<PAGE>
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Red Brick Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF RED BRICK]
April 15, 1997
TO THE STOCKHOLDERS OF RED BRICK SYSTEMS, INC.
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Red Brick Systems, Inc. (the "Company"), which will be held at the Garden
Court Hotel, 520 Cowper Street, Palo Alto, California 94301, on Wednesday, May
21, 1997, at 10:00 a.m. local time.
Details of the business to be conducted at the Annual Meeting are given in
the attached Proxy Statement and the Notice of Annual Meeting of Stockholders.
It is important that your shares be represented and voted at the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE, AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. Returning the proxy does NOT deprive you of your right to attend the
Annual Meeting. If you decide to attend the Annual Meeting and wish to change
your proxy vote, you may do so automatically by voting in person at the
meeting.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the Company. We
look forward to seeing you at the Annual Meeting.
Sincerely,
Christopher G. Erickson
President, Chief Executive
Officer, and Chairman of the
Board of Directors
<PAGE>
[LOGO OF RED BRICK SYSTEMS, INC.]
RED BRICK SYSTEMS, INC.
485 ALBERTO WAY
LOS GATOS, CALIFORNIA 95032
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1997
The Annual Meeting of Stockholders ("Annual Meeting") of Red Brick Systems,
Inc. (the "Company") will be held at the Garden Court Hotel, 520 Cowper
Street, Palo Alto, California 94301, on Wednesday, May 21, 1997, at 10:00 a.m.
local time for the following purposes:
1. To elect five members of the Board of Directors to serve until the next
Annual Meeting or until their successors have been duly elected and
qualified;
2. To approve the adoption of an amendment to the Company's 1995 Stock
Option Plan to impose a per person limit on the number of shares
issuable under the plan;
3. To ratify the appointment of Ernst &Young LLP as the Company's
independent public accountants for the fiscal year ending December 31,
1997; and
4. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the attached
Proxy Statement.
Only stockholders of record at the close of business on March 31, 1997, are
entitled to notice of, and to vote at, the Annual Meeting and at any
adjournments or postponements thereof. A list of such stockholders will be
available for inspection at the Company's headquarters located at 485 Alberto
Way, Los Gatos, California, during ordinary business hours for the ten-day
period prior to the Annual Meeting.
By Order of the Board of Directors,
Robert C. Hausmann
Secretary
Los Gatos, California
April 15, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE, AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-
PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL
MEETING. IF YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR
PROXY VOTE, YOU MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE MEETING.
<PAGE>
RED BRICK SYSTEMS, INC.
485 ALBERTO WAY
LOS GATOS, CALIFORNIA 95032
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1997
These proxy materials are furnished in connection with the solicitation of
proxies by the Board of Directors of Red Brick Systems, Inc., a Delaware
corporation (the "Company"), for the Annual Meeting of Stockholders (the
"Annual Meeting") to be held at the Garden Court Hotel, 520 Cowper Street,
Palo Alto, California 94301, on Wednesday, May 21, 1997, at 10:00 a.m., and at
any adjournment or postponement of the Annual Meeting. These proxy materials
were first mailed to stockholders on or about April 15, 1997.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice of Annual Meeting of Stockholders.
Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
The Company's Common Stock is the only type of security entitled to vote at
the Annual Meeting. On March 31, 1997, the record date for determination of
stockholders entitled to vote at the Annual Meeting, there were 11,493,483
shares of Common Stock outstanding. Each stockholder of record on March 31,
1997, is entitled to one vote for each share of Common Stock held by such
stockholder on March 31, 1997. Shares of Common Stock may not be voted
cumulatively. All votes will be tabulated by the inspector of election
appointed for the meeting, who will separately tabulate affirmative and
negative votes, abstentions, and broker non-votes.
QUORUM REQUIRED
The Company's bylaws provide that the holders of a majority of the Company's
Common Stock issued and outstanding and entitled to vote at the Annual
Meeting, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at the Annual Meeting. Abstentions and broker
non-votes will be counted as present for the purpose of determining the
presence of a quorum.
VOTES REQUIRED
PROPOSAL 1. Directors are elected by a plurality of the affirmative votes
cast by those shares present in person, or represented by proxy, and entitled
to vote at the Annual Meeting. The five nominees for director receiving the
highest number of affirmative votes will be elected. Abstentions and broker
non-votes are not counted toward a nominee's total. Stockholders may not
cumulate votes in the election of directors.
PROPOSAL 2. Approval of the adoption of the amendment to the Company's 1995
Stock Option Plan requires the affirmative vote of a majority of those shares
present in person, or represented by proxy, and entitled to vote at the Annual
Meeting. Abstentions will be treated as votes against the proposal. Broker
non-votes will be treated as not entitled to vote on this matter and thus will
have no effect on the outcome of the vote.
PROPOSAL 3. Ratification of the appointment of Ernst & Young LLP as the
Company's independent public accountants for the fiscal year ending December
31, 1997, requires the affirmative vote of a majority of those shares present
in person, or represented by proxy, and cast whether affirmatively or
negatively at the Annual Meeting. Abstentions and broker non-votes will not be
counted as having been voted on the proposal.
<PAGE>
PROXIES
Whether or not you are able to attend the Company's Annual Meeting, you are
urged to complete and return the enclosed proxy, which is solicited by the
Company's Board of Directors and which will be voted as you direct on your
proxy when properly completed. In the event no directions are specified, such
proxies will be voted FOR the Nominees of the Board of Directors (as set forth
in Proposal No. 1), FOR Proposals No. 2 and No. 3, and, in the discretion of
the proxy holders, as to other matters that may properly come before the
Annual Meeting. You may also revoke or change your proxy at any time before
the Annual Meeting. To do this, send a written notice of revocation or another
signed proxy with a later date to the Secretary of the Company at the
Company's principal executive offices before the beginning of the Annual
Meeting. You may also automatically revoke your proxy by attending the Annual
Meeting and voting in person. All shares represented by a valid proxy received
prior to the Annual Meeting will be voted.
SOLICITATION OF PROXIES
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing, and mailing of this Proxy Statement, the
proxy, and any additional solicitation material furnished to stockholders.
Copies of solicitation material will be furnished to brokerage houses,
fiduciaries, and custodians holding shares in their names that are
beneficially owned by others so that they may forward this solicitation
material to such beneficial owners. In addition, the Company may reimburse
such persons for their costs of forwarding the solicitation material to such
beneficial owners. The original solicitation of proxies by mail may be
supplemented by solicitation by telephone, telegram, or other means by
directors, officers, employees, or agents of the Company. No additional
compensation will be paid to these individuals for any such services. The
Company does not presently intend to solicit proxies other than by mail.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The directors who are being nominated for election to the Board of Directors
(the "Nominees"), their ages as of February 28, 1997, their positions and
offices held with the Company and certain biographical information are set
forth below. The proxy holders intend to vote all proxies received by them in
the accompanying form FOR the Nominees listed below unless otherwise
instructed. In the event any Nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who may be designated by the present Board of Directors to fill the
vacancy. As of the date of this Proxy Statement, the Board of Directors is not
aware of any Nominee who is unable or will decline to serve as a director. The
five Nominees receiving the highest number of affirmative votes of the shares
entitled to vote at the Annual Meeting will be elected directors of the
Company to serve until the next Annual Meeting or until their successors have
been duly elected and qualified.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NOMINEES AGE HELD WITH THE COMPANY
-------- --- ---------------------
<C> <C> <S>
Christopher G. Erickson (1)...... 48 President, Chief Executive Officer,
and Chairman of the Board
Thomas H. Bredt (2) (3).......... 56 Director
Andrew K. Ludwick................ 51 Director
John F. Shoch (2)................ 48 Director
John E. Warnock (3).............. 56 Director
</TABLE>
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(1) Member of Stock Option Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
2
<PAGE>
Mr. Erickson joined the Company in February 1993 as President and Chief
Executive Officer and as a director. In September 1995, Mr. Erickson was also
elected Chairman of the Board of the Company. From November 1980 to January
1993, Mr. Erickson was employed by Tandem Computers Incorporated ("Tandem"), a
manufacturer of computers and related products, where he served from 1985 to
1989 as Director of Software Product Management and was responsible for the
planning and marketing of Tandem software products, including non-stop SQL,
the software industry's first specialized relational database management
system. From 1989 to 1993, Mr. Erickson served as President of Tandem
Telecommunications Systems, Inc., and most recently as Vice President and
General Manager, Tandem Telecom Division. Prior to joining Tandem, Mr.
Erickson was employed by Wells Fargo Bank, N.T. & S.A., a banking institution,
Burroughs Computer Corporation, a manufacturer of computers and related
products, and Data Point Corporation, a computer products and services
company. Mr. Erickson holds a B.A. degree in economics from the University of
California, Santa Barbara and an M.B.A. from the University of California,
Berkeley.
Dr. Bredt became a director of the Company in June 1991. Dr. Bredt joined
Menlo Ventures ("Menlo"), a venture capital management firm, in 1986 and is a
general partner of several venture capital funds affiliated with Menlo. From
May 1983 to May 1986, Dr. Bredt was a Senior Vice President and Director of
the Information Systems Group of Dataquest Incorporated. Previously, he worked
for Hewlett-Packard in various engineering management positions, where he
participated in the development of computer systems, manufacturing
applications and data communications products. He also worked for AT&T's Bell
Laboratories and was a member of the electrical engineering faculty at
Stanford University. Dr. Bredt also serves on the Boards of Directors of
Clarify Inc., and Interlink Computer Sciences, Inc. Dr. Bredt holds a B.S.E.
in science engineering from the University of Michigan, an M.S.E. in
electrical engineering from New York University, and a Ph.D. in computer
science from Stanford University.
Mr. Ludwick became a director of the Company in October 1996. From 1994 to
October 1996 Mr. Ludwick served as President and Chief Executive Officer of
Bay Networks, Inc., ("Bay Networks") the company created in 1994 by the merger
of SynOptics Communications, Inc., which he co-founded in July 1985, and
Wellfleet Communications, Inc. Prior to co-founding SynOptics Communications,
Inc., Mr. Ludwick worked for Xerox Corporation in a variety of positions in
marketing, market planning, and sales operations. Mr. Ludwick serves on the
Board of Directors of Bay Networks. Mr. Ludwick holds a B.A. from Harvard
College and an M.B.A. from the Harvard Business School.
Dr. Shoch became a director of the Company in October 1989. Since 1985, Dr.
Shoch has been a general partner at Asset Management Company, a venture
capital management firm. From 1971 to 1985, Dr. Shoch was employed by the
Xerox Corporation, an office products company, most recently as President of
the Office Systems Division. Dr. Shoch is also a director of Conductus, Inc.
and Remedy Corporation. Dr. Shoch holds a B.S. in political science and an
M.S. and a Ph.D. in computer science from Stanford University.
