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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of
[x] Definitive Proxy Statement the Commission only (as
[ ] Definitive Additional Materials permitted by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PRISM SOLUTIONS, INC.
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No Fee Required.
[ ] 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:
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[ ] Check box if any part of the fee is offset as provided by exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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[PRISM LETTERHEAD]
April 18, 1997
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders to
be held at 3:00 p.m. on Tuesday, May 27, 1997 at Prism Solutions, Inc., located
at 1000 Hamlin Court, Sunnyvale, California. Detailed information as to the
business to be transacted at the meeting is contained in the accompanying Notice
of Annual Meeting and Proxy Statement.
Regardless of whether you plan to attend the meeting, it is important that
your shares be voted. Accordingly, we ask that you sign and return your proxy as
soon as possible in the envelope provided. If you do plan to attend the meeting,
please mark the appropriate box on the proxy.
Sincerely,
Warren M. Weiss
President and Chief Executive Officer
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PRISM SOLUTIONS, INC.
1000 HAMLIN COURT
SUNNYVALE, CALIFORNIA 94089
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Prism
Solutions, Inc. (the "Company") will be held at the offices of the Company
located at 1000 Hamlin Court, Sunnyvale, California on Tuesday, May 27, 1997
at 3:00 p.m. P.D.T. for the following purposes:
1. To elect directors of the Company, each to serve until the next Annual
Meeting of Stockholders and until his successor has been elected and
qualified or until his earlier resignation or removal. The Company's
Board of Directors intends to present the following nominees for
election as directors:
James W. Ashbrook Nancy J. Schoendorf
Kevin A. Fong Norris van den Berg
Promod Haque Warren M. Weiss
E. Floyd Kvamme
2. To approve an amendment to the Company's 1996 Equity Incentive Plan to
increase the number of shares of Common Stock reserved thereunder by
1,500,000 shares.
3. To ratify the selection of Coopers & Lybrand L.L.P. as independent
accountants for the Company for the fiscal year ending December 31,
1997.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on April 4, 1997 are
entitled to notice of and to vote at the meeting or any adjournment thereof.
By Order of the Board of Directors
Warren M. Weiss
President and Chief Executive Officer
Sunnyvale, California
April 18, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
<PAGE> 4
PRISM SOLUTIONS, INC.
1000 HAMLIN COURT
SUNNYVALE, CALIFORNIA 94089
-----------
PROXY STATEMENT
-----------
APRIL 18, 1997
The accompanying proxy is solicited on behalf of the Board of Directors of
Prism Solutions, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders of the Company to be held at the offices of the
Company located at 1000 Hamlin Court, Sunnyvale, California 94089, on Tuesday,
May 27, 1997 at 3:00 p.m. P.D.T. (the "Meeting"). Only holders of record of the
Company's Common Stock at the close of business on April 4, 1997 (the "Record
Date") will be entitled to vote at the Meeting. At the close of business on the
Record Date, the Company had 13,385,462 shares of Common Stock outstanding and
entitled to vote. A majority of the shares outstanding on the Record Date will
constitute a quorum for the transaction of business at the meeting. This Proxy
Statement and the accompanying form of proxy were first mailed to stockholders
on or about April 18, 1997. An annual report for the fiscal year ended December
31, 1996 is enclosed with this Proxy Statement.
VOTING RIGHTS; REQUIRED VOTE
Holders of the Company's Common Stock are entitled to one vote for each
share held as of the foregoing record date. Shares of Common Stock may not be
voted cumulatively.
Directors will be elected by a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Meeting and
entitled to vote on the election of directors. Proposal No. 2 (a proposal to
amend the Company's 1996 Equity Incentive Plan to increase the number of shares
reserved thereunder) and Proposal No. 3 (a proposal to ratify the selection of
Coopers & Lybrand L.L.P. as the Company's independent auditors for the fiscal
year ending December 31, 1997) require for approval the affirmative vote of the
majority of shares of Common Stock present in person or represented by proxy at
the Meeting and entitled to vote on the proposals. Abstentions will be counted
towards a quorum and have the same effect as a negative vote with respect to
Proposal Nos. 2 and 3. In the event that a broker indicates on a proxy that it
does not have discretionary authority to vote certain shares on a particular
matter, such "broker non-votes" will also be counted towards a quorum but will
not be counted for any purpose in determining whether a proposal has been
approved. All votes will be tabulated by the inspector of elections appointed
for the Meeting who will separately tabulate, for each proposal, affirmative and
negative votes, abstentions and broker non-votes.
VOTING OF PROXIES
The proxy accompanying this Proxy Statement is solicited on behalf of the
Board of Directors of the Company for use at the Meeting. Stockholders are
requested to complete, date and sign the accompanying proxy card and promptly
return it in the enclosed envelope or otherwise mail it to the Company. All
executed returned proxies that are not revoked will be voted in accordance with
the instructions contained therein; however, returned signed proxies that give
no instructions as to how they should be voted on a particular proposal at the
Meeting will be counted as votes "for" such proposal (or, in the case of the
election of directors, as a vote "for" election to the Board of all the nominees
presented by the Company's Board of Directors). So far as is known to the
Company's Board of Directors, no other matters are to be brought before the
Meeting. As to any business that may properly come before the
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Meeting, however, it is intended that proxies in the form enclosed will be voted
in accordance with the judgment of the persons holding such proxies.
In the event that sufficient votes in favor of the proposals are not
received by the date of the Meeting, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitations of
proxies. Any such adjournment would require the affirmative vote of the majority
of the outstanding shares present in person or represented by proxy at the
Meeting.
SOLICITATION OF PROXIES
The expenses of soliciting proxies to be voted at the Meeting will be paid
by the Company. Following the original mailing of the proxies and other
soliciting materials, the Company and/or its agents may also solicit proxies by
mail, telephone, telegraph or in person. Following the original mailing of the
proxies and other soliciting materials, the Company will request that brokers,
custodians, nominees and other record holders of the Company's Common Stock
forward copies of the proxy and other soliciting materials to persons for whom
they hold shares of Common Stock and request authority for the exercise of
proxies. In such cases, the Company, upon the request of the record holders,
will reimburse such holders for their reasonable expenses.
REVOCABILITY OF PROXIES
Any person signing a proxy in the form accompanying this Proxy Statement
has the power to revoke it prior to the Meeting or at the Meeting prior to the
vote pursuant to the proxy. A proxy may be revoked by a writing delivered to the
Company stating that the proxy is revoked, by a subsequent proxy that is signed
by the person who signed the earlier proxy and is presented at the Meeting, or
by attendance at the Meeting and voting in person. Please note, however, that if
a stockholder's shares are held of record by a broker, bank or other nominee and
that stockholder wishes to vote at the Meeting, the stockholder must bring to
the Meeting a letter from the broker, bank or other nominee confirming that
stockholder's beneficial ownership of the shares.
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PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
At the Meeting, stockholders will elect directors to hold office until the
next Annual Meeting of Stockholders and until their respective successors have
been elected and qualified or until such directors' earlier resignation or
removal. The size of the Company's Board of Directors (the "Board") is currently
set at seven members. Accordingly, seven nominees will be elected at the Meeting
to be the seven directors of the Company. If any nominee for any reason is
unable to serve, or for good cause, will not serve as a director, the proxies
may be voted for such substitute nominee as the proxy holder may determine. The
Company is not aware of any nominee who will be unable to or, for good cause,
will not serve as a director.
DIRECTORS/NOMINEES
The names of the nominees, and certain information about them, are set forth
below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- --------------- --- -------------------- --------
<S> <C> <C> <C>
James W. Ashbrook 54 Chairman of the Board of Directors 1991
of the Company
Warren M. Weiss 40 President and Chief Executive 1997
Officer of the Company
Kevin A. Fong(1) 43 Venture Capitalist 1992
Promod Haque(2) 48 Partner, Norwest Venture Capital 1993
E. Floyd Kvamme(1) 59 Venture Capitalist 1992
Nancy J. Schoendorf 42 Venture Capitalist 1993
Norris van den Berg(2) 58 Venture Capitalist 1992
</TABLE>
- -----------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. Ashbrook has been a director of the Company since September 1991 and
Chairman of the Board of Directors since March 1995. He also served as President
and Chief Executive Officer of the Company from June 1991 to February 1997. From
1985 to May 1991, Mr. Ashbrook was employed by AST Research, most recently as
Senior Vice President, Marketing, and from 1983 to 1984, Mr. Ashbrook served as
Vice President of Sales and Marketing for CXI, Inc., a marketer of high
performance hardware and software products. He has also held executive and
management positions at Momentum Computers, National Advanced Systems and
International Business Machines Corporation. Mr. Ashbrook holds Bachelor of
Science and Master of Science degrees in mechanical engineering from the
University of Illinois.
Mr. Weiss has been President, Chief Executive Officer and a director of the
Company since February 1997. From June 1996 to February 1997, he served as
President and Chief Operating Officer of SQRIBE Technologies, a provider of
server-based reporting solutions. From April 1995 to May 1996, Mr. Weiss served
as President and Chief Executive Officer of Strategic Mapping, Inc., a software
development company. From 1993 to 1994, Mr. Weiss was employed by NeXT Computer,
Inc., a computer systems company, most recently as Vice President, Worldwide
Sales and Service. He has also held senior management positions at Continuum
Systems, Inc. and Management Science America. Mr. Weiss holds a Bachelor of
Science degree in criminology from Western Illinois University.
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Mr. Fong has been a director of the Company since April 1992. He is
currently also a director of Legato Systems, Inc. and several privately held
companies. He has been a general partner of certain Mayfield Funds, venture
capital funds, since 1990. He holds a Bachelor of Science degree in electrical
engineering from the University of California and a Master of Business
Administration and a Master of Science degree in electrical engineering from
Stanford University.
