of Board service.
H. Stockholder Rights. The holder of an automatic option grant
shall have none of the rights of a stockholder with respect to any shares
subject to such option until such individual shall have exercised the option and
paid the exercise price for the purchased shares.
I. Remaining Terms. The remaining terms and conditions of each
automatic option grant shall be as set forth in the form Stock Option Agreement
approved for use under the Plan.
ARTICLE 6. SPECIAL ACCELERATION EVENTS
A. In the event of any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise fully
exercisable shall automatically accelerate in full so that each such option
shall, immediately prior to the specified effective date for the Change in
Control, become fully exercisable for all of the shares of Common Stock at the
time subject to that option. Immediately following the consummation of the
Change in Control, each automatic option grant under the Plan shall terminate
and cease to be outstanding, except to the extent assumed by the successor
corporation or its parent company.
B. The automatic option grants outstanding under the Plan shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
-4-
<PAGE> 5
ARTICLE 7. AMENDMENT OF THE PLAN AND AWARDS
The Board has complete and exclusive power and authority to amend or
modify the Plan (or any component thereof) in any or all respects whatsoever.
However, no such amendment or modification shall adversely affect rights and
obligations with respect to options at the time outstanding under the Plan,
unless the affected Optionee's consent to such amendment. Stockholder approval
shall be obtained to the extent required by applicable law.
ARTICLE 8. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective on the Effective Date. One or
more automatic option grants shall be made in accordance with the terms of the
Plan after the Effective Date.
B. The Plan shall terminate upon the earlier of (i) June 10, 2009
or (ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options granted under the Plan.
If the date of termination is determined under clause (i) above, then all option
grants outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the agreements evidencing those
option grants.
ARTICLE 9. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants under the Plan shall be used for general corporate
purposes.
ARTICLE 10. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under
the Plan and the issuance of Common Stock upon the exercise of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of the Nasdaq National Market or any Stock Exchange on which the Common Stock is
then listed for trading.
ARTICLE 11. NO IMPAIRMENT OF RIGHTS
Neither the action of the Corporation in establishing the Plan nor any
provision of the Plan shall be construed or interpreted so as to affect
adversely or otherwise impair the right of the Corporation or the stockholders
to remove any individual from the Board at any time in accordance with the
provisions of applicable law.
-5-
<PAGE> 6
ARTICLE 12. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the Plan
may not be assigned, encumbered or otherwise transferred by any Optionee.
B. The provisions of the Plan relating to the exercise of options
shall be governed by the laws of the State of California, as such laws are
applied to contracts entered into and performed in such State.
C. The provisions of the Plan shall inure to the benefit of, and be
binding upon, the Corporation and its successors or assigns, whether by Change
in Control or otherwise, and the Optionees, the legal representatives of their
respective estates, their respective heirs or legatees and their permitted
assignees.
ARTICLE 13. DEFINITIONS
ANNUAL MEETING: the annual meeting of the Corporation's
stockholders.
BOARD: the Corporation's Board of Directors.
CODE: the Internal Revenue Code of 1986, as amended.
COMMON STOCK: shares of the Corporation's common stock.
CORPORATION: Clarify Inc., a Delaware corporation.
CHANGE IN CONTROL: a change in ownership or control of the
Corporation effected through any of the following transactions:
a. the consummation of a merger or consolidation of
the Corporation with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of the continuing
or surviving entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned by persons who were not
stockholders of the Corporation immediately prior to such merger, consolidation
or other reorganization;
b. the sale, transfer or other disposition of all
or substantially all of the Corporation's assets;
c. a change in the composition of the Board, as a
result of which fewer than one-third of the incumbent directors are directors
who either (i) had been directors of the Corporation on the date 24 months prior
to the date of the event that may constitute a Change in Control (the "original
directors") or (ii) were appointed to the Board to fill an existing vacancy or
were nominated for election to the Board with the affirmative votes of at least
a majority of the aggregate of the original directors who were still in office
at the time of the appointment or nomination and the directors whose appointment
or nomination was previously so approved; or
-6-
<PAGE> 7
d. any transaction as a result of which any person
is the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act),
directly or indirectly, of securities of the Corporation representing at least
50% of the total voting power represented by the Corporation's then outstanding
voting securities. For purposes of this Paragraph (d), the term "person" shall
have the same meaning as when used in sections 13(d) and 14(d) of the 1934 Act
but shall exclude (i) a trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation or of a Parent or Subsidiary and (ii) a
corporation owned directly or indirectly by the stockholders of the Corporation
in substantially the same proportions as their ownership of the Common Stock of
the Corporation.
e. A transaction shall not constitute a Change in
Control if its sole purpose is to change the state of the Corporation's
incorporation or to create a holding company that will be owned in substantially
the same proportions by the persons who held the Corporation's securities
immediately before such transaction.
EFFECTIVE DATE: June 10, 1999.
ELIGIBLE DIRECTOR: shall have the meaning assigned to such term
in Article 4.
FAIR MARKET VALUE: the Fair Market Value per share of Common
Stock determined in accordance with the following provisions:
a. If the Common Stock is at the time traded on The
Nasdaq Stock Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on The Nasdaq Stock
Market or any successor system if there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such quotation
exists.
b. If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of transactions
on such exchange. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
1934 ACT: the Securities Exchange Act of 1934, as amended.
OPTIONEE: any person to whom an option is granted under the
Plan.
PERMANENT DISABILITY: the inability of the Optionee to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment expected to result in death or to be of continuous
duration of twelve (12) months or more.
PLAN: this Clarify Inc. Non-Employee Directors Option Plan.
-7-
<PAGE> 8
STOCK EXCHANGE: either The American Stock Exchange or the New
York Stock Exchange.
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 30,469
<SECURITIES> 31,954
<RECEIVABLES> 55,686
<ALLOWANCES> 3,886
<INVENTORY> 0
<CURRENT-ASSETS> 122,384
<PP&E> 12,878
<DEPRECIATION> 0
<TOTAL-ASSETS> 144,532
<CURRENT-LIABILITIES> 58,553
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 67,389
<TOTAL-LIABILITY-AND-EQUITY> 144,532
<SALES> 52,840
<TOTAL-REVENUES> 95,752
<CGS> 0
<TOTAL-COSTS> 26,008
<OTHER-EXPENSES> 60,955
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,022
<INCOME-TAX> 3,908
<INCOME-CONTINUING> 6,114
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<EXTRAORDINARY> 0
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<NET-INCOME> 6,114
<EPS-BASIC> .27
<EPS-DILUTED> .25
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