Dr. Warnock became a director of the Company in April 1991. Dr. Warnock is a
co-founder of Adobe Systems Incorporated ("Adobe"), and has been its Chairman
of the Board since 1989. He has served as Adobe's Chief Executive Officer and
a director since December 1982. Prior to co-founding Adobe, Dr. Warnock was
principal scientist of the Imaging Sciences Laboratory at Xerox Corporation's
Palo Alto Research Center. Dr. Warnock also serves as a director of Netscape
Communications Corporation and Evans & Sutherland Computer Corporation and as
Chairman of the Board of the Tech Museum of Innovation. Dr. Warnock holds a
B.S. in mathematics and philosophy, an M.S. in mathematics, and a Ph.D. in
electrical engineering from the University of Utah.
Each director holds office until the next annual meeting of stockholders or
until his successor is duly elected and qualified. The officers serve at the
discretion of the Board. There are no family relationships among the directors
and officers of the Company.
3
<PAGE>
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1996, the Board of Directors held
five meetings and acted by written consent on one occasion. For the fiscal
year, each of the current directors during the term of their tenure attended
or participated in at least 75% of the aggregate of (i) the total number of
meetings or actions by written consent of the Board of Directors and (ii) the
total number of meetings held by all committees of the Board of Directors on
which each such director served. The Board of Directors has three standing
committees: the Audit Committee, the Compensation Committee, and the Stock
Option Committee. In addition, the Company established a special pricing
Committee which met on one occasion during the fiscal year for the sole
purpose of determining the price of the Company's shares in connection with
the initial public offering of the Company's Common Stock. The members of the
Pricing Committee are Messrs. Bredt, Shoch, and Erickson.
During the fiscal year ended December 31, 1996, the Audit Committee of the
Board of Directors met four times. The Audit Committee reviews, acts on, and
reports to the Board of Directors with respect to various auditing matters,
including the selection of the Company's auditors, the scope of the annual
audits, fees to be paid to the Company's auditors, the performance of the
Company's auditors, and the accounting practices of the Company. The members
of the Audit Committee are Messrs. Bredt and Shoch.
During the fiscal year ended December 31, 1996, the Compensation Committee
of the Board of Directors acted by written consent on twelve occasions. The
Compensation Committee reviews the performance and sets the compensation of
the Chief Executive Officer of the Company, and approves the compensation of
the other executive officers of the Company and reviews the compensation
programs for other key employees, including salary and cash bonus levels as
recommended by the Chief Executive Officer. The Compensation Committee
administers the 1995 Stock Option Plan and the Employee Stock Purchase Plan.
The members of the Compensation Committee are Messrs. Bredt and Warnock.
During the fiscal year ended December 31, 1996, the Stock Option Committee
of the Board of Directors acted by written consent on five occasions. The
Stock Option Committee approves stock option grants to employees and
consultants of the Company who are not officers up to a maximum number of
shares set by the Board of Directors. Mr. Erickson is the sole member of the
Stock Option Committee.
DIRECTOR COMPENSATION
Except for grants of stock options, directors of the Company do not receive
compensation for services provided as a director. The Company also does not
pay compensation for committee participation or special assignments of the
Board of Directors.
Non-employee Board members are eligible for option grants pursuant to the
provisions of the Automatic Option Grant Program under the Company's 1995
Stock Option Plan (the "1995 Plan"). Under the Automatic Option Grant Program,
each individual who first becomes a non-employee Board member after the date
of the Company's initial public offering will be granted an option to purchase
15,000 shares on the date such individual joins the Board, provided such
individual has not been in the prior employ of the Company. In addition, at
each Annual Stockholders Meeting, beginning with the 1996 Annual Meeting, each
individual who continues to serve and has served as a non-employee Board
member for at least six months prior to such Annual Meeting will receive a
non-statutory option grant to purchase 1,000 shares of Common Stock, whether
or not such individual is standing for re-election at such Annual Meeting.
Board members who are also employees of the Company are eligible to receive
discretionary options under the 1995 Plan, and employee-directors, other than
Mr. Erickson, are also eligible to participate in the Company's Employee Stock
Purchase Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED HEREIN.
4
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 28, 1997, certain information
with respect to shares beneficially owned by (i) each person who is known by
the Company to be the beneficial owner of more than five percent of the
Company's outstanding shares of Common Stock, (ii) each of the Company's
directors, and the executive officers named in the Summary Compensation Table,
and (iii) all current directors and executive officers as a group. Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Exchange
Act. Under this rule, certain shares may be deemed to be beneficially owned by
more than one person (if, for example, persons share the power to vote or the
power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire shares
(for example, upon exercise of an option or warrant) within sixty (60) days of
the date as of which the information is provided; in computing the percentage
ownership of any person, the amount of shares is deemed to include the amount
of shares beneficially owned by such person (and only such person) by reason
of such acquisition rights. As a result, the percentage of outstanding shares
of any person as shown in the following table does not necessarily reflect the
person's actual voting power at a particular date.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
AS OF FEBRUARY 28, 1997(1)(2)
----------------------------------
NUMBER OF PERCENTAGE OF
BENEFICIAL OWNER SHARES CLASS
- ---------------- ----------------- ----------------
<S> <C> <C>
Asset Management Associates 1989, L.P. (3). 2,464,947 21.5%
2275 East Bayshore Road
Suite 150
Palo Alto, CA 94303
Menlo Ventures IV, L.P. (4)................ 186,660 1.6%
3000 Sand Hill Road
Bldg. 4, Suite 100
Menlo Park, CA 94025
Christopher G. Erickson (5)................ 881,826 7.4%
485 Alberto Way
Los Gatos, CA 95032
Phillip M. Fernandez (6)................... 284,569 2.4%
Christopher M. Grejtak (7)................. 82,200 *
Robert C. Hausmann (8)..................... 163,546 1.4%
Thomas W. Henn (9)......................... 74,799 *
Alexander Wilson (10)...................... 78,537 *
Thomas H. Bredt (4)........................ 242,250 2.1%
Andrew K. Ludwick (11)..................... 15,000 *
John F. Shoch (3).......................... 2,481,947 21.6%
John E. Warnock (12)....................... 134,781 1.2%
All directors and executive officers as a
group
(8 persons, including any listed above)
(13)...................................... 4,282,456 35.0%
</TABLE>
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* Less than 1 % of the outstanding shares of Common Stock
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock. To the Company's knowledge, the entities named in the table have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them.
(2) The number of shares of Common Stock deemed outstanding includes shares
issuable pursuant to stock options that may be exercised within sixty
(60) days after February 28, 1997.
5
<PAGE>
(3) Dr. Shoch, a director of the Company, is a general partner of AMC
Partners 89 L.P., which is the general partner of Asset Management
Associates 1989, L.P. ("Asset"). Dr. Shoch disclaims beneficial ownership
of the shares held by Asset except to the extent of his pecuniary
interest therein arising from his general partnership interest in Asset.
Includes 2,000 shares of Common Stock purchased by Dr. Shoch's wife and
options exercisable into 15,000 shares of Common Stock.
(4) Dr. Bredt, a director of the Company, is a general partner of MV
Management IV, L.P., which is the general partner of Menlo Ventures IV,
L.P. ("Menlo"). Dr. Bredt disclaims beneficial ownership of the shares
held by Menlo except to the extent of his pecuniary interest therein
arising from his general partnership interest in Menlo. Includes options
exercisable into 15,000 shares of Common Stock.
(5) Includes options exercisable into 410,706 shares of Common Stock.
(6) Includes options exercisable into 168,230 shares of Common Stock.
(7) Includes options exercisable into 81,250 shares of Common Stock
(8) Includes 63,681 shares held by the Robert C. Hausmann and Lori Anne
Hausmann Revocable Living Trust dated November 21, 1991. Also includes
options exercisable into 34,886 shares.
(9) Includes options exercisable into 26,491 shares of Common Stock.
(10) Includes options exercisable into 76,562 shares of Common Stock.
(11) Includes options exercisable into 15,000 shares of Common Stock.
(12) Includes options exercisable into 15,000 shares of Common Stock.
(13) Includes options exercisable into 750,384 shares of Common Stock.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
The Compensation Committee of the Board of Directors, as Plan Administrator
of the 1995 Plan, has the authority to provide for accelerated vesting of the
shares of Common Stock subject to outstanding options held by the Named
Officers and any other officer or any shares actually held by such individual
in connection with certain changes in control of the Company or the subsequent
termination of the officer's employment following the change in control event.
None of the Company's executive officers have employment agreements with the
Company, and their employment may be terminated at any time. However, the
Company has entered into agreements with Mr. Hausmann, the Company's Vice
President, Finance and Administration, Chief Financial Officer and Secretary,
dated April 30, 1993 and January 24, 1994, which provide for acceleration of
vesting of certain option shares or restricted stock as if the officer
remained employed for up to an additional two years in the event the officer's
employment is involuntarily terminated following certain acquisitions or
changes in control of the Company.
The Company has adopted a severance plan for executive officers that
provides that upon an involuntary termination of an officer's employment, he
or she shall be entitled to six months of salary (one year of salary in the
case of the Chief Executive Officer) and certain benefits and upon an
involuntary termination of an officer's employment following certain
acquisitions or changes in control of the Company, he or she shall be entitled
to one year of salary and benefits and accelerated vesting of option shares or
restricted stock as if the officer remained employed for one additional year.
6
<PAGE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Company's Board of Directors (the
"Committee") has the authority to establish the level of base salary payable
to the Chief Executive Officer ("CEO") and to administer the Company's 1995
Plan and Employee Stock Purchase Plan. In addition, the Committee has the
responsibility for approving the individual bonus program to be in effect for
the CEO. The CEO has the authority to establish the level of base salary
payable to all other employees of the Company, including all executive
officers, subject to the approval of the Committee. In addition, the CEO has
the responsibility for approving the bonus programs to be in effect for all
other executive officers and other key employees each fiscal year, subject to
the approval of the Committee.
For fiscal 1996, the process utilized by the Company in determining
executive officer compensation levels took into account both qualitative and
quantitative factors. Among the factors considered by the Company were
commercially-prepared surveys and informal surveys conducted by Company
personnel among local companies with an emphasis on companies in the software
industry. However, the CEO made the final compensation decisions concerning
such officers.
General Compensation Policy. The Company's fundamental policy is to offer
the Company's executive officers competitive compensation opportunities based
upon overall Company performance, their individual contribution to the
financial success of the Company and their personal performance. It is the
Company's objective to have a substantial portion of each officer's
compensation contingent upon the Company's performance, as well as upon his or
her own level of performance. Accordingly, each executive officer's
compensation package consists of: (i) base salary, (ii) cash bonus awards, and
(iii) long-term stock-based incentive awards.
In preparing the performance graph for this Proxy Statement, the Company
selected the Nasdaq Stock Market U.S. Total Return Index and the Nasdaq Stock
Market Computer & Data Processing. The companies included in the Company's
surveys are not necessarily those included in the indices, because certain
companies included in the indices were determined not to be competitive with
the Company for executive talent or because compensation information was not
available to the Company.
Base Salary. The base salary for each executive officer is set on the basis
of personal performance and the salary level in effect for comparable
positions at companies that compete with the Company for executive talent on
the basis of informal surveys conducted by the Company. In general, the
Company seeks to set base salaries at the 50-75th percentile of salaries at
the surveyed companies.