Mr. Haque has been a director of the Company since April 1993. He is
currently also a director of Connect, Inc., Raster Graphics, Inc., Transaction
Systems Architects, Inc., Optical Sensors, Inc., Forte Software, Inc., and
several privately held companies. Mr. Haque joined Norwest Venture Capital
Management, Inc., a venture capital firm, in November 1990 and currently serves
as its Vice President. He is also a general partner of Itasca Partners and
Itasca Partners V, which are the general partners of Norwest Equity Partners IV
and Norwest Equity Partners V, respectively, Minnesota Limited Partnerships. He
holds a Bachelor of Science degree in electrical engineering from the University
of New Delhi, India and a Master of Science and Doctorate in electrical
engineering and a Master of Business Administration from Northwestern
University.
Mr. Kvamme has been a director of the Company since April 1992. He is
currently also a director of TriQuint Semiconductor, Inc., Harmonic Lightwaves,
Inc., Photon Dynamics, Inc., and several privately held companies He has been a
partner of Kleiner Perkins Caufield & Byers, a venture capital firm, since 1984.
He holds a Bachelor of Science degree in engineering from the University of
California and a Master of Science degree in engineering from Syracuse
University.
Ms. Schoendorf has served as a director of the Company since December 1993.
She has been a general partner of Mohr, Davidow Ventures, a venture capital
firm, since June 1993 and is a director of several privately held companies.
Prior to joining Mohr, Davidow Ventures, Ms. Schoendorf was an independent
consultant from June 1989 to June 1993. She holds a Bachelor of Science degree
in math and computer science from Iowa State University and a Master of Business
Administration from the University of Santa Clara.
Mr. van den Berg has been a director of the Company since April 1992. He
has been a general partner of JMI Equity Fund, L.P. since July 1991. From
1962 to June 1991, Mr. van den Berg was employed by International Business
Machines Corporation, most recently as Manager of Strategy and Marketing. He
holds a Bachelor of Science degree in philosophy and mathematics from the
University of Maryland.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
The Board met eight times, including telephone conference meetings, and
acted by written consent once during 1996. Each of the seven nominees for
election as directors attended at least 75% of the aggregate of the total number
of meetings of the Board which were held while he or she was a director and of
the total number of meetings of each of the committees of the Board on which he
or she served which were held while he or she was a member of such committee.
Standing committees of the Board include an Audit Committee and a
Compensation Committee. The Board does not have a nominating committee or a
committee performing similar functions.
Messrs. Haque and van den Berg are the current members of the Audit
Committee. The Audit Committee was established in February 1996 and met once
during 1996. The Audit Committee's purpose is to meet with the Company's
independent accountants to review the adequacy of the Company's internal control
systems and financial reporting procedures; review the general scope of the
Company's annual audit and the fees charged by the independent accountants;
review and monitor the performance of non-audit services by the Company's
auditors; review the fairness of any proposed transaction between any officer,
director or other affiliate of the Company and the Company, and after such
review, make
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recommendations to the full Board; and perform such further functions as may be
required by any stock exchange or over-the-counter market upon which the
Company's Common Stock may now or in the future be listed.
Messrs. Fong and Kvamme are the current members of the Compensation
Committee. The Compensation Committee was established in February 1996. The
Compensation Committee did not meet independently of the Board as a whole during
1996, but acted as a committee at five meetings of the Board during 1996. The
Compensation Committee's purpose is to review and approve compensation and
benefits for the Company's key executive officers, administer the Company's
stock purchase and equity incentive plans and report to the Board of Directors
regarding such matters.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF
EACH OF THE NOMINATED DIRECTORS
PROPOSAL NO. 2 - AMENDMENT TO THE 1996 EQUITY INCENTIVE PLAN
On March 18, 1997, the Board adopted, subject to stockholder approval, an
amendment to the Company's 1996 Equity Incentive Plan (the "Incentive Plan") to
increase the number of shares of Common Stock reserved for issuance thereunder
by 1,500,000 shares. The stockholders of the Company are now being asked to
approve such amendment.
The availability of additional awards under the Incentive Plan will
facilitate the Company's expansion of its employee base, both through new hiring
and acquisitions. Management believes that this amendment to the Incentive Plan
is in the best interests of the Company because of the continuing need to
provide incentives to attract and retain quality employees and remain
competitive in the industry.
Below is a summary of the principal provisions of the Incentive Plan
assuming approval of the amendment, which summary is qualified in its entirety
by reference to the full text of the Incentive Plan.
SUMMARY OF THE 1996 EQUITY INCENTIVE PLAN
EQUITY INCENTIVE PLAN HISTORY
The Board adopted, and the stockholders approved, the Incentive Plan in
January 1996. The purpose of the Incentive Plan is to provide incentives to
attract, retain and motivate qualified employees, officers, directors,
consultants, independent contractors and advisors whose present and potential
contributions are important to the success of the Company, by offering them an
opportunity to participate in the Company's future performance through awards of
stock options, restricted stock and stock bonuses.
SHARES SUBJECT TO THE INCENTIVE PLAN
The stock subject to issuance under the Incentive Plan consists of shares of
the Company's authorized but unissued Common Stock. The number of shares
currently reserved for issuance under the Incentive Plan is 2,000,000 shares.
This proposal No. 2 seeks to increase the number of shares reserved for issuance
under the Incentive Plan from 2,000,000 shares to 3,500,000 shares. If any
option granted pursuant to the Incentive Plan expires or terminates for any
reason without being exercised in whole or in part, or any award terminates
without being issued, or any award is forfeited or repurchased by the Company at
the original purchase price, the shares released from such award will again
become available for grant and purchase under the Incentive Plan. The number of
shares reserved for issuance under the Incentive Plan is subject to proportional
adjustment to reflect stock splits, stock dividends and other similar events.
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ADMINISTRATION
The Incentive Plan is administered by the Compensation Committee (the
"Committee"), the members of which are appointed by the Board. The Committee
currently consists of Messrs. Fong and Kvamme, both of whom are "non-employee
directors," as that term is defined in the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and "outside directors," as that term is defined
pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code").
Subject to the terms of the Incentive Plan, the Committee determines the
persons who are to receive awards, the number of shares subject to each such
award and the terms and conditions of each such award. The Committee has the
authority to construe and interpret any of the provisions of the Incentive Plan
or any awards granted thereunder. Members of the Compensation Committee are not
eligible to receive awards under the Incentive Plan.
ELIGIBILITY
Employees, officers, directors, consultants, independent contractors and
advisors of the Company (and of any parent, subsidiaries and affiliates) are
eligible to receive awards under the Incentive Plan. No person who receives an
award under the Incentive Plan (a "Participant") is eligible to receive more
than 500,000 shares of Common Stock in any calendar year under the Incentive
Plan, other than new employees of the Company (including directors and officers
who are also new employees) who are eligible to receive up to a maximum of
1,000,000 shares of Common Stock in the calendar year in which they commence
their employment with the Company. As of April 4, 1997, approximately 200
persons were eligible to participate in the Incentive Plan, 1,657 shares had
been issued upon the exercise of options under the Incentive Plan and 1,840,501
shares were subject to outstanding options under the Incentive Plan. As of that
date, 157,842 shares were available for future option grants (not including
the 1,500,000 additional shares by which the Incentive Plan is to be increased
under this proposal No. 2). The closing price of the Company's Common Stock on
the Nasdaq National Market on April 4, 1997 was $5.375 per share.
STOCK OPTIONS
The Incentive Plan permits the granting of options that are intended to
qualify either as Incentive Stock Options ("ISOs") or Nonqualified Stock Options
("NQSOs"). ISOs may be granted only to employees (including officers and
directors who are also employees) of the Company or any parent or subsidiary of
the Company.
The option exercise price for each ISO share must be no less than 100% of
the "fair market value" (as defined in the Incentive Plan) of a share of Common
Stock on the date the ISO is granted. In the case of an ISO granted to a 10%
stockholder, the exercise price for each such ISO share must be no less than
110% of the fair market value of a share of Common Stock on the date the ISO is
granted. The option exercise price for each NQSO share must be no less than 85%
of the fair market value of a share of Common Stock on the date of grant. To
date, the Company has not granted options under the Incentive plan at less than
fair market value.
The exercise price of options granted under the Incentive Plan may be paid
as approved by the Committee at the time of grant: (1) in cash (by check); (2)
by cancellation of indebtedness of the Company to the Participant; (3) by
surrender of shares of the Company's Common Stock (owned by the Participant for
at least six months if such shares were not obtained by the Participant in the
public market) having a fair market value on the date of surrender equal to the
aggregate exercise price of the option; (4) by tender of a full recourse
promissory note; (5) by waiver of compensation due to or accrued by the
Participant for services rendered; (6) by a "same-day sale" commitment from the
Participant and a
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National Association of Securities Dealers, Inc. ("NASD") broker; (7) by a
"margin" commitment from the Participant and a NASD broker; or (8) by any
combination of the foregoing.
TERMINATION OF OPTIONS
Options are generally exercisable for a period of 10 years. Options granted
under the Incentive Plan terminate three months (or such shorter or longer
period as determined by the Committee not exceeding five years) after the
Participant ceases to be employed or retained by the Company unless the
termination of employment is due to permanent and total disability or death, in
which case the option may, but need not, provide that it may be exercised at any
time within 12 months of termination to the extent the option was exercisable on
the date of termination. In no event will an option be exercisable after the
expiration date of the option.
RESTRICTED STOCK AWARDS
The Committee may grant Participants restricted stock awards to purchase
stock either in addition to, or in tandem with, other awards under the Incentive
Plan, under such terms, conditions and restrictions as the Committee may
determine. The purchase price for such awards must be no less than 85% of the
fair market value of the Company's Common Stock on the date of the award (and in
the case of an award granted to a 10% stockholder, the purchase price shall be
100% of the fair market value) and can be paid for in any of the forms of
consideration listed in items (1) through (5) in "Stock Options" above, as are
approved by the Committee at the time of grant. To date, the Company has not
granted any restricted stock awards.
STOCK BONUS AWARDS
The Committee may grant Participants stock bonus awards either in addition
to, or in tandem with, other awards under the Incentive Plan, under such terms,
conditions and restrictions as the Committee may determine. To date, the Company
has not granted any stock bonus awards.
MERGERS, CONSOLIDATIONS, CHANGE OF CONTROL
In the event of a merger, consolidation, dissolution or liquidation of the
Company, the sale of substantially all the assets of the Company or any other
similar corporate transaction, the successor corporation may assume, convert or
replace, or substitute equivalent awards for, awards granted under the Incentive
Plan or provide substantially similar consideration, shares or other property as
was provided to stockholders of the Company (after taking into account
provisions of the awards). In the event that the successor corporation, if any,
does not assume or substitute the awards awarded, such awards will accelerate in
full immediately prior to such transaction if such transaction occurs after
March 14, 1998, or shall expire at the time and upon the conditions as the Board
determines if such transaction occurs prior to March 14, 1998.
AMENDMENT OF THE INCENTIVE PLAN
The Board may at any time amend or terminate the Incentive Plan, including
amendment of any form of award agreement or instrument to be executed pursuant
to the Incentive Plan. However, the Board may not amend the Incentive Plan in
any manner that requires stockholder approval pursuant to the Code or the
regulations promulgated thereunder, or the Exchange Act or Rule 16b-3 (or its
successor) promulgated thereunder.
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TERM OF THE INCENTIVE PLAN
Unless terminated earlier as provided in the Incentive Plan, the Incentive
Plan will terminate in January 2006, ten (10) years from the date the Incentive
Plan was adopted by the Board.
FEDERAL INCOME TAX INFORMATION
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT OF
THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND PARTICIPANTS UNDER THE
INCENTIVE PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND LOCAL
TAX CONSEQUENCES FOR ANY PARTICIPANT WILL DEPEND UPON HIS OR HER INDIVIDUAL
CIRCUMSTANCES. EACH PARTICIPANT HAS BEEN, AND IS, ENCOURAGED TO SEEK THE ADVICE
OF A QUALIFIED TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PARTICIPATION IN
THE INCENTIVE PLAN.
Incentive Stock Options. A Participant will not recognize income upon grant
of an ISO and will not incur tax on its exercise (unless the Participant is
subject to the alternative minimum tax described below). If the Participant
holds the stock acquired upon exercise of an ISO (the "ISO Shares") for one year
after the date the option was exercised and for two years after the date the
option was granted, the Participant generally will realize long-term capital
gain or loss (rather than ordinary income or loss) upon disposition of the ISO
Shares. This gain or loss will be equal to the difference between the amount
realized upon such disposition and the amount paid for the ISO shares.
If the Participant disposes of ISO Shares prior to the expiration of either
required holding period (a "disqualifying disposition"), then gain realized upon
such disposition, up to the difference between the fair market value of the ISO
Shares on the date of exercise (or, if less, the amount realized on a sale of
such shares) and the option exercise price, generally will be treated as
ordinary income. Any additional gain will be long-term or short-term capital
gain, depending upon the amount of time the ISO Shares were held by the
Participant.
Alternative Minimum Tax. The difference between the fair market value of the
ISO shares on the date of exercise and the exercise price is an adjustment to
income for purposes of the alternative minimum tax (the "AMT"). The AMT (imposed
to the extent it exceeds the taxpayer's regular tax) is 26% of an individual
taxpayer's alternative minimum taxable income (28% in the case of alternative
minimum taxable income in excess of $175,000). Alternative minimum taxable
income is determined by adjusting regular taxable income for certain items,
increasing that income by certain tax preference items (including the difference
between the fair market value of the ISO shares on the date of exercise and the
exercise price) and reducing this amount by the applicable exemption amount
($45,000 in the case of a joint return, subject to reduction under certain
circumstances). If a disqualifying disposition of the ISO Shares occurs in the
same calendar year as exercise of the ISO, there is no AMT adjustment with
respect to those shares. Also upon a sale of ISO shares that is not a
disqualifying disposition, alternative minimum taxable income is reduced in the
year of sale by the excess of fair market value of the ISO shares at exercise
over the amount paid for the ISO shares. Special rules apply where all or a
portion of the exercise price is paid by tendering shares of Common Stock.
Nonqualified Stock Options. A Participant will not recognize any taxable
income at the time a NQSO is granted. However, upon exercise of a NQSO the
Participant will include in income as compensation an amount equal to the
difference between the fair market value of the shares on the date of exercise
and the Participant's exercise price. The included amount will be treated as
ordinary income by the Participant and may be subject to income tax and FICA
withholding by the Company (either by payment in cash or withholding out of the
Participant's salary). Upon resale of the shares by the Participant, any
subsequent appreciation or depreciation in the value of the shares will be
treated as
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capital gain or loss. Special rules apply where all or a portion of the exercise
price is paid by tendering shares of Common Stock.
Tax Treatment of the Company. The Company will be entitled to a deduction in
connection with the exercise of a NQSO by a Participant or the receipt of
restricted stock or stock bonuses by a Participant to the extent that the
Participant recognizes ordinary income and the Company withholds tax. The
Company will be entitled to a deduction in connection with the disposition of
ISO Shares only to the extent that the Participant recognizes ordinary income on
a disqualifying disposition of the ISO Shares.
ERISA
The Incentive Plan is not subject to any of the provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA") and is not qualified under
Section 401(a) of the Code.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT
TO THE 1996 EQUITY INCENTIVE PLAN
PROPOSAL NO. 3 - RATIFICATION OF SELECTION
OF INDEPENDENT ACCOUNTANTS
The Company has selected Coopers & Lybrand L.L.P. as its independent
accountants to perform the audit of the Company's financial statements for 1997,
and the stockholders are being asked to ratify such selection. Representatives
of Coopers & Lybrand L.L.P. are expected to be present at the Meeting, will have
the opportunity to make a statement at the Meeting if they desire to do so and
are expected to be available to respond to appropriate questions.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE SELECTION OF COOPERS & LYBRAND L.L.P.
9
<PAGE> 13
SUMMARY OF 1996 DIRECTORS STOCK OPTION PLAN
AND 1996 EMPLOYEE STOCK PURCHASE PLAN
Below is a summary of the principal provisions of the Company's 1996
Directors Stock Option Plan and 1996 Employee Stock Purchase Plan. There is no
need for stockholder approval of these plans at the Meeting, and none is being
sought. These summaries are provided to inform stockholders of the plans and are
qualified in their entirety by reference to the full text of
such plans.
1996 DIRECTORS STOCK OPTION PLAN
DIRECTORS PLAN HISTORY. The Board, adopted, and the stockholders approved, the
1996 Directors Stock Option Plan (the "Directors Plan") in January 1996 and
February 1996, respectively. The Board and the stockholders amended the
Directors Plan in February 1996.
SHARES SUBJECT TO THE DIRECTORS PLAN
The shares subject to options under the Directors Plan consists of shares of
the Company's authorized but unissued Common Stock. The aggregate number of
shares that may be issued pursuant to the Directors Plan is 300,000 shares of
Common Stock. In the event that any outstanding option under the Directors Plan
expires or is terminated for any reason, the shares of Common Stock allocable to
the unexercised portion of such option may again be available for the grant of
options under the Directors Plan. This number of shares is subject to
proportional adjustment to reflect stock splits, stock dividends and other
similar events.
ADMINISTRATION
The Directors Plan is presently administered by the Board. The
interpretation by the Board of any of the provisions of the Directors Plan or
any option granted under the Directors Plan will be final and conclusive.
ELIGIBILITY
Under the Directors Plan, the Company automatically grants options to each
director of the Company who is not an employee of the Company (or of any parent,
subsidiary or affiliate of the Company). Directors who are consultants or
independent contractors of the Company are eligible to participate in the
Directors Plan. As of April 4, 1997, five (5) persons were eligible to receive
options under the Directors Plan, 100,000 shares of Common Stock were subject to
outstanding options granted under the Directors Plan and 200,000 shares of
Common Stock were available for future grants under the Directors Plan.
FORMULA FOR OPTION GRANTS
Each non-employee director who was or becomes a member of the Board on or
after March 14, 1996, the effective date of the Company's initial public
offering of its Common Stock (the "Effective Date"), was or will be
automatically granted an option to purchase 20,000 shares of Common Stock under
the Directors Plan (the "Initial Grant"). Also, at each annual meeting of
stockholders of the Company, each non-employee director will be automatically
granted an additional option to purchase 10,000 shares of Common Stock under the
Directors Plan, so long as he or she continuously remains a director of the
Company (the "Succeeding Grant").
10
<PAGE> 14
TERMS OF OPTION GRANTS
The Directors Plan permits the granting of options that are intended to
qualify as NQSOs. Each Initial Grant and Succeeding Grant will have a term of
ten (10) years, unless terminated earlier due to the non-employee director's
termination as a director and consultant of the Company. Each Initial Grant or
Succeeding Grant will vest as to 25% of the shares subject to such grant upon
the first anniversary of the applicable grant date and as to 2.08% of the shares
on the last date of each month following such first anniversary, so long as the
non-employee director continuously remains a director or a consultant of the
Company. All options granted under the Directors Plan are immediately
exercisable, provided, however, that the Company reserves the right to
repurchase all unvested shares held by the director should the director cease to
be a director and consultant to the Company.
The option exercise price will be the "fair market value" (as defined in the
Directors Plan) of the Common Stock of the Company as of the date of the grant
of the option. The option exercise price will be payable in cash (by check) and
in a number of other forms of consideration, including fully paid shares of
Common Stock owned by the non-employee director for more than six (6) months, by
waiver of compensation due or accrued to the non-employee director for services
rendered, through a "same day sale," through a "margin commitment," or through
any combination of the foregoing.