Annual Cash Bonuses. Each executive officer has an established bonus target
each fiscal year. The annual pool of bonuses for executive officers is
determined on the basis of the Company's achievement of the financial
performance targets established at the start of the fiscal year. Specifically,
a target is established at the beginning of the fiscal year using an agreed-
upon formula based on Company revenue and profit and the executive's
individual objectives. Each fiscal year, the annual incentive plan is
reevaluated with a new achievement threshold and new targets for revenue and
profit before interest. Actual bonuses paid reflect an individual's
accomplishment of both corporate and functional objectives, with greater
weight being given to achievement of corporate rather than functional
objectives. Actual bonuses are listed in the Summary Compensation Table.
Long-Term Incentive Compensation. During fiscal 1996, the Committee made no
option grants to the Named Officers since significant stock awards/option
grants were made in fiscal 1995. Generally, a significant grant is made in the
year that an officer commences employment. Smaller grants may be made in
subsequent years or no options granted at the discretion of the Committee.
Generally, the size of each grant is set at a level that the Committee deems
appropriate to create a meaningful opportunity for stock ownership based upon
the individual's position with the Company, the individual's potential for
future responsibility and promotion, the individual's performance in the
recent period, and the number of unvested options held by the individual at
the time of the new grant. The relative weight given to each of these factors
will vary from individual to individual at the Committee's discretion.
7
<PAGE>
CEO Compensation. The annual base salary for Mr. Erickson, the Company's
President and CEO, was established by the Committee on March 20, 1996. The
Committee's decision was made primarily on the basis of the Committee's
subjective judgment of Mr. Erickson's personal performance of his duties.
The remaining components of the CEO's fiscal 1996 incentive compensation
were entirely dependent upon the Company's financial performance and provided
no dollar guarantees. The bonus paid to the CEO for fiscal 1996 was based on
the same incentive plan as for all other officers who receive bonuses. No
option grants were made to the CEO during fiscal 1996.
Tax Limitation. As a result of Federal tax legislation enacted in 1993, a
publicly-held company such as the Company will not be allowed a Federal income
tax deduction for compensation paid to certain executive officers to the
extent that compensation exceeds $1 million per officer in any year. This
limitation will be in effect for all fiscal years of the Company ending after
the Company's initial public offering. The stockholders are being asked to
approve a provision in the Company's 1995 Plan that limits the maximum number
of shares of Common Stock for which any one participant may be granted stock
options per calendar year. Accordingly, any compensation deemed paid to an
executive officer when he or she exercises an option under the 1995 Plan with
an exercise price equal to the fair market value of the option shares on the
grant date generally will qualify as performance-based compensation that will
not be subject to the $1 million limitation. Since it is not expected that the
cash compensation to be paid to the Company's executive officers for the 1997
fiscal year will exceed the $1 million limit per officer, the Committee will
defer any decision on whether to limit the dollar amount of the cash
compensation payable to the Company's executive officers to the $1 million
cap.
Compensation Committee
Thomas H. Bredt
John E. Warnock
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board was formed in October 1993
and is currently comprised of Messrs. Bredt and Warnock. None of these
individuals was at any time during 1996, or at any other time, an officer or
employee of the Company. No member of the Compensation Committee of the
Company serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of
the Company's Board of Directors or Compensation Committee.
8
<PAGE>
STOCK PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder return
on the Company's Common Stock between January 23, 1996 (the date the Company's
Common Stock commenced public trading) and December 31, 1996, with the
cumulative total return of (i) the Nasdaq Stock Market Total Return Index
(U.S. Companies) (the "Nasdaq Stock Market--U.S. Index") and (ii) the Nasdaq
Stock Market Computer & Data Processing Index (the "Nasdaq Computer & Data
Processing Index"), over the same period. The graph assumes the investment of
$100.00 on January 23, 1996, in the Company's Common Stock, the Nasdaq Stock
Market--U.S. Index, and the Nasdaq Computer & Data processing Index, and
assumes the reinvestment of dividends, if any.
The comparisons shown in the graph below are based upon historical data and
the Company cautions that the stock price performance shown in the graph below
is not indicative of, nor intended to forecast, the potential future
performance of the Company's Common Stock. Information used in the graph was
obtained from The Nasdaq Stock Market, Inc., a source believed to be reliable,
but the Company is not responsible for any errors or omissions in such
information.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG RED BRICK SYSTEMS, INC.
THE NASDAQ STOCK MARKET-U.S. INDEX,
AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
NASDAQ NASDAQ COMPUTER
RED BRICK STOCK MARKET-- & DATA PROCESSING
SYSTEMS, INC. U.S. INDEX INDEX
------------- -------------- -----------------
<S> <C> <C> <C>
January 23, 1996................. 100.00 100.00 100.00
January 31, 1996................. 111.57 103.03 102.88
February 29, 1996................ 168.60 106.96 109.28
March 29, 1996................... 142.15 107.31 108.83
April 30, 1996................... 195.87 116.22 121.54
May 31, 1996..................... 137.19 121.55 125.56
June 28, 1996.................... 121.49 116.07 120.96
July 31, 1996.................... 83.47 105.74 108.33
August 30, 1996.................. 70.25 111.66 111.23
September 30, 1996............... 79.34 120.22 123.37
October 31, 1996................. 77.69 118.89 121.22
November 29, 1997................ 77.69 126.26 129.97
December 31, 1996................ 76.03 126.11 128.37
</TABLE>
9
<PAGE>
The Company effected its initial public offering on January 22, 1996, and
trading began on January 23, 1996, at a per share price of $18.00. The closing
price of Common Stock on January 23, 1996, was $30.25 per share and the graph
above commences with such price.
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate this
Proxy Statement or future filings made by the Company under those statutes,
the Compensation Committee Report and Stock Performance Graph shall not be
deemed filed with the Securities and Exchange Commission and shall not be
deemed incorporated by reference into any of those prior filings or into any
future filings made by the Company under those statutes.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following Summary Compensation Table sets forth the compensation earned
by the Company's Chief Executive Officer and the three other most highly
compensated executive officers who were serving as such at the end of fiscal
1996 each of whose aggregate compensation for fiscal 1996 exceeded $100,000
for services rendered in all capacities to the Company and its subsidiaries
for that fiscal year, and two other individuals who were not serving as
executive officers at the end of the fiscal year (collectively, the "Named
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------- ---------------------
RESTRICTED SECURITIES
NAME AND PRESENT FISCAL OTHER ANNUAL STOCK UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) OPTIONS
------------------ ------ -------- ------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Christopher G. Erickson. 1996 $188,750 $65,869 $5,643 0 0
President, Chief 1995 $170,000 $61,520 $5,711 110,145 84,956
Executive Officer, and
Chairman of the Board
Phillip M. Fernandez.... 1996 $156,820 $55,675 $2,117 0 0
Sr. Vice President, 1995 $137,280 $54,226 $2,104 39,652 46,079
Engineering & Services
Robert C. Hausmann...... 1996 $133,000 $50,757 $ 863 0 0
Vice President, Finance 1995 $111,627 $44,366 $1,204 26,435 34,886
and Administration,
Chief Financial
Officer, and Secretary
Alexander Wilson........ 1996 $223,201(3) $46,202 0 0 0
Vice President,
Worldwide Sales 1995 $148,693(4) $24,000 0 0 0
Thomas W. Henn.......... 1996 $228,507(5) $20,000 0 0 0
Former Vice President, 1995 $183,122(6) $40,000 $1,204 26,435 26,491
Worldwide Sales
Christopher Grejtak..... 1996 $149,520 $36,075 0 0 0
Former Vice President, 1995 $ 5,193 0 0 0 0
Marketing
</TABLE>
- --------
(1) Represents imputed interest on outstanding loans.
(2) Some of the Named Officers purchased shares of restricted stock awarded on
January 18, 1995, at a purchase price of $0.32 by delivery of the
officer's promissory note. As of the last day of the fiscal year, the same
Named Officers also held the number of shares of restricted Common Stock
set forth below; such shares were awarded on December 21, 1993 and
purchased by delivery of each officer's promissory note on January 24,
1994. See "Certain Relationships and Related Transactions" below.
(3) Includes commissions of $103,201.
(4) Includes commissions of $57,978.
(5) Includes commissions of $109,757.
(6) Includes commissions of $83,122.
10
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
NAME UNVESTED SHARES UNVESTED SHARES
---- --------------- ---------------
<S> <C> <C>
Christopher G. Erickson......................... 65,700 $1,491,409
Phillip M. Fernandez............................ 23,777 $ 539,762
Robert C. Hausmann.............................. 15,330 $ 347,934
Alexander Wilson................................ 0 $ 0
Thomas W. Henn.................................. 15,330 $ 347,934
Christopher Grejtak............................. 0 $ 0
</TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option holdings as of
the end of fiscal 1996 with respect to each of the Named Officers. No options
were exercised by the Named Officers in fiscal 1996. No stock appreciation
rights were exercised during such year or were outstanding at the end of that
year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FY-END(#)(1) AT FY-END($)(1)(#)(2)
---------------------- ----------------------
NAME VESTED UNVESTED VESTED UNVESTED
---- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Christopher G. Erickson.......... 333,416 77,289 $7,458,712 $2,185,701
Phillip M. Fernandez............. 125,276 42,954 $2,816,532 $1,264,416
Robert C. Hausmann............... 3,125 31,761 $ 46,875 $ 939,819
Alexander Wilson................. 29,740 71,822 $ 610,662 $1,536,620
Thomas W. Henn................... 6,623 19,868 $ 106,341 $ 594,922
Christopher Grejtak.............. 20,313 0 $ 304,695 $ 0
</TABLE>
- --------
(1) Options are immediately exercisable for all the option shares, but any
unvested shares purchased under the options will be subject to repurchase
by the Company at the original exercise price per share upon the
optionee's cessation of service. The table indicates the number and value
of shares no longer subject to the Company's repurchase right (vested) and
the number of shares subject to the repurchase right (unvested) as of 1996
fiscal year end.
(2) Market value of underlying securities at fiscal year end December 31,
1996, ($23.00) minus the exercise price.
11
<PAGE>
PROPOSAL NO. 2
AMENDMENT OF THE 1995 STOCK OPTION PLAN
The stockholders are being asked to vote on a proposal to approve the
adoption of an amendment to the Company's 1995 Stock Option Plan (the "1995
Plan") to change the limit on the maximum number of shares issuable per person
from 50% of the share pool over the term of the 1995 Plan to 100,000 per
calendar year, with a higher limit of 300,000 shares applicable in the year an
individual first commences service with the Company. The proxy holders intend
to vote all proxies received by them in the accompanying form FOR the approval
of the amendment to the 1995 Plan unless otherwise instructed.
The 1995 Plan was adopted by the Board of Directors on September 20, 1995 as
the successor to the 1991 Stock Option Plan ("1991 Plan"). The Company has
reserved 2,833,301 shares for issuance under the 1995 Plan. The Company
established the 1995 Plan as the successor to the Company's 1991 Stock Option
Plan (the "1991 Plan") to provide a means whereby employees, officers,
directors, consultants, and independent advisers of the Company or parent or
subsidiary corporations may be given an opportunity to purchase shares of
Common Stock. The following is a description of the 1995 Plan. The Board
believes that option grants under the 1995 Plan play an important role in the
Company's efforts to attract, employ, and retain employees, directors, and
consultants of outstanding ability. Stockholders approved the 1995 Plan as of
December 1, 1995.
SUMMARY OF 1995 STOCK OPTION PLAN
The principal terms and provisions of the 1995 Plan are summarized below.
The summary, however, is not intended to be a complete description of all the
terms of the 1995 Plan. A copy of the 1995 Plan will be furnished by the
Company to any stockholder upon written request to the Chief Financial Officer
at the executive offices in Los Gatos, California.
Structure. The 1995 Plan contains two separate equity incentive programs:
(i) a Discretionary Option Grant Program under which eligible persons may be
granted stock options to purchase shares of Common Stock, and (ii) an
Automatic Option Grant Program under which option grants will be made at
specified intervals to the non-employee Board members.
Administration. The 1995 Plan is currently administered by the Compensation
Committee of the Board of Directors. The 1995 Plan may also be administered by
the Board or a secondary committee comprised of one or more Board members with
respect to optionees who are not executive officers subject to the short-swing
profit rules of Federal securities laws. Committee members serve for such
period of time as the Board may determine. The Committee (or Board or
secondary committee to the extent acting as plan administrator) has full
authority (subject to the express provisions of the 1995 Plan) to determine
the eligible individuals who are to receive grants under the 1995 Plan, the
number of shares to be covered by each granted option, the date or dates on
which the option is to become exercisable, the maximum term for which the
option is to remain outstanding, whether the granted option will be an
incentive stock option ("Incentive Option") which satisfies the requirements
of section 422 of the Internal Revenue Code (the "Code") or a nonstatutory
option not intended to meet such requirements, and the remaining provisions of
the option grant.
Administration of the Automatic Option Grant Program is self-executing in
accordance with the terms of that program, and no plan administrator shall
exercise any discretionary functions with respect to grants made thereunder.
Eligibility. Employees (including officers), consultants and independent
contractors who render services to the Company or its parent or subsidiary
corporations (whether now existing or subsequently established) are eligible
to receive option grants under the Discretionary Option Grant Program. A non-
employee member of the board of directors of any parent or subsidiary
corporation is also eligible for option grants under the Discretionary Option
Grant Program. Non-employee members of the Board are eligible solely for
automatic grants under the Automatic Option Grant Program of the 1995 Plan.
12
<PAGE>
Securities Subject To 1995 Plan. The number of shares of Common Stock which
may be issued over the term of the 1995 Plan is currently 2,833,301 shares.
Such share reserve is subject to further adjustment in the event of subsequent
changes to the capital structure of the Company. The Company initially
reserved 2,265,976 shares for issuance under the 1995 Plan, plus an additional
number of shares equal to 5% of the number of shares of Common Stock
outstanding on the first day of each of 1997 and 1998, not to exceed 600,000
shares added in any one calendar year. This share reserve was comprised of (i)
the 1,665,976 shares that were available for issuance under the 1991 Plan as
of December 31, 1995, including 1,563,522 shares subject to outstanding
options thereunder, plus (ii) an increase of 600,000 shares. As of January 1,
1997, an additional 567,325 shares of Common Stock were added to the pool of
shares reserved under the 1995 Plan. Shares of Common Stock subject to
outstanding options, including options granted under the 1991 Plan, which
expire or terminate prior to exercise will be available for future issuance
under the 1995 Plan.
No one person participating in the 1995 Plan may receive options or
separately exercisable stock appreciation rights for more than 100,000 shares
of Common Stock per calendar year or 300,000 shares of Common Stock in the
calendar year in which an individual first commences service. Assuming
approval of this Proposal No. 2, any compensation deemed paid to an executive
officer when he exercises an outstanding option under the 1995 Plan with an
exercise price equal to the fair market value of the option shares on the
grant date will qualify as performance-based compensation that will not be
subject to the $1 million deduction limitation under the Federal tax laws.
Prior to the amendment of the 1995 Plan which is the subject of this Proposal
No. 2, the per person limit was 50% of the shares of Common Stock available in
the aggregate over the term of the 1995 Plan.
Should an option expire or terminate for any reason prior to exercise in
full, including options incorporated from the 1991 Plan, the shares subject to
the portion of the option not so exercised will be available for subsequent
option grants under the 1995 Plan.
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 the stockholder of record of the
purchased shares. Options are not assignable or transferable other than by
will or the laws of descent and distribution, and during the optionee's
lifetime, the option may be exercised only by the optionee.
DISCRETIONARY OPTION GRANT PROGRAM
Price And Exercisability. The option exercise price per share may not be
less than eighty-five percent (85%) of the fair market value of the Common
Stock on the grant date. Options granted under the Discretionary Option Grant
Program become exercisable at such time or times, and during such period, as
the Committee may determine and set forth in the instrument evidencing the
option grant. In any event, options granted under the 1995 Plan may not have a
term in excess of 10 years.
The exercise price for options granted under the 1995 Plan may be paid in
cash or in outstanding shares of Common Stock. Options may also be exercised
on a cashless basis through the same-day sale of the purchased shares. The
Committee may also permit the optionee to pay the exercise price through a
promissory note payable in installments over a period of years. The amount
financed may include any Federal or state income and employment taxes incurred
by reason of the option exercise.
Termination Of Service. Any option held by the optionee at the time of
cessation of service will not remain exercisable beyond the designated post-
service exercise period. Under no circumstances may any option be exercised
after the specified expiration date of the option term. Each such option will
normally, during such limited period, be exercisable only to the extent of the
number of shares of Common Stock in which the optionee is vested at the time
of cessation of service. The optionee will be deemed to continue in service
for so long as such individual performs services for the Company (or any
parent or subsidiary corporation), whether as an employee, independent
contractor, consultant or Board member.
13
<PAGE>
The Committee has complete discretion to extend the period following the
optionee's cessation of service during which his or her outstanding options
may be exercised and/or to accelerate the exercisability of such options in
whole or in part. Such discretion may be exercised at any time while the
options remain outstanding, whether before or after the optionee's actual
cessation of service.
The shares of Common Stock acquired upon the exercise of one or more options
may be subject to repurchase by the Company at the original exercise price
paid per share upon the optionee's cessation of service prior to vesting in
such shares. The Committee has complete discretion in establishing the vesting
schedule to be in effect for any such unvested shares and may cancel the
Company's outstanding repurchase rights with respect to those shares at any
time, thereby accelerating the vesting of the shares subject to the canceled
rights.
Incentive Options. Incentive Options may only be granted to individuals who
are employees of the Company or its parent or subsidiary corporation. During
any calendar year, the aggregate fair market value (determined as of the grant
date(s)) of Common Stock for which one or more options granted to any employee
under the 1995 Plan (or any other option plan of the Company or its parent or
subsidiary corporations) may for the first time become exercisable as
incentive stock options under section 422 of the Code shall not exceed
$100,000.
If an employee to whom an Incentive Option is granted is the owner of stock
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any of its parent or subsidiary
corporations, then the option price per share will be at least one hundred and
ten percent (110%) of the fair market value per share on the grant date, and
the option term will not exceed five (5) years, measured from the grant date.
Stock Appreciation Rights. The Committee is authorized to issue limited and
tandem stock appreciation rights in connection with option grants under the
Discretionary Option Grant Program. Tandem stock appreciation rights provide
the holders with the right, subject to the Committee's approval, to surrender
their options for a distribution from the Company equal in amount to the
excess of (a) the fair market value of the vested shares of Common Stock
subject to the surrendered option over (b) the aggregate exercise price
payable for such shares. Such distribution may, at the discretion of the
Committee, be made in cash or in shares of Common Stock or partly in shares of
Common Stock and partly in cash. Limited stock appreciation rights provide the
holders with the right to surrender their options for a cash distribution from
the Company upon the occurrence of certain hostile takeovers.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, non-employee Board members will
receive option grants at designated dates during their period of Board
service. These special grants may be summarized as follows:
. Each individual who was a non-employee Board member on January 22, 1996
and each individual who first becomes a non-employee Board member after
the date of the initial public offering, whether through election by the
stockholders or appointment by the Board, will automatically be granted
on January 22, 1996 or if later, at the time of such initial election or
appointment, a nonstatutory stock option to purchase 15,000 shares of
Common Stock.
. On the date of each Annual Stockholders Meeting beginning with the
meeting scheduled for May 21, 1997, each individual who is a non-employee
Board member and continues to serve as a Board member after such meeting
shall automatically be granted a nonstatutory stock option to purchase
1,000 shares of Common Stock, whether or not that individual is standing
for re-election at that meeting, provided such individual has served as a
Board member for at least six months.
14
<PAGE>
Each option grant under the Automatic Option Grant Program will be subject
to the following terms and conditions:
(1) The option price per share will be equal to 100% of the fair market
value per share of Common Stock on the automatic grant date and each
option is to have a maximum term of ten years measured from the grant
date.
(2) Each automatic option will be immediately exercisable for all of the
option shares, but the shares purchasable under the option will be
subject to repurchase at the original exercise price in the event the
optionee's Board service should cease prior to full vesting. The
repurchase right will lapse and the optionee vest in a series of four
(4) successive annual installments, measured from the grant date,
provided such optionee continues service as a Board member.
(3) The option will remain exercisable for a twelve (12)-month period
following the optionee's termination of service as a Board member for
any reason. Should the optionee die while serving as a Board member or
during the twelve (12)-month period following his or her cessation of
Board service, then such options may be exercised during the twelve
(12)-month period following such optionee's cessation of service by the
personal representatives of the optionee's estate or the person to whom
the grant is transferred by the optionee's will or the laws of
inheritance. In no event, however, may the option be exercised after
the expiration date of the option or for more than the number of vested
shares (if any) for which it is exercisable at the time of the
optionee's cessation of Board service.
(4) The option shares will become fully exercisable and fully vested in the
event of a Corporate Transaction (as defined below) or a Change in
Control (as defined below). The option shares will become fully
exercisable and fully vested in the event of the optionee's cessation
of Board service by reason of death or permanent disability.
(5) Upon the occurrence of a hostile tender offer, each option which has
been held for at least six (6) months shall be automatically canceled
(to the extent the optionee is vested in such option shares) and the
optionee will in return be entitled to a cash distribution from the
Company in an amount per canceled option share equal to the excess of
(i) the highest reported price per share of Common Stock paid in the
tender offer or, if greater, the fair market value per share of Common
Stock over (ii) the option exercise price payable per share.
(6) Option grants under the Automatic Option Grant Program will be made in
strict compliance with the express provisions of that program. The
remaining terms and conditions of the options will in general conform
to the terms described above for option grants under the Discretionary
Option Grant Program and will be incorporated into the option agreement
evidencing the automatic grant.