MERGERS, CONSOLIDATIONS, CHANGE OF CONTROL
In the event of a merger or consolidation in which there is a substantial
change in the stockholders of the Company, dissolution or liquidation of the
Company or any other similar corporate transaction, the vesting of all options
granted pursuant to the Directors Plan will accelerate so that all outstanding
options will become vested in full prior to the consummation of such
transaction, and if such options are not exercised prior to the consummation of
such event, such options will terminate.
AMENDMENT OF THE DIRECTORS PLAN
The Board, to the extent permitted by law, and with respect to any shares at
the time not subject to options, may terminate or amend the Directors Plan;
provided, however, that the Board may not, without stockholder approval,
increase the total number of shares of Common Stock available for issuance under
the Directors Plan or change the class of persons eligible to receive options;
and provided further that no amendment may be made to the eligibility and award
formula or terms and conditions of options sections of the Directors Plan more
than once every six months, other than to comport with changes in the Code,
ERISA or the rules thereunder. In any case, no amendment of the Directors Plan
may adversely affect any then outstanding options or any unexercised portions
thereof without the written consent of the applicable non-employee director.
TERM OF THE DIRECTORS PLAN
Unless terminated earlier in accordance with the provisions of the Directors
Plan, the Directors Plan will terminate in January 2006, ten (10) years from the
date the Directors Plan was adopted by the Board.
FEDERAL INCOME TAX INFORMATION
For the federal income tax implications to the non-employee directors and
the Company of options granted under the Directors Plan, please refer to the
discussion of the tax implications of nonqualified stock options in "Federal
Income Tax Information" in the discussion of the Incentive Plan above.
11
<PAGE> 15
ERISA AND SECTION 401(a)
The Directors Plan is not subject to any of the provisions of ERISA and is
not qualified under Section 401(a) of the Code.
1996 EMPLOYEE STOCK PURCHASE PLAN
STOCK PURCHASE PLAN HISTORY
The Board adopted, and the stockholders approved, the Company's 1996
Employee Stock Purchase Plan (the "Stock Purchase Plan") in January 1996 and
February 1996, respectively. The Board amended the Stock Purchase Plan in
December 1996. The purpose of the Stock Purchase Plan is to provide employees of
the Company designated by the Board as eligible to participate ("Participating
Employees") with a convenient means of acquiring an equity interest in the
Company through payroll deductions and to provide an incentive for continued
employment.
SHARES SUBJECT TO STOCK PURCHASE PLAN
An aggregate of 500,000 shares of the Company's Common Stock has been
reserved by the Board for issuance under the Stock Purchase Plan.
ADMINISTRATION
The Stock Purchase Plan is administered by the Committee. The interpretation
or construction by the Committee of any provisions of the Stock Purchase Plan or
of any option granted under it will be final and binding on all Participating
Employees.
ELIGIBILITY
All employees of the Company, or of any of its subsidiaries, are eligible to
participate in an Offering Period (as hereinafter defined) under the Stock
Purchase Plan except the following:
(a) employees who are not employed by the Company, or any of its
subsidiaries, ten days before the beginning of such Offering
Period;
(b) employees who are customarily employed for less than twenty (20)
hours per week;
(c) employees who are customarily employed for less than five (5)
months in a calendar year; or
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to section 424(d) of the Code,
own stock or hold options to purchase stock or who, as a result of
participation in the Stock Purchase Plan, would own stock or hold
options to purchase stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the
Company or any of its subsidiaries.
(e) individuals who provide services to the Company as independent
contractors whether or not reclassified as common law employees,
unless the Company withholds or is required to withhold U.S. Federal
employment taxes for such individuals pursuant to Section 3402 of
the Code.
12
<PAGE> 16
As of April 4, 1996, approximately 200 persons were eligible to participate
in the Stock Purchase Plan, 112,805 shares of Common Stock had been issued
pursuant to the Stock Purchase Plan and 387,195 shares of Common Stock were
reserved for future issuance pursuant to the Stock Purchase Plan.
Each offering of Common Stock under the Stock Purchase Plan is generally for
a period of 24 months (the "Offering Period") presently commencing on February 1
and August 1 of each year and ending on July 31 and January 31 of each year. The
initial Offering Period commenced on March 15, 1996 and will end on March 31,
1998. Each Offering Period shall consist of four six-month purchase periods
(individually, a "Purchase Period") during which payroll deductions of the
Participating Employees are accumulated under the Stock Purchase Plan. The first
day of each Offering Period is the "Offering Date" for such Offering Period and
the last business day of each Purchase Period is the "Purchase Date" for such
Purchase Period. A Participating Employee cannot participate simultaneously in
more than one Offering Period. The Board has the power to change the duration of
Offering Periods or Purchase Periods without stockholder approval provided that
the change is announced at least fifteen (15) days prior to the scheduled
beginning of the first Offering Period or Purchase Period to be affected.
Participating Employees participate in the Stock Purchase Plan during each
Offering Period through payroll deductions. A Participating Employee sets the
rate of such payroll deductions, which may not be less than 2% nor more than 10%
of the Participating Employee's W-2 compensation, including, but not limited to,
base salary, wages, commissions, overtime, shift premiums, bonuses and draws,
unreduced by the amount by which the Participating Employee's salary is reduced
pursuant to Sections 125 or 401(k) of the Code, not to exceed $21,250 per any
calendar year or such other lower limit as set by the Committee.
Participating Employees may elect to participate in any Offering Period by
enrolling as provided under the terms of the Stock Purchase Plan. Once enrolled,
a Participating Employee will automatically participate in each succeeding
Offering Period unless the Participating Employee withdraws from the Offering
Period or the Stock Purchase Plan is terminated. After the rate of payroll
deductions for an Offering Period has been set by a Participating Employee, that
rate continues to be effective for the remainder of the Offering Period (and for
all subsequent Offering Periods in which the Participating Employee is
automatically enrolled) unless otherwise changed by the Participating Employee.
The Participating Employee may increase or lower the rate of payroll deductions
for any subsequent Offering Period, but may only lower the rate of payroll
deductions for an ongoing Offering Period. Not more than one change may be made
during a single Offering Period.
PURCHASE PRICE
The purchase price of shares that may be acquired in any Purchase Period
under the Stock Purchase Plan will be 85% of the lesser of: (i) the fair market
value of the shares on the Offering Date; or (ii) the fair market value of the
shares on the Purchase Date. The fair market value of a share of the Company's
Common Stock is the closing price of the Company's Common Stock on the Nasdaq
National Market on the date of determination as reported in The Wall Street
Journal, except that the fair market value of a share of the Company's Common
Stock on the Offering Date of the first Offering Period was the price per share
at which shares of the Company's Common Stock were offered for sale to the
public in the Company's initial public offering of shares of its Common Stock
pursuant to a registration statement filed with the SEC under the Securities
Act.
PURCHASE OF STOCK UNDER THE STOCK PURCHASE PLAN
On each Purchase Date, the number of whole shares a Participating Employee
will be able to purchase will be determined by dividing the total amount then
held in the Participating Employee's account pursuant to the Stock Purchase Plan
by the purchase price for each share determined as described above. No more than
twice the number of shares an employee would have been eligible to purchase at
85% of the fair market value of a share on the Offering Date may be purchased by
an employee if the fair
13
<PAGE> 17
market value of a share on the Purchase Date drops to less than one-half of the
fair market value on the Offering Date. At any time prior to thirty days before
the commencement of an Offering Period, the Board may set a maximum number of
shares which may be purchased by any employee participating in the Stock
Purchase Plan on any Purchase Date.
WITHDRAWAL
A Participating Employee may withdraw from any Offering Period. Upon
withdrawal, the accumulated payroll deductions will be returned to the withdrawn
Participating Employee, without interest. No further payroll deductions for the
purchase of shares will be made for the succeeding Offering Period unless the
Participating Employee enrolls in the new Offering Period in the same manner as
for initial participation in the Stock Purchase Plan.
AMENDMENT OF THE STOCK PURCHASE PLAN
The Board may at any time amend, terminate or extend the term of the Stock
Purchase Plan, except that any such termination cannot affect the terms of
options previously granted under the Stock Purchase Plan, nor may any amendment
make any change in the terms of options previously granted which would adversely
affect the right of any participant, nor may any amendment be made without
stockholder approval if such amendment would: (a) increase the number of shares
that may be issued under the Stock Purchase Plan; (b) change the designation of
the employees (or class of employees) eligible for participation in the Stock
Purchase Plan; or (c) constitute an amendment for which stockholder approval is
required in order to comply with Rule 16b-3 (or any successor rule) of the
Exchange Act.
TERM OF THE STOCK PURCHASE PLAN
The Stock Purchase Plan will terminate upon the earlier to occur of (a)
termination of the Stock Purchase Plan by the Board, (b) issuance of all the
shares of Common Stock reserved for issuance thereunder, or (c) ten (10) years
from the adoption of the Stock Purchase Plan by the Board.
FEDERAL INCOME TAX INFORMATION
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT
OF THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND EMPLOYEES
PARTICIPATING IN THE STOCK PURCHASE PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND
THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES FOR ANY PARTICIPATING EMPLOYEE
WILL DEPEND UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPATING
EMPLOYEE IS ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR REGARDING
THE TAX CONSEQUENCES FOR PARTICIPATION IN THE STOCK PURCHASE PLAN.
The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code.
Tax Treatment of the Participating Employee. Participating employees will
not recognize income for federal income tax purposes either upon enrollment in
the Stock Purchase Plan or upon the purchase of shares. All tax consequences are
deferred until a Participating Employee sells the shares, disposes of the shares
by gift or dies.
If shares are held for more than one year after the date of purchase and
more than two years from the beginning of the applicable Offering Period, or if
the Participating Employee dies while owning the shares, the Participating
Employee realizes ordinary income on a sale (or a disposition by way of gift or
upon death) to the extent of the lesser of (i) 15% of the fair market value of
the shares at the beginning of
14
<PAGE> 18
the Offering Period or (ii) the actual gain (the amount by which the market
value of the shares on the date of sale, gift or death exceeds the purchase
price). All additional gain upon the sale of the shares is treated as long-term
capital gain. If the shares are sold and the sale price is less than the
purchase price, there is no ordinary income and the Participating Employee has a
long-term capital loss for the difference between the sale price and the
purchase price.
If the shares are sold or are otherwise disposed of including by way of
gift (but not death, bequest or inheritance) (in any case a "disqualifying
disposition") within either the one year or the two year holding periods
described above, the Participating Employee realizes ordinary income at the time
of sale or other disposition taxable to the extent that the fair market value of
the shares at the date of purchase is greater than the purchase price. This
excess will constitute ordinary income (currently not subject to withholding) in
the year of the sale or other disposition even if no gain is realized on the
sale or if a gratuitous transfer is made. The difference, if any, between the
proceeds of the sale and the fair market value of the shares at the date of
purchase is a capital gain or loss. Capital gains continue to be offset by
capital losses and up to $3,000 of capital losses may be used annually against
ordinary income.
Tax Treatment of the Company. The Company will be entitled to a deduction
in connection with the disposition of shares acquired under the Stock Purchase
Plan only to the extent that the Participating Employee recognizes ordinary
income on a disqualifying disposition of the shares. The Company will treat any
transfer of record ownership of shares as a disposition, unless it is notified
to the contrary. In order to enable the Company to learn of disqualifying
dispositions and ascertain the amount of the deductions to which it is entitled,
Participating Employees will be required to notify the Company in writing of the
date and terms of any disposition of shares purchased under the Stock Purchase
Plan.
ERISA AND SECTION 401(a)
The Stock Purchase Plan is not subject to any of the provisions of ERISA and
is not qualified under Section 401(a) of the Code.
15
<PAGE> 19
NEW PLAN BENEFITS
The amounts of future option grants under the Incentive Plan to (i) the
Company's Chief Executive Officer; (ii) the Company's four most highly
compensated executive officers (other than the Chief Executive Officer) who were
serving as executive officers at the end of fiscal 1996 (together, the "Named
Executive Officers"); (iii) all current executive officers as a group; (iv) all
current directors who are not executive officers as a group; and (v) all
employees, including all officers who are not executive officers, as a group,
are not determinable because, under the terms of the Incentive Plan, such grants
are made in the discretion of the Committee or its designees. Future option
exercise prices under the Incentive Plan are not determinable because they are
based upon the fair market value of the Company's Common Stock on the date of
grant. Future option grants under the Directors Plan are determined as set forth
in the description of the Directors Plan above; future option exercise prices
under the Directors Plan are not determinable because they are based upon the
fair market value of the Company's Common Stock on the date of grant. Future
purchases under the Stock Purchase Plan are not determinable because they are
based on participant contributions.
16
<PAGE> 20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 4, 1997,
known to the Company regarding the beneficial ownership of the Company's Common
Stock by (i) each person known by the Company to be the beneficial owner of more
than 5% of the Company's Common Stock, (ii) each director and nominee, (iii)
each Named Executive Officer (as defined under "Executive Compensation") and
(iv) all executive officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL OUTSTANDING
NAME OF BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK(1)
- ------------------------ ------------ ---------------
<S> <C> <C>
Kevin Fong
Mayfield Funds(2) .................. 2,072,787 15.5%
E. Floyd Kvamme
KPCB VI Associates(3) .............. 2,068,545 15.4
Promod Haque
Norwest Equity Partners Funds (4) .. 1,837,750 13.7
Nancy Schoendorf
Mohr Davidow Ventures III(5) ....... 1,150,484 8.6
Norris van den Berg
JMI Equity Fund, L.P.(6) ........... 752,284 5.6
Cynthia F. Schmidt(7) ................. 530,187 4.0
James W. Ashbrook(8) .................. 532,543 4.0
Donald N. Taylor(9) ................... 78,646 *
Warren M. Weiss (10) .................. 67,710 *
William B. Binch(11) .................. 45,202 *
Philip M. Sakakihara(12) .............. 43,865 *
All executive officers and directors as
a group (12 persons)(13) ........... 9,289,003 67.6
</TABLE>
- ------------
* Less than 1%
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Common Stock subject to options that are currently exercisable or
exercisable within 60 days of April 4, 1997 are deemed to be outstanding
and to be beneficially owned by the person holding such options for the
purpose of computing the percentage ownership of such person but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Represents (i) 1,835,796 shares held of record by Mayfield VI, (ii) 130,558
shares held of record by Mayfield Software Technology Partners, (iii)
81,930 shares held of record by Mayfield Associates (iv) 4,503 shares held
of record by Mr. Fong and (v) 20,000 shares subject to immediately
exercisable options held by Mr. Fong. Mayfield VI, Mayfield Software
Technology Partners and Mayfield Associates are limited partnerships with
some overlap of general partners. Kevin Fong, a director of the Company, is
a general partner of Mayfield VI Management, which is the general partner
of Mayfield VI, which is the general partner of Mayfield Software
Technology Partners and a limited partner of Mayfield Associates. Mr. Fong
disclaims beneficial ownership of shares held by the Mayfield funds except
as to his proportional ownership interest therein. The address of Mr. Fong
and the Mayfield funds is 2800 Sand Hill Road, Menlo Park, California
94025.
(3) Represents (i) 2,048,283 shares held of record by Kleiner Perkins Caufield
& Byers VI, (ii) 262 shares held of record by Mr. Kvamme and (iii) 20,000
shares subject to immediately exercisable options held by Mr. Kvamme. E.
Floyd Kvamme, a director of the Company, is a general partner of
17
<PAGE> 21
KPCB VI Associates, which is the general partner of Kleiner Perkins
Caufield & Byers VI. The address of Mr. Kvamme, KPCB VI Associates and
Kleiner Perkins Caufield & Byers VI is 2750 Sand Hill Road, Menlo Park,
California 94025.
(4) Represents (i) 1,811,750 shares held of record by Norwest Equity Partners
IV, (ii) 6,000 shares held of record by Norwest Equity Partners V and (iii)
20,000 shares subject to immediately exercisable options held by Mr. Haque.
Promod Haque, a director of the Company, is a general partner of Itasca
Partners and Itasca Partners V, which are the general partners of Norwest
Equity Partners IV and Norwest Equity Partners V, respectively. Mr. Haque
disclaims beneficial ownership of shares held by the Norwest Equity
Partners funds except as to his proportional pecuniary interest therein.
The address of Mr. Haque, and the Norwest Equity Partners funds is 3000
Sand Hill Road, Building 3, #105, Menlo Park, California 94025.
(5) Represents (i) 1,130,484 shares held of record by Mohr, Davidow Ventures
III and (ii) 20,000 shares subject to immediately exercisable options held
by Ms. Schoendorf. Nancy Schoendorf, a director of the Company, is a
general partner of WLPJ Partners, which is the general partner of Mohr,
Davidow Ventures III. Ms. Schoendorf disclaims beneficial ownership of
shares held by Mohr, Davidow Ventures III except as to her proportional
ownership interest therein. The address of Ms. Schoendorf, WLPJ Partners
and Mohr, Davidow Ventures III is 300 Sand Hill Road, Building 1, Suite
240, Menlo Park, California 94025.
(6) Represents (i) 732,284 shares held of record by JMI Equity Fund, L.P. and
(ii) 20,000 shares subject to immediately exercisable options held by Mr.
van den Berg. Norris van den Berg, a director of the Company, is a
general partner of JMI Equity Fund L.P. The address of Mr. van den Berg
and JMI Equity Fund, L.P. is P.O. Box 18181, 520 Gonowabie Road, Crystal
Bay, Nevada 89402.
(7) Represents 530,187 shares held of record by the Schmidt Family Trust
dated December 29, 1995. Ms. Schmidt shares voting and investment power
over these shares with her co-trustee of the Schmidt Family Trust.
(8) Represents 532,074 shares held of record by the James W. Ashbrook and Melba
J. Ashbrook Living Trust dated May 2, 1991 and 469 shares of Common Stock
subject to fully exercisable options held by Melba Jean Ashbrook, Mr.
Ashbrook's spouse.
(9) Includes 78,646 shares subject to options that are currently exercisable or
exercisable within 60 days of April 4, 1997.
(10) Includes 67,710 shares subject to options that are currently exercisable or
exercisable within 60 days of April 4, 1997.
(11) Includes 39,202 shares subject to options that are currently exercisable or
exercisable within 60 days of April 4, 1997.
(12) Includes 43,865 shares subject to options that are currently exercisable or
exercisable within 60 days of April 4, 1997.
(13) Includes 364,892 shares of Common Stock subject to options that are
currently exercisable or exercisable within 60 days of April 4, 1997.
18
<PAGE> 22
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to or earned or
paid for services rendered in all capacities to the Company during each of 1995
and 1996 by the Company's Chief Executive Officer and the Company's four other
most highly compensated executive officers who were serving as executive
officers at the end of 1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------------ --------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS (2) COMPENSATION(3) OPTIONS COMPENSATION(4)
- --------------------------- ---- ---------- --------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James W. Ashbrook, Chairman of 1996 $ 173,675 $ 50,000 -- -- $ 442
the Board of Directors and 1995 164,400 20,000 -- 300,000 --
Former President and Chief
Executive Officer(5)
Donald N. Taylor, Vice President, 1996 142,920 156,514 $ 23,914 25,000 --
International 1995 58,405 22,516 2,604 75,000 --
Philip M. Sakakihara, Vice 1996 175,000 35,000 -- 70,000 --
President, Development 1995 5,272 -- -- 80,000 --
William B. Binch, Vice President, 1996 137,397 54,012 -- 95,000 --
North American Field 1995 -- -- -- -- --
Operations
Cynthia F. Schmidt, Vice President, 1996 138,125 20,000 -- -- 625
Marketing 1995 122,883 15,000 -- 30,000 --
</TABLE>
- ---------------------
(1) Warren M. Weiss, who joined the Company in February 1997 as President and
Chief Executive Officer is compensated at an annual salary rate of
$250,000 and received a signing bonus of $50,000 in February 1997. He is
also eligible to receive an annual bonus of $100,000.