GENERAL PROVISIONS
Acceleration Of Options/Termination Of Repurchase Rights. Upon the
occurrence of either of the following transactions (a "Corporate
Transaction"):
(i) the sale, transfer, or other disposition of all or substantially
all of the Company's assets in complete liquidation or dissolution of
the Company, or
(ii) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior
to such transaction, each outstanding option under the 1995 Plan will,
immediately prior to the effective date of the Corporate Transaction,
become fully exercisable for all of the shares at the time subject to
such option. However, an outstanding option shall not accelerate if and
to the extent: (a) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or
parent) or to be replaced with a comparable option to purchase shares
of the capital stock of the successor corporation (or parent), (b) such
option is to be replaced with a cash incentive program of the successor
corporation
15
<PAGE>
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 (c) the acceleration of such option is subject to other
limitations imposed by the Committee at the time of the option grant.
Immediately following the consummation of the Corporate Transaction,
all outstanding options will terminate and cease to be exercisable,
except to the extent assumed by the successor corporation.
Also upon the occurence of a Corporate Transaction, the Company's
outstanding repurchase rights will terminate automatically and the shares of
Common Stock subject to those terminated rights shall vest in full unless
assigned to the successor corporation or accelerated vesting is precluded by
other limitations imposed by the Committee at the time the repurchase right is
issued.
Any options which are assumed or replaced in the Corporate Transaction and
do not otherwise accelerate at that time shall automatically accelerate in
full (and any of the Company'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 or
constructive termination within twelve (12) 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 employment termination. In addition, the
Committee has discretion to accelerate vesting of options or option shares at
any time.
Upon the occurrence of the following transactions ("Change in Control"):
(i) any person or related group of persons (other than the Company or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Company) acquires beneficial ownership of more
than fifty percent (50%) of the Company's outstanding voting stock without
the Board's recommendation, or
(ii) there is a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases by reason of a proxy contest(s) to be comprised of
individuals who (a) have been Board members continuously since the
beginning of such period or (b) have been elected or nominated for
selection as Board members by a majority of the Board in clause (a) who
were still in office at the time such election or nomination was approved
by the Board, the Committee has the discretion to accelerate outstanding
options and terminate the Company's outstanding repurchase rights.
The Committee generally has the discretion to accelerate outstanding options
and terminate the Company's outstanding repurchase rights which may or may not
be conditioned upon the subsequent termination of the optionee's service
within a specified period following a Change in Control or Corporate
Transaction. The acceleration of options in the event of a Corporate
Transaction or Change in Control may be seen as an anti-takeover provision and
may have the effect of discouraging a merger proposal, a takeover attempt, or
other efforts to gain control of the Company.
Valuation. For purposes of establishing the option price and for all other
valuation purposes under the 1995 Plan, the fair market value of a share of
Common Stock on any relevant date will be the closing price per share of
Common Stock on that date, as such price is reported on the Nasdaq Stock
Market. The fair market value of the Common Stock on February 28, 1997 as
reported on the Nasdaq Stock Market was $19.75 per share.
Change In Capitalization. In the event any change is made to the Common
Stock issuable under the 1995 Plan by reason of any stock split, stock
dividend, combination of shares, exchange of shares, or other change effecting
the outstanding Common Stock as a class without the Company's receipt of
consideration, appropriate adjustments will be made to (i) the maximum number
and/or class of securities issuable under the 1995 Plan, (ii) the maximum
number and/or class of securities for which any one person may be granted
options and
16
<PAGE>
separately exercisable stock appreciation rights per calendar year or over the
term of the Plan, (iii) the number and/or class of securities for which
automatic option grants are to be subsequently made per director under the
Automatic Option Grant Program and (iv) the number and/or class of securities
and the exercise price per share in effect under each outstanding option
(including any option incorporated from the 1991 Plan) in order to prevent the
dilution or enlargement of benefits thereunder.
Each outstanding option which is assumed in connection with a Corporate
Transaction will be appropriately adjusted to apply and pertain to the number
and class of securities which would otherwise have been issued, in
consummation of such Corporate Transaction, to the option holder had the
option been exercised immediately prior to the Corporate Transaction.
Appropriate adjustments will also be made to the option price payable per
share and to the class and number of securities available for future issuance
under the 1995 Plan on both an aggregate and a per-participant basis.
1995 Plan Amendments. The Board may amend or modify the 1995 Plan in any and
all respects whatsoever. The Board may not, without the approval of the
Company's stockholders, (i) materially increase the maximum number of shares
issuable under the 1995 Plan (except in connection with certain changes in
capitalization), or (ii) materially modify the eligibility requirements for
option grants. The Automatic Option Grant Program may not be amended more
often than every six months and the Board may not, without stockholder
approval, amend the 1995 Plan to increase materially the benefits accruing to
participants under the 1995 Plan.
Unless sooner terminated by the Board, the 1995 Plan will in all events
terminate on September 19, 2005. Any options outstanding at the time of such
termination will remain in force in accordance with the provisions of the
instruments evidencing such grants.
New Plan Benefits. As of February 28, 1997, options covering 1,819,311
shares were outstanding under the 1995 Plan, 738,922 shares remained available
for future option grants, and 1,337,304 shares have been issued under the 1995
Plan. The expiration dates for all such options range from March 2001 to
February 2006.
Except as set forth above under the caption "Automatic Option Grant
Program," grants to be made under the 1995 Plan in the future are at the
discretion of the Committee and are not determinable at this time. The
following table shows all option grants made under the 1995 Plan during the
fiscal year ending December 31, 1996 and through February 28, 1997, to the
indicated individuals, all current executive officers as a group, all current
directors who are not executive officers as a group, and all employees
(including all current officers who are not executive officers) as a group,
respectively:
<TABLE>
<CAPTION>
NUMBER OF
OPTION SHARES
-------------
<S> <C>
Christopher G. Erickson.................................... 0
Phillip M. Fernandez....................................... 0
Robert C. Hausmann......................................... 0
Alexander Wilson........................................... 20,000
Thomas W. Henn............................................. 0
Christopher Grejtak........................................ 0
Thomas H. Bredt............................................ 15,000
Andrew K. Ludwick.......................................... 15,000
John F. Shoch.............................................. 15,000
John E. Warnock............................................ 15,000
All current Executive officers as a Group (4 persons)...... 20,000
All current Directors who are not employees (4 persons).... 60,000
All Employees (including officers who are not executive
officers).................................................. 734,770
</TABLE>
17
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS GRANTED UNDER THE 1995 PLAN
Options granted under the 1995 Plan may be either incentive stock options
that satisfy the requirements of Section 422 of the Internal Revenue Code or
nonstatutory options that are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Stock Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. However, the excess of the fair market value
of the purchased shares on the exercise date over the exercise price paid for
the shares generally is includable in alternative minimum taxable income. The
optionee will recognize taxable income in the year in which the purchased
shares are sold or otherwise made the subject of disposition.
For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of such
shares is made after the optionee has held the shares for more than two (2)
years after the grant date of the option and more than one (1) year after the
exercise date. If the optionee fails to satisfy either of these two holding
periods prior to the sale or other disposition of the purchased shares, then a
disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over
(ii) the exercise price paid for such shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of
those shares on the date the option was exercised over (ii) the exercise price
paid for the shares will be taxable as ordinary income. Any additional gain
recognized upon the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction for the taxable
year in which such disposition occurs equal to the excess of (i) the fair
market value of such shares on the date the option was exercised over (ii) the
exercise price paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the
purchased shares. The Company anticipates that any compensation deemed paid by
the Company upon one or more disqualifying dispositions of incentive stock
option shares by the Company's executive officers will remain deductible by
the Company and will not have to be taken into account for purposes of the $1
million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of the Company.
Nonstatutory Options. No taxable income is recognized by an optionee upon
the grant of a nonstatutory option.
The optionee will in general recognize ordinary income in the year in which
the option is exercised equal to the excess of the fair market value of the
purchased shares on the exercise date over the exercise price paid for the
shares, and the optionee will be required to satisfy the tax withholding
requirements applicable to such income.
Special provisions of the Internal Revenue Code apply to the acquisition of
Common Stock under a nonstatutory option if the purchased shares are subject
to repurchase by the Company. These special provisions may be summarized as
follows:
(i) If the shares acquired upon exercise of the nonstatutory option are
subject to repurchase by the Company at the original exercise price in the
event of the optionee's termination of service prior to vesting in such
shares, the optionee will not recognize any taxable income at the time of
exercise but will have to report as ordinary income, as and when the
Company's repurchase right lapses, an amount equal to the excess of (a) the
fair market value of the shares on the date such repurchase right lapses
with respect to such shares over (b) the exercise price paid for the
shares.
18
<PAGE>
(ii) The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the
nonstatutory option an amount equal to the excess of (a) the fair market
value of the purchased shares on the exercise date (determined as if the
shares were not subject to the Company's repurchase right) over (b) the
exercise price paid for such shares. If the Section 83(b) election is made,
the optionee will not recognize any additional income as and when the
repurchase right lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised nonstatutory option. The deduction will in general be allowed for
the taxable year of the Company in which such ordinary income is recognized by
the optionee. The Company anticipates that the compensation deemed paid by the
Company upon the exercise of nonstatutory options with exercise prices equal
to the fair market value of the option shares on the grant date will remain
deductible by the Company and will not have to be taken into account for
purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company.
Stock Appreciation Rights. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the
amount of the appreciation distribution. The Company will be entitled to a
business expense deduction equal to the appreciation distribution for the
taxable year of the Company in which the ordinary income is recognized by the
optionee.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT
TO THE COMPANY'S 1995 STOCK OPTION PLAN.
DESCRIPTION OF THE EMPLOYEE STOCK PURCHASE PLAN
The following is a description of the Red Brick Employee Stock Purchase Plan
(the "Purchase Plan"). The Purchase Plan was adopted by the Board on September
20, 1995, and approved by the stockholders as of December 1, 1995. The
Purchase Plan, and the right of participants to make purchases thereunder, is
intended to meet the requirements of an "employee stock purchase plan" as
defined in Section 423 of the internal Revenue Code (the "Code"). This
description is included to satisfy the requirements of Rule 16b-3(b) under the
Federal securities laws in order to ensure the favorable treatment of Rule
16b-3 for the officers participating in the Purchase Plan. Rule 16b-3 exempts
certain acquisitions of Common Stock under the Purchase Plan from the Federal
securities law rules which prohibit short-swing trading by executive officers.
The following summary of certain Purchase Plan provisions is qualified, in
its entirety, by reference to the Purchase Plan. Copies of the Purchase Plan
document may be obtained by a stockholder upon written request to the
Secretary of the Company at the executive offices in Los Gatos, California.
Purpose. The purpose of the Purchase Plan is to provide employees of the
company and designated parent or subsidiary corporations (collectively,
"Participating Companies") an opportunity to participate in the ownership of
the Company by purchasing Common Stock of the Company through payroll
deductions. The Company currently is the only Participating Company in the
Purchase Plan.
The Purchase Plan is intended to benefit the company as well as its
stockholders and employees. The Purchase Plan gives employees an opportunity
to purchase shares of Common Stock at a favorable price. The Company believes
that the stockholders will correspondingly benefit from the increased interest
on the part of participating employees in the profitability of the Company.
Finally, the Company will benefit from the periodic investments of equity
capital provided by participants in the Purchase Plan.
19
<PAGE>
Administration. The Purchase Plan is administered by the Committee. All
costs and expenses incurred in plan administration will be paid by the Company
without charge to participants. All cash proceeds received by the Company from
payroll deductions under the Purchase Plan shall be credited to a non-interest
bearing bank account.