(2) Includes sales draws and commissions earned.
(3) Represents car allowances paid by the Company.
(4) Represents life insurance premiums paid by the Company.
(5) Mr. Ashbrook served as President and Chief Executive Officer of the
Company until February 1997.
The following table sets forth further information regarding the option
grants pursuant to the Company's Incentive Plan during 1996 to each of the
Named Executive Officers. In accordance with the rules of the Securities and
Exchange Commission, the table sets forth the hypothetical gains or "option
spreads" that would exist for the options at the end of their respective
ten-year terms. These gains are based on assumed rates of annual compound stock
price appreciation of 5% and 10% from the date the option was granted to the
end of the option term.
19
<PAGE> 23
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO TERM (2)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------------
NAME GRANTED(1) FISCAL 1996 PER SHARE DATE 5% 10%
- -------------------- ---------- ------------ -------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
James W. Ashbrook .. -- -- -- -- -- --
Donald N. Taylor ... 25,000 1.5% $ 4.875 10/30/06 $ 76,647 $194,237
Philip M. Sakakihara 10,000 0.6 14.000 7/18/06 88,045 223,124
60,000 3.3 4.875 10/30/06 183,952 466,170
William B. Binch ... 53,333 2.9 7.500 1/17/06 251,556 637,493
16,667 0.9 7.500 1/17/06 78,613 199,222
25,000 1.5 4.875 10/30/06 76,647 194,237
Cynthia F. Schmidt . -- -- -- -- -- --
</TABLE>
- -----------
(1) Options granted under the Incentive Plan and its predecessor, the Company's
1992 Stock Option Plan, in 1996 generally have been incentive stock options
or nonqualified stock options that were granted at fair market value and
that become exercisable as they vest over a four-year period so long as the
individual is employed by the Company, except for an option to purchase
16,667 shares of the Company's Common Stock granted to William B. Binch in
January 1996, which was immediately exercisable but subject to a repurchase
right which lapses over four years. Options expire ten years from the date
of grant.
(2) The 5% and 10% assumed annual compound rates of stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of future Common Stock
prices.
In February 1997, the Company issued two options to purchase an aggregate
of 700,000 shares of Common Stock to Warren M. Weiss at an exercise price of
$8.25 per share.
No options were exercised by any of the Named Executive Officers during
fiscal 1996. The following table shows the number of shares covered by both
exercisable and unexercisable stock options held by Named Executive Officers as
of December 31, 1996. Also reported are values of "in-the-money" options that
represent the positive spread between the respective exercise prices of
outstanding stock options and $8.25 per share, which was the closing price of
the Company's Common Stock as reported on the Nasdaq National Market on December
31, 1996.
1996 FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END (1)
---------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James W. Ashbrook .. -- -- -- --
Donald N. Taylor ... 76,041 23,959 $507,263 $ 80,862
Philip M. Sakakihara 28,998 121,002 78,444 344,056
William B. Binch ... 31,041 63,959 26,013 110,862
Cynthia F. Schmidt . -- -- -- --
</TABLE>
- -----------
20
<PAGE> 24
(1) These values have not been, and may never be, realized and are based on
the positive spread between the respective exercise prices of outstanding
options and the closing price of the Company's Common Stock on December
31, 1996, the last day of trading for the fiscal year.
DIRECTOR COMPENSATION
Directors of the Company do not receive fees for attending meetings of the
Company's Board of Directors. All members of the Board of Directors who are not
also employees of the Company, or of a parent, subsidiary or affiliate of the
Company, are eligible to receive options under the Directors Plan. During 1996,
Kevin Fong, E. Floyd Kvamme, Promod Haque, Nancy Schoendorf and Norris van den
Berg each received an option to purchase 20,000 shares of Common Stock at an
exercise price of $17.00 per share. For a discussion of the provisions of the
Directors Plan, please refer to "1996 Directors Stock Option Plan" above.
EMPLOYMENT AGREEMENTS
The Company is party to employment agreements with James W. Ashbrook and
Cynthia F. Schmidt, each dated as of March 27, 1992, providing for initial
annual salaries of $164,000 and $78,000, respectively. The Company is also party
to employment agreements with Donald N. Taylor, Philip M. Sakakihara and William
B. Binch, dated July 10, 1995, December 8, 1995 and December 22, 1995,
respectively, providing for annual salaries of $137,500, $175,000 and $140,000,
respectively. Messrs. Taylor and Binch are eligible to receive up to $87,500 and
$100,000, respectively, in bonuses and commissions under their agreements. Mr.
Taylor also receives a car allowance and contributions of up to 5% of his
earnings to a defined pension plan. All of these employment agreements provide
for full-time employment and may be terminated by the Company or the respective
officer at any time for any reason by giving 30 days' written notice to the
other party. Upon termination by the Company, the respective officer will be
entitled to any unpaid compensation accrued through the effective date of the
his or her termination. If any of these officers is terminated by the Company
other than for cause, the Company will provide the terminated officer with a
severance payment equivalent to six months' salary, payable monthly, plus
medical insurance coverage in certain cases, provided, however, that such
payment is subject to re-employment limitations in certain cases.
The Company is also party to a letter agreement dated January 23, 1997 with
Warren M. Weiss, the Company's President and Chief Executive Officer, which
provides for Mr. Weiss to receive an annual salary of $250,000. Mr. Weiss also
received a $50,000 bonus upon the commencement of his employment with the
Company in February 1997 and is eligible to receive a bonus of up to $100,000
annually upon achievement of certain objectives. Mr. Weiss also received an
option to purchase 650,000 shares of Common Stock which vests and becomes
exercisable monthly over four years, as well as an option to purchase 50,000
shares of Common Stock which becomes exercisable upon the earlier of (i) the
Company's Common Stock having a closing price in excess of $25.00 per share for
more than 30 consecutive trading days, or (ii) eight years after the date of
grant of the option, subject in any event to a lapsing right of repurchase if
exercised prior to four years after the date of grant of the option. If Mr.
Weiss is terminated by the Company other than for cause, the Company will
provide Mr. Weiss with a severance payment equivalent to twelve months' salary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Directors Fong and Kvamme are the members of the Compensation Committee. No
interlocking relationships exist between the Company's Board of Directors or
Compensation Committee and the board of directors or compensation committee of
any other company.
21
<PAGE> 25
REPORT OF THE COMPENSATION COMMITTEE
Final decisions regarding executive compensation and stock option grants to
executives are made by the Compensation Committee of the Board of Directors (the
"Committee"). The Committee is composed of two independent non-employee
Directors, neither of whom have any interlocking relationships as defined by the
SEC.
GENERAL COMPENSATION POLICY
The Committee acts on behalf of the Board to establish the general
compensation policy of the Company for all employees of the Company. The
Committee typically reviews base salary levels and target bonuses for the Chief
Executive Officer ("CEO") and other executive officers and employees of the
Company at or about the beginning of each fiscal year. The Committee administers
the Company's incentive and equity plans, including the 1996 Equity Incentive
Plan (the "Incentive Plan"), the 1996 Employee Bonus Plan (the "Bonus Plan") and
the 1996 Employee Stock Purchase Plan.
The Committee's philosophy in compensating executive officers, including the
CEO, is to relate compensation directly to corporate performance. Thus, the
Company's compensation policy, which applies to management and other key
employees of the Company, relates a portion of each individual's total
compensation to the Company-wide management and individual objectives and profit
objectives set forth at the beginning of the Company's fiscal year. Consistent
with this policy, a designated portion of the compensation of the executive
officers of the Company is contingent on corporate performance and, in the case
of certain executive officers, adjusted based on the individual officer's
performance as measured against personal objectives established under the Bonus
Plan, as determined by the Committee in its discretion. Long-term equity
incentives for executive officers are effected through the granting of stock
options under the 1996 Plan. Stock options generally have value for the
executive only if the price of the Company's stock increases above the fair
market value on the grant date and the executive remains in the Company's employ
for the period required for the shares to vest.
The base salaries, incentive compensation and stock option grants of the
executive officers are determined in part by the Committee informally reviewing
data on prevailing compensation practices in technology companies with whom the
Company competes for executive talent and by their evaluating such information
in connection with the Company's corporate goals. To this end, the Committee
compared the compensation of the Company's executive officers with the
compensation practices of comparable companies to determine base salary, target
bonuses and target total cash compensation using the Hambrecht & Quist
technology company survey and the Radford survey. In addition to their base
salaries, the Company's executive officers, including the CEO, are each eligible
to receive a cash bonus under the Bonus Plan and are entitled to participate in
the 1996 Plan.
In preparing the performance graph for this Proxy Statement, the Company
used the Hambrecht & Quist High Technology Index ("H & Q Stock Index") as its
published line of business index. The compensation practices of most of the
companies in the H & Q Stock Index were not reviewed by the Company when the
Committee reviewed the compensation information described above because such
companies were determined not to be competitive with the Company for executive
talent.
FISCAL 1995 EXECUTIVE COMPENSATION
Base Compensation. The Committee reviewed the recommendations and
performance and market data outlined above and established a base salary level
to be effective February 1, 1996 for each executive officer, including the CEO.
Incentive Compensation. Under the Bonus Plan, cash bonuses are awarded only
if an executive officer achieved predetermined individual performance goals and
the Company met predetermined
22
<PAGE> 26
corporate objectives set by the Board at the beginning of the year. The CEO's
subjective judgment of executives' performance (other than his own) is taken
into account in determining whether those goals have been satisfied. The
objectives used by the Company as the basis for incentive compensation were
based 25% on Company-wide management objectives and individual objectives and
75% on revenue and profits. The target amount of bonus and the actual amount of
bonus are determined by the Committee, in its discretion after consultation with
the CEO.
Stock Options. In fiscal 1996 stock options were granted to certain
executive officers as incentives for them to become employees or to aid in the
retention of executive officers and to align their interests with those of the
stockholders. Generally, for current executive officers, the stock option grants
were smaller than the grants made by comparable technology companies. Stock
options typically have been granted to executive officers when the executive
first joins the Company in connection with a significant change in
responsibilities and, occasionally, to achieve equity within a peer group. The
Committee may, however, grant additional stock options to executives for other
reasons. The number of shares subject to each stock option granted is within the
discretion of the Committee and is based on anticipated future contribution and
ability to impact corporate and/or business unit results, past performance or
consistency within the executive's peer group. In fiscal 1996, the Committee
considered these factors, as well as the number of options held by such
executive officers as of the date of grant that remained unvested. In the
discretion of the Committee, executive officers may also be granted stock
options under the 1996 Plan to provide greater incentives to continue their
employment with the Company and to strive to increase the value of the Company's
Common Stock. The stock options generally become exercisable over a four-year
period and are granted at a price that is equal to the fair market value of the
Company's Common Stock on the date of grant.
For fiscal 1997 the Committee will be considering whether to grant future
options under the 1996 Plan to executive officers based on the factors described
above, with particular attention to the Company-wide management objectives and
the executive officers' success in obtaining specific individual financial and
operational objectives established or to be established for fiscal 1997 to the
Company's profit expectations and to the number of options currently held by the
executive officers that remain unvested.
Company Performance and CEO Compensation. Mr. Ashbrook was responsible for
the Company obtaining a significant portion of its objectives for fiscal 1996.
These objectives included satisfactorily managing the Company's initial public
offering and overall corporate business plan, such as meeting the Company's
revenue growth and the Company's profitability targets, and significantly
strengthening the Company's market position. Based upon the criteria set forth
under the discussion of Incentive Compensation above, the Committee awarded Mr.
Ashbrook incentive compensation of $50,000. This figure represents 84% of the
target bonus for Mr. Ashbrook. Mr. Ashbrook did not receive any stock options in
fiscal 1996. The Committee reviewed the compensation practices of comparable
companies in making these awards to Mr.
Ashbrook.
1996 Option Repricing Program. Competition for skilled engineers and other
key employees in the software industry is intense and the use of significant
stock options for retention and motivation of such personnel is widespread in
the high technology industries. The Committee believes that stock options are a
critical component of the compensation offered by the Company to promote
long-term retention of key employees, motivate high levels of performance and
recognize employee contributions in the success of the Company. The market price
of the Company's common stock decreased in 1996 from a high of $36.75 in May
1996 to a low of $4.25 in October 1996. In light of this substantial decline in
market price, the Committee believed that the outstanding stock options with an
exercise price in excess of the actual market price were no longer an effective
tool to encourage employee retention or to motivate high levels of performance.
As a result, on October 31, 1996, the Committee approved an option repricing
program.
23
<PAGE> 27
All employees, other than executive officers, were eligible to participate
under the program. Eligible optionees were permitted to exchange all outstanding
options that were granted under the 1996 Plan, whether vested or unvested, with
exercise prices that were equal to or greater than the closing price of the
Company's common stock on October 31, 1996 on a one-for-one basis for new
options at an exercise price equal to the closing price of the Company's common
stock on October 31, 1996. The vesting schedule for each installment of any new
options were not affected.
Compliance with Section 162(m) of the Internal Revenue Code of 1986. The
Company intends to comply with the requirements of Section 162(m) of the
Internal Revenue Code of 1986. The 1996 Plan is already in compliance with
Section 162(m) by limiting stock awards to named executive officers. The Company
does not expect cash compensation for 1996 to be in excess of $1,000,000 or
consequently affected by the requirements of Section 162(m).
COMPENSATION COMMITTEE
FLOYD KVAMME
KEVIN FONG
24
<PAGE> 28
COMPANY STOCK PRICE PERFORMANCE
The stock price performance graph below is required by the SEC and shall not
be deemed to be incorporated by reference by any general statement incorporating
by reference this Proxy Statement into any filing under the Securities Act of
1933, as amended, or under the Securities Exchange Act of 1934, as amended,
except to the extent that the Company specifically incorporates this information
by reference, and shall not otherwise be deemed soliciting material or filed
under such Acts.
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company from the first day of trading of the Company's
Common Stock upon the Company's initial public offering (March 15, 1996) to
December 31, 1996 with the cumulative total return on the Nasdaq Stock Market
and the Hambrecht & Quist Technology Index (assuming the investment of $100 in
the Company's Common Stock and in each of the indexes on the date of the
Company's initial public offering, and reinvestment of all dividends).
[GRAPH]
The above graph was plotted using the following data:
<TABLE>
<CAPTION>
NASDAQ STOCK MARKET HAMBRECHT & QUIST
----------------------------- ---------------------------
PRISM SOLUTIONS, INC. COMPOSITE INDEX TECHNOLOGY INDEX
------------------------------ ----------------------------- ---------------------------
MARKET PRICE INVESTMENT VALUE INDEX INVESTMENT VALUE INDEX INVESTMENT VALUE
------------ ---------------- ------- ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
03/15/96 $ 24.50 $100.00 361.001 $100.00 807.69 $100.00
03/31/96 26.50 108.16 361.864 100.24 790.50 97.87
04/30/96 32.63 133.16 391.879 108.55 876.73 108.55
05/31/96 35.50 144.90 409.872 113.54 888.94 110.06
06/30/96 23.50 95.92 391.401 108.42 826.80 102.37
07/31/96 13.50 55.10 356.543 98.77 748.15 92.63
08/31/96 15.63 63.78 376.521 104.30 792.53 98.12
09/30/96 9.38 38.27 405.339 112.28 880.39 109.00
10/31/96 4.94 20.16 400.897 111.05 865.38 107.14
11/30/96 7.56 30.87 425.742 117.93 950.86 117.73
12/31/96 8.25 33.67 425.258 117.80 929.94 115.14
</TABLE>
25
<PAGE> 29
CERTAIN TRANSACTIONS
Since January 1, 1996, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or is
to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer, holder of more than 5% of the Company's Common
Stock had or any member of the immediate family of the foregoing persons or will
have a direct or indirect material interest other than (i) normal compensation
arrangements, which are described under "Executive Compensation" above, and (ii)
the items listed below:
In August 1995, the Company accepted a promissory note secured by a stock
pledge agreement (the "Note") from James W. Ashbrook, Chairman of the Board, in
the principal amount of $80,670 as partial payment for the exercise of options
to purchase 413,408 shares of Common Stock. The principal balance on the Note
and that interest that accrues at a rate of 8% per annum, compounded annually,
are payable in full by August 2005.
STOCKHOLDER PROPOSALS
Proposals of Stockholders intended to be presented at the Company's 1998
Annual Meeting of Stockholders must be received by the Company at its principal
executive offices no later than December 19, 1997 in order to be included in the
Company's Proxy Statement and form of proxy relating to the meeting.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and certain of its officers, and persons who own more than
10% of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the SEC. Such persons are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms that
they file.
Based solely on its review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements for the year
ended December 31, 1996 were met, except that Philip M. Sakakihara, the
Company's Vice President, Development, reported the acquisition of an option to
purchase 10,000 shares of Common Stock on a Form 5 filed on March 6, 1997, more
than 45 days after the end of the Company's fiscal year.
OTHER BUSINESS
The Board does not presently intend to bring any other business before the
Meeting, and, so far as is known to the Board, no matters are to be brought
before the Meeting except as specified in the Notice of the Meeting. As to any
business that may properly come before the Meeting, however, it is intended that
proxies, in the form enclosed, will be voted in respect thereof in accordance
with the judgment of the persons voting such proxies.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE PAID
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
26
<PAGE> 30
PRISM SOLUTIONS, INC.
1996 EQUITY INCENTIVE PLAN
As Adopted January 18, 1996 and Amended through March 18, 1997
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent,
Subsidiaries and Affiliates, by offering them an opportunity to participate in
the Company's future performance through awards of Options, Restricted Stock and
Stock Bonuses. Capitalized terms not defined in the text are defined in Section
23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 18,
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 3,500,000 Shares. Subject to Sections 2.2 and 18,
Shares that: (a) are subject to issuance upon exercise of an Option but cease to
be subject to such Option for any reason other than exercise of such Option; (b)
are subject to an Award granted hereunder but are forfeited or are repurchased
by the Company at the original issue price; or (c) are subject to an Award that
otherwise terminates without Shares being issued will again be available for
grant and issuance in connection with future Awards under this Plan. At all
times the Company shall reserve and keep available a sufficient number of Shares
as shall be required to satisfy the requirements of all outstanding Options
granted under this Plan and all other outstanding but unvested Awards granted
under this Plan.
2.2 Adjustment of Shares. In the event that the number of
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of the Company or any Parent, Subsidiary or Affiliate of the
Company; provided such consultants, contractors and advisors render bona fide
services not in connection with the offer and sale of securities in a
capital-raising transaction. No person will be eligible to receive more than
500,000 Shares in any calendar year under this Plan pursuant to the grant of
Awards hereunder, other than new employees of the Company or of a Parent,
Subsidiary or Affiliate of the Company (including new employees who are also
officers and directors of the Company or any Parent, Subsidiary or Affiliate of
the Company) who are eligible to receive up to a maximum of 1,000,000 Shares in
the calendar year in which they commence their employment. A person may be
granted more than one Award under this Plan.
<PAGE> 31
Prism Solutions, Inc.
1996 Equity Incentive Plan
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject
to Awards;
(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent, Subsidiary or
Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company the
authority to grant an Award under this Plan to Participants who are not Insiders
of the Company.