Shares and Terms. The stock issuable under the Purchase Plan is the
Company's authorized but unissued or reacquired Common Stock. The maximum
number of shares of Common Stock that may be issued in the aggregate under the
Purchase Plan is 500,000, adjusted as described in the "Adjustments" section
of this description. Common Stock subject to a terminated purchase right shall
be available for purchase pursuant to purchase rights subsequently granted.
Adjustments. If any change in the Common Stock occurs (through
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares, or other change affecting the outstanding Common Stock as a class
without the Company's receipt of consideration), appropriate adjustments shall
be made by the Company to the class and maximum number of shares subject to
the Purchase Plan, to the class and maximum number of shares purchasable by
each participant on any one purchase date, and the class and number of shares
and purchase price per share subject to outstanding purchase rights in order
to prevent the dilution or enlargement of benefits thereunder.
Eligibility. Generally, any individual who is customarily employed by a
Participating Company more than 20 hours per week and for more than five
months per calendar year is eligible to participate in the Purchase Plan.
Approximately 240 employees (including three officers) were eligible to
participate in the Purchase Plan as of February 28, 1997.
Offering Periods. The Purchase Plan is implemented by offering periods which
generally have a duration of twenty-four months; each offering period is
comprised of a series of successive purchase periods, which have a duration of
six (6) months. The first offering period began on the date of execution of
the underwriting agreement in connection with the Company's initial public
offering and will end on the last business day in January 1998; the next
offering period will commence on the first business day in February 1998, and
will end on the last business day in January 2000, unless terminated earlier.
The purchase periods during the initial offering period ended or will end on
July 31, 1996, January 31, 1997, July 31, 1997, and January 30, 1998. The
Committee in its discretion may vary the beginning date and ending date of the
offering, provided no offering period may exceed twenty-four (24) months in
length.
The participant will have a separate purchase right for each offering period
in which he or she participates. The purchase right will be granted on the
participant's entry date into an offering period and will be automatically
exercised in successive installments on the last day of each purchase period
within the offering period.
Purchase Price. The purchase price per share under the Purchase Plan is 85%
of the lower of (i) the fair market value of a share of Common Stock on the
first day of the applicable offering period or, if later, the participant's
entry date into the offering period, or (ii) the fair market value of a share
of Common Stock on the purchase date. If a participant's entry date is on a
day other than the first day of an offering period, the clause (i) amount will
in no event be less than the fair market value of the shares on the first day
of such offering period. Generally, the fair market value of the Common Stock
on a given date is the closing price of the Common Stock, as reported on the
Nasdaq National Market System. The market value of the Common Stock as
reported on the Nasdaq National Market as of February 28, 1997 was $19.75 per
share.
20
<PAGE>
Limitations. The plan imposes certain limitations upon a participant's
rights to acquire Common Stock, including the following:
(1) No purchase right shall be granted to any person who immediately
thereafter would own, directly or indirectly, stock or hold outstanding
options or rights to purchase stock possessing five percent (5%) or
more of the total combined voting power or value of all classes of
stock of the Company or any of its parent or subsidiary corporations.
(2) In no event shall a participant be permitted to purchase more than
5,000 shares on any one purchase date.
(3) The right to purchase Common Stock under the Purchase Plan (or any
other employee stock purchase plan that the Company or any of its
subsidiaries may establish) in an offering intended to qualify under
Section 423 of the Code may not accrue at a rate that exceeds $25,000
in fair market value of such Common Stock (determined at the time such
purchase right is granted) for any calendar year in which such purchase
right is outstanding.
The purchase right shall be exercisable only by the participant during the
participant's lifetime and shall not be assignable or transferable by the
participant.
Payment of Purchase Price; Payroll Deductions. Payment for shares by
participants shall be by accumulation of after-tax payroll deductions during
the purchase period. The deductions may not exceed 25% of a participant's cash
compensation paid during a purchase period. Cash compensation includes regular
base pay, any pre-tax contributions made by a participant to any Code section
401(k) plan or section 125 cafeteria benefit program plus any of the following
amounts to the extent paid in cash: overtime payments, bonuses, commissions,
profit-sharing distributions and other incentive-type payments. However, cash
compensation does not include any contributions made on a participant's behalf
by the Corporation or any corporate affiliate to any deferred compensation
plan or welfare benefit program (other than a section 401(k) or 125 plan) now
or hereafter maintained by the Corporation.
The participant will receive a purchase right for each offering period in
which he or she participates to purchase up to the number of shares of Common
Stock determined by dividing such participant's payroll deductions accumulated
prior to the purchase date by the applicable purchase price (subject to the
"Limitations" section). No fractional shares shall be purchased. Any payroll
deductions accumulated in a participant's account that are not sufficient to
purchase a full share will be retained in the participant's account for the
subsequent purchase period. No interest shall accrue on the payroll deductions
of a participant in the Purchase Plan.
Termination and Change to Payroll Deductions. A purchase right shall
terminate at the end of the offering period or earlier if (i) the participant
terminates employment and then any payroll deductions which the participant
may have made with respect to a terminated purchase right will be refunded or
(ii) the participant elects to withdraw from the Purchase Plan. Any payroll
deductions which the participant may have made with respect to a terminated
purchase right under clause (ii) will be refunded unless the participant
elects to have the funds applied to the purchase of shares on the next
purchase date. A participant may decrease his or her deductions once during a
purchase period.
Amendment and Termination. The Purchase Plan shall continue in effect until
the earlier of (i) the last business day in July 2005, (ii) the date on which
all shares available for issuance under the Purchase Plan shall have been
issued or (iii) a Corporate Transaction, unless the Purchase Plan is earlier
terminated by the Board in its discretion.
The Board may at any time alter, amend, suspend or discontinue the Purchase
Plan, provided that, without the approval of the stockholders, no such action
may (i) alter the purchase price formula so as to reduce the purchase price
payable for shares under the Purchase Plan, (ii) materially increase the
number of shares issuable under the Purchase Plan or the maximum number of
shares purchasable per participant, or (iii) materially increase the benefits
accruing to participants under the Purchase Plan or materially modify the
eligibility requirements.
21
<PAGE>
In addition, the Company has specifically reserved the right, exercisable in
the sole discretion of the Board, to terminate the Purchase Plan immediately
following any six-month purchase period. If such right is exercised by the
Board, then the Purchase Plan will terminate in its entirety and no further
purchase rights will be granted or exercised, and no further payroll
deductions shall thereafter be collected under the Purchase Plan.
Corporate Transaction. In the event of (i) a merger or consolidation in
which securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities are transferred
to a person or persons different from the persons holding those securities
immediately prior to such transaction or (ii) the sale, transfer or other
disposition of all or substantially all of the assets of the Company in
complete liquidation or dissolution of the Company (a "Corporate
Transaction"), each purchase right under the Purchase Plan will automatically
be exercised, immediately before consummation of the Corporate Transaction as
if such date were the last purchase date of the offering period. The purchase
price per share shall be equal to eighty-five percent (85%) of the lower of
the (i) fair market value per share of common Stock on the start date of the
offering period (or on the participant's entry date, if later) or (ii) the
fair market value per share of Common Stock immediately prior to the effective
date of such Corporate Transaction. If a participant's entry date is not the
first day of the offering period, the clause (i) amount will in no event be
lesser than the fair market value of such shares on the first day of the
offering period. Any payroll deductions not applied to such purchase shall be
promptly refunded to the participant.
The grant of purchase rights under the Purchase Plan will in no way affect
the right of the Company to adjust, reclassify, reorganize, or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
Proration of Purchase Rights. If the total number of shares of Common Stock
for which purchase rights are to be granted on any date exceeds the number of
shares then remaining available under the Purchase Plan, the Committee shall
make a pro rata allocation of the shares remaining.
Federal Income Tax Consequences. The following is a general description of
certain federal income tax consequences of the Purchase Plan. This description
does not purport to be complete.
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under section 423 of the Code. No income is recognized by a participant
at the time a right to purchase shares is granted. Likewise, no taxable income
is recognized at the time of the purchase, even though the purchase price
reflects a discount from the market value of the shares at that time.
A participant must recognize taxable income upon a disposition of shares
acquired under the Purchase Plan. The tax treatment may be more favorable if
the disposition occurs after the holding-period requirements of section 423
have been satisfied (a "qualifying disposition"). To satisfy the holding-
period requirements of section 423, shares acquired under the Purchase Plan
cannot be disposed of within two years after the first day of the offering
period during which the shares were purchased (or within tow years after the
participant's entry date, if that date is later than the beginning of the
offering period) nor within one year after the shares were purchased. The U.S.
income tax consequences of a qualifying disposition are as follows:
. The participant recognizes ordinary income equal to the lower of (a) the
excess of the fair market value of the shares on the date of the
disposition over the purchase price or (b) 15% of the fair market value
of the shares on the first day of the applicable offering period (or on
the participant's entry date, if that date is later than the first day of
the offering period and if the market value is higher on that date). The
Company will not be entitled to any deduction under these circumstances.
. The excess, if any, of the fair market value of the shares on the date of
the disposition over the sum of the purchase price plus the amount of
ordinary income recognized (as described above) will be taxed as a long-
term capital gain. If a taxable disposition produces a loss (i.e., the
fair market value of the shares on the date of the disposition is less
than the purchase price) and the disposition involves certain unrelated
parties, then the loss will be a long-term capital loss.
22
<PAGE>
A participant who disposes of shares acquired under the Purchase Plan
without meeting the holding-period requirements makes a disqualifying
disposition of such shares. The U.S. income tax consequences of a
disqualifying disposition are as follows:
. The entire difference between the purchase price and the market value of
the shares on the date of purchase will be taxed to the participant as
ordinary income in the year of disposition. The Company will be entitled
to a deduction for the same amount, subject to certain conditions.
. The excess, if any, of the market value of the shares on the date of
disposition over their market value on the date of purchase will be taxed
as a capital gain (long-term or short-term, depending on how long the
shares have been held). If the value of the shares on the date of
disposition is less than their value on the date of purchase, then the
difference will result in a capital loss (long-term or short-term,
depending upon the holding period), provided the disposition involves
certain unrelated parties. Any such loss will not affect the ordinary
income recognized upon the disposition.
The foregoing is only a summary of the federal income taxation consequences
to the participant and the Company with respect to the shares purchased under
the Purchase Plan. In addition, the summary does not discuss the tax
consequences of a participant's death or the income tax laws of any city,
state or foreign country in which the participant may reside.
New Purchase Plan Benefits. Since purchase rights are subject to discretion,
including an employee's decision not to participate in the Purchase Plan,
awards under the Purchase Plan for the current fiscal year are not
determinable. However, each of the Named Officers, except Christopher G.
Erickson, purchased that number of shares of Common Stock set forth opposite
his name at $15.30 per share on July 31, 1996, and January 31, 1997,
respectively:
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1996 1997
-------- -----------
<S> <C> <C>
Phillip M. Fernandez................................. 1,109 82
Robert C. Hausmann................................... 1,388 444
Alexander Wilson..................................... 1,388 587
Thomas W. Henn....................................... 1,054 746
Christopher Grejtak.................................. 950 0
</TABLE>
Each of the Named Officers, except Christopher G. Erickson, has the right to
purchase up to 5,000 shares of Common Stock at a purchase price that will not
exceed $15.30 per share on each of July 31, 1997, and January 30, 1998.
PROPOSAL NO. 3
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Company is asking the stockholders to ratify the appointment of Ernst &
Young LLP as the Company's independent public accountants for the fiscal year
ending December 31, 1997. Ernst & Young LLP has served as the Company's
independent public accountants since January, 1994. The affirmative vote of
the holders of a majority of shares present or represented by proxy and voting
at the Annual Meeting will be required to ratify the appointment of Ernst &
Young LLP. In the event the stockholders fail to ratify the appointment, the
Board of Directors will reconsider its selection. Even if the appointment is
ratified, the Board of Directors, in its discretion, may direct the
appointment of a different independent accounting firm at any time during the
year if the Board of Directors feels that such a change would be in the
Company's and its stockholders' best interests. Representatives of Ernst &
Young LLP are expected to be present at the Annual Meeting, will have the
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
23
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF ERNST & YOUNG LLP TO SERVE AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Christopher G. Erickson, the Company's President, Chief Executive Officer
and Chairman of the Board, purchased shares of restricted Common Stock awarded
on January 18, 1995, at a purchase price of $0.32 by delivery of a promissory
note on February 14, 1995. The 1995 loan is full recourse, bears interest at
the rate of 7.96% per annum, is due February 14, 1999, and is secured by a
portion of the shares of Common Stock purchased with the proceeds of the loan.
Mr. Erickson also purchased shares of restricted Common Stock awarded on
December 21, 1993, by delivery of a promissory note on January 24, 1994. The
1994 loan is full recourse, bears interest at the rate of 5.32% per annum, is
due January 24, 1998, and is secured by a portion of the shares of Common
Stock purchased with the proceeds of the loan. The largest aggregate amount of
indebtedness outstanding during 1996 was $99,243 and the amount of the
indebtedness on March 31, 1997, was $57,911.
The Company's Certificate of Incorporation limits the liability of its
directors for monetary damages arising from a breach of their fiduciary duty
as directors, except to the extent otherwise required by the Delaware General
Corporation Law. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under
Delaware law. The Company has also entered into indemnification agreements
with its officers and directors containing provisions that may require the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct
of a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The members of the Board of Directors, the executive officers of the
Company, and persons who hold more than 10% of the Company's outstanding
Common Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, as amended, which require them to file
reports with respect to their ownership of the Company's Common Stock and
their transactions in such Common Stock. Based upon (i) the copies of Section
16(a) reports that the Company received from such persons for their fiscal
1996 transactions in the Common Stock and their Common Stock holdings and (ii)
the written representations received from one or more of such persons that no
annual Form 5 reports were required to be filed by them for the 1996 fiscal
year, the Company believes that all reporting requirements under Section 16(a)
for such fiscal year were met in a timely manner by its executive officers,
Board members, and greater than 10% stockholders.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
COMPANY'S FORM 10-K REPORT FOR FISCAL 1996, INCLUDING THE FINANCIAL
STATEMENTS, SCHEDULES, AND LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO RED
BRICK SYSTEMS, INC., 485 ALBERTO WAY, LOS GATOS, CALIFORNIA 95032, ATTN:
INVESTOR RELATIONS.
24
<PAGE>
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Stockholder proposals that are intended to be presented at the 1998 Annual
Meeting that are eligible for inclusion in the Company's proxy statement and
related proxy materials for that meeting under the applicable rules of the
Securities and Exchange Commission must be received by the Company not later
than January 21, 1998, in order to be included. Such stockholder proposals
should be addressed to Red Brick Systems, Inc., 485 Alberto Way, Los Gatos,
California 95032, Attention: Investor Relations.
OTHER MATTERS
The Board knows of no other matters to be presented for stockholder action
at the Annual Meeting. However, if other matters do properly come before the
Annual Meeting or any adjournments or postponements thereof, the Board intends
that the persons named in the proxies will vote upon such matters in
accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
Robert C. Hausmann
Secretary
Los Gatos, California
April 15, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE, AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-
PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL
MEETING. IF YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR
PROXY VOTE, YOU MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE MEETING.
THANK YOU FOR YOUR ATTENTION TO THIS MATTER. YOUR PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING.
25
<PAGE>
RED BRICK SYSTEMS, INC.
1995 STOCK OPTION PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option Plan is intended to promote the interests of Red
Brick Systems, 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 Automatic Option Grant Program under which Eligible
Directors shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock.
B. The provisions of Articles One and 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 Program with respect to Section 16
Insiders. No non-employee Board member shall be eligible to serve on the
Primary Committee if such individual has, during the twelve (12)-month period
immediately preceding the date of his or her appointment to the Committee or
(if shorter) the period commencing with the Section 12(g) Registration Date
and ending with the date of his or her appointment to the Primary Committee,
received an option grant or direct stock issuance under the Plan or any other
stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary), other than pursuant to the
Automatic Option Grant Program.
B. Administration of the Discretionary Option Grant Program with respect to
all other persons eligible to participate in those programs may, at the
Board's discretion, be vested in the Primary Committee or a Secondary
Committee, or the Board may retain the power to administer those programs with
respect to all such persons. The members of the Secondary Committee may be
Board members who are Employees eligible to receive discretionary option
grants or direct stock issuances under the Plan or any stock option, stock
appreciation, stock bonus or other stock plan of the Corporation (or any
Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and shall be subject to
removal 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. The 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 Program and to make such determinations under,
and issue such interpretations of, the provisions of such program and any
outstanding options 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 Program under its jurisdiction or
any option thereunder.
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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 made under
the Plan.
F. Administration of the Automatic Option Grant Program shall be self-
executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to
option grants made thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant
Program are as follows:
(i) Employees,
(ii) non-employee members of 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. The 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, 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 and the vesting schedule
(if any) applicable to the option shares and the maximum term for which the
option is to remain outstanding.
C. The individuals eligible to receive option grants under the Automatic
Option Grant Program shall be (i) those individuals who are serving as non-
employee Board members on the Automatic Option Grant Program Effective Date or
who are first elected or appointed as non-employee Board members after such
date, whether through appointment by the Board or election by the
Corporation's stockholders, and (ii) those individuals who continue to serve
as non-employee Board members after one or more Annual Stockholders Meetings
held after the Automatic Option Grant Program Effective Date. A non-employee
Board member who has previously been in the employ of the Corporation (or any
Parent or Subsidiary) shall not be eligible to receive an option grant under
the Automatic Option Grant Program on the Automatic Option Grant Program
Effective Date or at the time he or she first becomes a non-employee Board
member, but such individual shall be eligible to receive periodic option
grants under the Automatic Option Grant Program upon his or her continued
service as a non-employee Board member following one or more Annual
Stockholders Meetings.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall initially not exceed
2,142,892 shares. Such authorized share reserve is comprised of (i) the 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
(estimated to be 1,542,892 shares), plus (ii) an additional increase of
600,000 shares authorized by the Board under the Plan, subject to stockholder
approval.
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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 1997
and 1998 calendar years, by an amount equal to five percent (5%) of the shares
of Common Stock outstanding on December 31 of the immediately preceding
calendar year; but in no event shall any such annual increase exceed 600,000
shares.
C. No one person participating in the Plan may receive options and
separately exercisable stock appreciation rights for more than 100,000 shares
of Common Stock in the aggregate each calendar year over the term of the Plan,
except that a person may receive options and separately exercisable stock
appreciation rights for up to 300,000 shares of Common Stock in the aggregate
in the calendar year in which the person commences Service.
D. Shares of Common Stock subject to outstanding options shall be available
for subsequent issuance under the Plan to the extent (i) the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
canceled in accordance with the cancellation-regrant provisions of Article
Two. All shares issued under the Plan (including shares issued upon exercise
of options incorporated from the Predecessor Plan), whether or not those
shares are subsequently repurchased by the Corporation pursuant to its
repurchase rights under the Plan, shall reduce on a share-for-share basis the
number of shares of Common Stock available for subsequent issuance under the
Plan. In addition, should the exercise price of an option under the Plan
(including any option incorporated from the Predecessor Plan) be paid with
shares of Common Stock or should shares of Common Stock otherwise issuable
under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option 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, and not by the net number of shares of Common Stock
issued to the holder of such option.
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 maximum number and/or class of securities for which
the share reserve is to increase automatically each year, (iii) the number
and/or class of securities for which any one person may be granted options and
separately exercisable stock appreciation rights over the term of the Plan,
(iv) the number and/or class of securities for which automatic option grants
are to be subsequently made per Eligible Director under the Automatic Option
Grant Program and (v) the number and/or class of securities and the exercise
price per share in effect under each outstanding option (including any option
incorporated from the Predecessor Plan) in order to prevent the dilution or
enlargement of benefits thereunder. 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.
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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 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.
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 a Corporate Transaction, the provisions of
Section III of this Article Two shall govern the period for which the
outstanding options are to remain exercisable following the Optionee's
cessation of Service and shall supersede any provisions to the contrary
in this section.
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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 accordance with the terms of a Qualified Domestic Relations
Order. The assigned option 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 option (or
portion thereof) 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.
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.
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D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is granted
is a 10% Stockholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the option grant date, and the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may
be exercised for any or all of those shares as fully-vested shares of Common
Stock. However, an outstanding option shall not so accelerate if and to the
extent: (i) such option is, in connection with the Corporate Transaction,
either to be assumed by the successor corporation (or parent thereof) or to be
replaced with a comparable option to purchase shares of the capital stock of
the successor corporation (or parent thereof), (ii) such option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing on the unvested option shares at the time of the
Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option or (iii) the acceleration
of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant. The determination of option
comparability under clause (i) above shall be made by the Plan Administrator,
and its determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate automatically, and
the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction
or (ii) such accelerated vesting is precluded by other limitations imposed by
the Plan Administrator at the time the repurchase right is issued.
C. 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 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 Corporate Transaction,
whether or not those options are to be assumed or replaced (or those
repurchase rights are to be assigned) in the Corporate Transaction.
D. 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).
E. 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.
F. 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 twelve (12) 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.
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G. 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.
H. 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.
I. The grant of options under the Discretionary Option Grant Program shall
in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new option grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant to
selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
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.
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C. The following terms shall govern the grant and exercise of limited stock
appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each such individual
holding one or more options with such a limited stock appreciation
right in effect for at least six (6) months shall have the
unconditional right (exercisable for a thirty (30)-day period following
such Hostile Take-Over) to surrender each such option to the
Corporation, to the extent the option is at the time exercisable for
vested shares of Common Stock. In return for the surrendered option,
the Optionee shall receive a cash distribution from the Corporation in
an amount equal to the excess of (A) the Take-Over Price of the shares
of Common Stock which are at the time vested under each surrendered
option (or surrendered portion thereof) over (B) the aggregate exercise
price payable for such shares. Such cash distribution shall be paid
within five (5) days following the option surrender date.
(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
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified below:
1. Each Eligible Director who is a non-employee Board member on the
Automatic Option Grant Program Effective Date and each Eligible Director who
is first elected or appointed as a non-employee Board member after such date
shall automatically be granted, on the Automatic Option Grant Program
Effective Date or on the date of such initial election or appointment (as the
case may be), a Non-Statutory Option to purchase 15,000 shares of Common
Stock.
2. On the date of each Annual Stockholders Meeting, beginning with the 1997
Annual Meeting, each individual who is to continue to serve as an Eligible
Director after such meeting, shall automatically be granted, whether or not
such individual is standing for re-election as a Board member at that Annual
Meeting, a Non-Statutory Option to purchase an additional 1,000 shares of
Common Stock, provided such individual has served as a non-employee Board
member for at least six (6) months prior to the date of such Annual Meeting.
There shall be no limit on the number of such 1,000-share option grants any
one Eligible Director may receive over his or her period of Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred percent (100%)
of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years measured
from the option grant date.
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D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each grant shall vest, and the Corporation's
repurchase right shall lapse, in a series of four (4) equal and successive
annual installments over the Optionee's period of continued service as a Board
member, with the first such installment to vest upon the Optionee's completion
of one (1) year of Board service measured from the option grant date.
E. EFFECT OF TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the personal
representative of the Optionee's estate or the person or persons to
whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution) shall have a
twelve (12)-month period following the date of such cessation of Board
service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option may not
be exercised in the aggregate for more than the number of vested shares
of Common Stock for which the option is exercisable at the time of the
Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by reason
of death or Permanent Disability, then all shares at the time subject
to the option shall immediately vest so that such option may, during
the twelve (12)-month exercise period following such cessation of Board
service, be exercised for all or any portion of such shares as fully-
vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve (12)-
month exercise period or (if earlier) upon the expiration of the option
term, the option shall terminate and cease to be outstanding for any
vested shares for which the option has not been exercised. However, the
option shall, immediately upon the Optionee's cessation of Board
service, terminate and cease to be outstanding to the extent it is not
exercisable for vested shares on the date of such cessation of Board
service.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common Stock at
the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of such shares as fully-vested shares
of Common Stock. Immediately following the consummation of the Corporate
Transaction, each automatic option grant shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common Stock at
the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior
to the effective date of the Change in Control, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of such shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, each automatic option held by
the Optionee for a period of at least six (6) months shall be automatically
canceled. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the canceled option (whether
or not the Optionee is otherwise at the time vested in those shares) over (ii)
the aggregate exercise price payable for such shares. Such cash distribution
shall
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be paid within five (5) days following the cancellation of the option by the
Corporation. No approval or consent of the Board shall be required in
connection with such option cancellation and cash distribution.
D. The grant of options under the Automatic Option Grant Program shall in no
way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
III. AMENDMENT OF THE AUTOMATIC OPTION GRANT PROGRAM
The provisions of this Automatic Option Grant Program, together with the
option grants outstanding thereunder, may not be amended at intervals more
frequently than once every six (6) months, other than to the extent necessary
to comply with applicable Federal income tax laws and regulations.
IV. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option Grant
Program shall be the same as the terms in effect for option grants made under
the Discretionary Option Grant Program.
ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee to pay the option exercise
price under the Discretionary Option Grant 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 may not exceed the sum of (i) the
aggregate option exercise price payable for the purchased shares plus (ii) any
Federal, state and local income and employment tax liability incurred by the
Optionee in connection with the option exercise.
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 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 under the Plan (other than the options granted under
the Automatic Option Grant Program) with the right to use shares of Common
Stock in satisfaction of all or part of the Taxes incurred by such holders in
connection with the exercise of their options. 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, 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.
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(ii) Stock Delivery: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised, one or more shares of
Common Stock previously acquired by such holder (other than in
connection with the option exercise 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 Discretionary Option Grant Program became effective on the Plan
Effective Date and options may be granted under the Discretionary Option Grant
Program from and after the Plan Effective Date. The Automatic Option Grant
Program became effective on the Automatic Option Grant Program Effective Date.
The Board amended the Plan, subject to approval by the Corporation's
stockholders at the 1997 Annual Stockholders Meeting, to change the per person
limit of Article One, Section V.B to an annual limit of 100,000 shares or
300,000 shares in the year an individual commences Service. Should stockholder
approval not be obtained at the 1997 Annual Meeting, then the per person limit
of Article One, Section V.B shall be restored to the provision in effect on
the date of the amendment. Subject to the foregoing restrictions, options may
be granted and stock may be awarded under the Plan at any time after the
Effective Date.
B. The Plan shall serve as the successor to the Predecessor Plan, and no
further option grants 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. 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 provide for such acceleration.
D. The Plan shall terminate upon the earliest of (i) September 19, 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 under the Plan or
(iii) the termination of all outstanding options in connection with a
Corporate Transaction. Upon such Plan termination, all options outstanding on
such date shall thereafter continue to have force and effect in accordance
with the provisions of the documents evidencing such options.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to amend
or modify the Plan in any or all respects. However, (i) no such amendment or
modification shall adversely affect the rights and obligations with respect to
options or stock appreciation rights at the time outstanding under the Plan
unless the Optionee consents to such amendment or modification, and (ii) any
amendment made to the Automatic Option Grant Program (or any options
outstanding thereunder) shall be in compliance with the limitations of that
program. Notwithstanding clause (i) above, the Plan Administrator may amend an
outstanding option to reduce the number of option shares previously granted to
an optionee provided the reduction applies solely unvested shares or shares
which have not yet become exercisable as of the date of the amendment. In
addition, the Board shall not, without the approval of the Corporation's
stockholders, (i) materially increase the maximum number of shares issuable
under the Plan, the number of shares for which options may be granted under
the Automatic Option Grant Program or the maximum number of shares for which
any one person may be granted options or separately exercisable stock
appreciation rights in the aggregate over the term of the Plan, 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.
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B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program that are in excess of the number of shares
then available for issuance under the Plan, provided any excess shares
actually issued under those programs are held in escrow until there is
obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If
such stockholder approval is not obtained within twelve (12) months after the
date the first such excess issuances are made, then (i) any unexercised
options granted on the basis of such excess shares shall terminate and cease
to be outstanding and (ii) the Corporation shall promptly refund to the
Optionees the exercise 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 upon the exercise of any option or stock appreciation right 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 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, which rights are
hereby expressly reserved by each, to terminate such person's Service at any
time for any reason, with or without cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
program in effect under the Plan.
B. AUTOMATIC OPTION GRANT PROGRAM 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.
C. BOARD shall mean the Corporation's Board of Directors.
D. 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.
E. CODE shall mean the Internal Revenue Code of 1986, as amended.
F. COMMON STOCK shall mean the Corporation's common stock.
G. 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.
H. CORPORATION shall mean Red Brick Systems, Inc., a Delaware corporation.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option
grant program in effect under the Plan.
J. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
K. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
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L. 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.
M. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
N. 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. For
purposes of option grants made prior to such date, the Fair Market
Value shall be determined by the Plan Administrator after taking into
account such factors as the Plan Administrator shall deem appropriate.
O. 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.
P. INCENTIVE OPTION shall mean an option which satisfies the requirements of
Code Section 422.
Q. 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.
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<PAGE>
R. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or
dishonesty by the Optionee, 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 or other person in the Service of the Corporation (or any
Parent or Subsidiary).
S. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
T. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
U. OPTIONEE shall mean any person to whom an option is granted under the
Discretionary Option Grant or Automatic Option Grant Program.
V. 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.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean 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.
X. PLAN shall mean the Corporation's 1995 Stock Option Plan, as set forth in
this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the Primary
Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant Program with respect to one or more
classes of eligible persons, to the extent such entity is carrying out its
administrative functions under those programs with respect to the persons
under its jurisdiction.
Z. PLAN EFFECTIVE DATE shall mean the Section 12(g) Registration Date.
AA. PREDECESSOR PLAN shall mean the Corporation's existing 1991 Stock Option
Plan.
BB. PRIMARY COMMITTEE shall mean the committee of two (2) or more non-
employee Board members appointed by the Board to administer the Discretionary
Option Grant Program with respect to Section 16 Insiders.
CC. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations Order
which substantially complies with the requirements of Code Section 414(p). The
Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.
DD. SECONDARY COMMITTEE shall mean a committee of one (1) or more Board
members appointed by the Board to administer the Discretionary Option Grant
Program with respect to eligible persons other than Section 16 Insiders.
EE. SECTION 16 INSIDER shall mean an officer or director of the Corporation
subject to the short-swing profit liabilities of Section 16 of the 1934 Act.
FF. SECTION 12(g) REGISTRATION DATE shall mean the first date on which the
Common Stock is registered under Section 12(g) of the 1934 Act.
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<PAGE>
GG. SERVICE shall mean the provision of services to the Corporation (or any
Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
HH. STOCK EXCHANGE shall mean either the American Stock Exchange or the New
York Stock Exchange.
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. 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.
4
<PAGE>
RED BRICK SYSTEMS, INC.
485 Alberto Way, Los Gatos, California 95032
This Proxy is Solicited on Behalf of the Board of Directors
For the Annual Meeting of Stockholders to be held on May 21, 1997
The undersigned appoints The Chairman of the Board, President and Chief
Executive Officer, Christopher G. Erickson and Directors, Thomas H. Bredt,
Andrew K. Ludwick, John F. Shoch, and John E. Warnock, of Red Brick Systems,
Inc. (the "Company") and each of them proxies for the undersigned, each with the
full power to appoint his substitute, and hereby authorizes them to represent
and to vote as designated on this Proxy Card, all the shares of common stock of
the Company held of record by the undersigned on March 31, 1997 and entitled to
be voted at the Annual Meeting of Stockholders to be held at The Garden Court
Hotel, 520 Cowper Street, Palo Alto, California 94301 at 10:00 a.m., on
Wednesday, May 21, 1997, or any adjournment or postponement thereof.
The Board of Directors recommends a vote FOR the election of Directors
and FOR Proposals 2 and 3.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY
IN THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
RED BRICK SYSTEMS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
1. ELECTION OF DIRECTORS [_] [_] [_]
Nominees: Christopher G. Erickson,
-------- Thomas H. Bredt, Andrew K. Ludwick,
John F. Shoch and John E. Warnock
______________________________________________
(Except nominee(s) written above)
FOR AGAINST ABSTAIN
2. Approval of the adoption of an amendment to the [_] [_] [_]
Company's 1995 Stock Option Plan to impose a per
person limit on the number of shares issuable
under the plan.
FOR AGAINST ABSTAIN
3. Ratification of the appointment of Ernst & Young [_] [_] [_]
LLP as the Company's independent public
accountants for the fiscal year ending December
31, 1997.
THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF DIRECTORS AND FOR PROPOSALS 2 AND 3.
--- ---
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH BUSINESS AS
MAY PROPERLY COME BEFORE THE MEETING.
The undersigned acknowledge(s) receipt of the Notice of Annual Meeting of
Stockholders and of the Proxy Statement.
Dated: _______________________, 1997
Signature(s) __________________________________________________________________
_______________________________________________________________________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