4.3 Exchange Act Requirements. If two or more members of the
Board are Outside Directors, the Committee will be comprised of at least two (2)
members of the Board, all of whom are Outside Directors and Disinterested
Persons. During all times that the Company is subject to Section 16 of the
Exchange Act, the Company will take appropriate steps to comply with the
disinterested administration requirements of Section 16(b) of the Exchange Act,
which will consist of the appointment by the Board of a Committee consisting of
not less than two (2) members of the Board, each of whom is a Disinterested
Person.
5. OPTIONS. The Committee may grant Options to eligible persons and
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISOS") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
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<PAGE> 32
Prism Solutions, Inc.
1996 Equity Incentive Plan
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable immediately
(subject to repurchase pursuant to Section 12 of this Plan) or may be
exercisable within the times or upon the events determined by the Committee as
set forth in the Stock Option Agreement governing such Option; provided,
however, that no Option will be exercisable after the expiration of ten (10)
years from the date the Option is granted; and provided further that no ISO
granted to a person who directly or by attribution owns more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any Parent or Subsidiary of the Company ("TEN PERCENT STOCKHOLDER") will
be exercisable after the expiration of five (5) years from the date the ISO is
granted. The Committee also may provide for the exercise of Options to become
exercisable at one time or from time to time, periodically or otherwise, in such
number of Shares or percentage of Shares as the Committee determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth
in the Stock Option Agreement, exercise of an Option will always be subject to
the following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such
Participant's Options only to the extent that such Options
would have been exercisable upon the Termination Date no later
than three (3) months after the Termination Date (or such
shorter or longer time period not exceeding five (5) years as
may be determined by the Committee, with any exercise beyond
three (3) months after the Termination Date deemed to be an
NQSO), but in any event, no later than the expiration date of
the Options.
(b) If the Participant is Terminated because of Participant's death
or Disability (or the Participant dies within three (3) months
after a Termination other than because of Participant's death
or disability), then Participant's Options may be exercised
only to the extent that such Options would have been
exercisable by Participant on the Termination Date and must be
exercised by Participant (or Participant's legal representative
or authorized assignee) no later than twelve (12) months after
the Termination Date (or such shorter or longer time period not
exceeding five (5) years as may be determined by the Committee,
with any such exercise beyond (a) three (3) months after the
Termination Date when the Termination is for any reason other
than the Participant's death or Disability, or (b) twelve (12)
months after the Termination Date when the Termination is for
Participant's
-3-
<PAGE> 33
Prism Solutions, Inc.
1996 Equity Incentive Plan
death or Disability, deemed to be an NQSO), but in any event no
later than the expiration date of the Options.
5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Affiliate, Parent or Subsidiary of the Company) will not exceed $100,000. If the
Fair Market Value of Shares on the date of grant with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year exceeds
$100,000, then the Options for the first $100,000 worth of Shares to become
exercisable in such calendar year will be ISOs and the Options for the amount in
excess of $100,000 that become exercisable in that calendar year will be NQSOs.
In the event that the Code or the regulations promulgated thereunder are amended
after the Effective Date of this Plan to provide for a different limit on the
Fair Market Value of Shares permitted to be subject to ISOs, such different
limit will be automatically incorporated herein and will apply to any Options
granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision
in this Plan, no term of this Plan relating to ISOs will be interpreted, amended
or altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If such
person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within thirty (30) days,
then the offer will terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant
to a Restricted Stock Award will be determined by the Committee and will be at
least 85% of the Fair Market Value of the Shares on the date the Restricted
Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8 of
this Plan.
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6.3 Restrictions. Restricted Stock Awards will be subject to
such restrictions (if any) as the Committee may impose. The Committee may
provide for the lapse of such restrictions in installments and may accelerate or
waive such restrictions, in whole or part, based on length of service,
performance or such other factors or criteria as the Committee may determine.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of
Shares (which may consist of Restricted Stock) for services rendered to the
Company or any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may
be awarded for past services already rendered to the Company, or any Parent,
Subsidiary or Affiliate of the Company pursuant to an Award Agreement (the
"STOCK BONUS AGREEMENT") that will be in such form (which need not be the same
for each Participant) as the Committee will from time to time approve, and will
comply with and be subject to the terms and conditions of this Plan. A Stock
Bonus may be awarded upon satisfaction of such performance goals as are set out
in advance in the Participant's individual Award Agreement (the "PERFORMANCE
STOCK BONUS AGREEMENT") that will be in such form (which need not be the same
for each Participant) as the Committee will from time to time approve, and will
comply with and be subject to the terms and conditions of this Plan. Stock
Bonuses may vary from Participant to Participant and between groups of
Participants, and may be based upon the achievement of the Company, Parent,
Subsidiary or Affiliate and/or individual performance factors or upon such other
criteria as the Committee may determine.
7.2 Terms of Stock Bonuses. The Committee will determine the
number of Shares to be awarded to the Participant and whether such Shares will
be Restricted Stock. If the Stock Bonus is being earned upon the satisfaction of
performance goals pursuant to a Performance Stock Bonus Agreement, then the
Committee will determine: (a) the nature, length and starting date of any period
during which performance is to be measured (the "PERFORMANCE PERIOD") for each
Stock Bonus; (b) the performance goals and criteria to be used to measure the
performance, if any; (c) the number of Shares that may be awarded to the
Participant; and (d) the extent to which such Stock Bonuses have been earned.
Performance Periods may overlap and Participants may participate simultaneously
with respect to Stock Bonuses that are subject to different Performance Periods
and different performance goals and other criteria. The number of Shares may be
fixed or may vary in accordance with such performance goals and criteria as may
be determined by the Committee. The Committee may adjust the performance goals
applicable to the Stock Bonuses to take into account changes in law and
accounting or tax rules and to make such adjustments as the Committee deems
necessary or appropriate to reflect the impact of extraordinary or unusual
items, events or circumstances to avoid windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be
paid currently or on a deferred basis with such interest or dividend equivalent,
if any, as the Committee may determine. Payment may be made in the form of cash,
whole Shares, including Restricted Stock, or a combination thereof, either in a
lump sum payment or in installments, all as the Committee will determine.
7.4 Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Stock Bonus only to the extent earned as of the date of Termination in
accordance with the Performance Stock Bonus Agreement, unless the Committee will
determine otherwise.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant to this Plan
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares); or (2)
were obtained by Participant in the public market;
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1996 Equity Incentive Plan
(c) by tender of a full recourse promissory note having such terms
as may be approved by the Committee and bearing interest at a
rate sufficient to avoid imputation of income under Sections
483 and 1274 of the Code; provided, however, that Participants
who are not employees or directors of the Company will not be
entitled to purchase Shares with a promissory note unless the
note is adequately secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant for
services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the Participant
and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD DEALER")
whereby the Participant irrevocably elects to exercise
the Option and to sell a portion of the Shares so
purchased to pay for the Exercise Price, and whereby the
NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the
Company; or
(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased
to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the Exercise
Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price
directly to the Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay
for Shares purchased under this Plan by authorizing a guarantee by the Company
of a third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may, in its
sole discretion, allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined (the "TAX DATE"). All elections by a Participant to
have Shares withheld for this purpose will be made in writing in a form
acceptable to the Committee and will be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, then except as provided below, the election will be
irrevocable as to the particular Shares as to which the
election is made;
(c) all elections will be subject to the consent or disapproval of
the Committee;
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1996 Equity Incentive Plan
(d) if the Participant is an Insider and if the Company is
subject to Section 16(b) of the Exchange Act: (1) the
election may not be made within six (6) months of the date
of grant of the Award, except as otherwise permitted by SEC
Rule 16b-3(e) under the Exchange Act, and (2) either (A)
the election to use stock withholding must be irrevocably
made at least six (6) months prior to the Tax Date
(although such election may be revoked at any time at least
six (6) months prior to the Tax Date) or (B) the exercise
of the Option or election to use stock withholding must be
made in the ten (10) day period beginning on the third day
following the release of the Company's quarterly or annual
summary statement of sales or earnings; and
(e) in the event that the Tax Date is deferred until six (6)
months after the delivery of Shares under Section 83(b) of the
Code, the Participant will receive the full number of Shares
with respect to which the exercise occurs, but such
Participant will be unconditionally obligated to tender back
to the Company the proper number of Shares on the Tax Date.
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 Voting and Dividends. No Participant will have any of the
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's original Purchase Price pursuant to Section
12.
10.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as consistent with the specific
Plan and Award Agreement provisions relating thereto. During the lifetime of the
Participant an Award will be exercisable only by the Participant, and any
elections with respect to an Award, may be made only by the Participant.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement (a)
a right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, and/or (b) a
right to repurchase a portion of or all Shares held by a Participant following
such Participant's Termination at any time within ninety (90) days after the
later of Participant's Termination Date and the date Participant purchases
Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at: (A) with respect to Shares that are "Vested" (as defined in
the Award Agreement), the higher of: (l) Participant's original Purchase Price,
or (2) the Fair Market Value of such Shares on Participant's Termination Date,
provided, that such right of repurchase (i) must be exercised as to all such
"Vested" Shares unless a Participant consents to the Company's repurchase of
only a portion of such "Vested" Shares and (ii) terminates when the Company's
securities become publicly traded; or (B) with respect to Shares that are not
"Vested" (as defined in the Award Agreement), at the Participant's original
Purchase Price, provided, that the right to repurchase at the original Purchase
Price lapses at the rate of at least 20% per year over five (5) years from the
date the Shares were purchased (or from the date of grant of options in the case
of Shares obtained pursuant to a Stock Option Agreement and Stock Option
Exercise Agreement), and if the right to repurchase is assignable, the assignee
must pay the Company, upon assignment of the right to repurchase, cash equal to
the excess of the Fair Market Value of the Shares over the original Purchase
Price.
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1996 Equity Incentive Plan
13. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not
be effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to: (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable; and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit
in any way the right of the Company or any Parent, Subsidiary or Affiliate of
the Company to terminate Participant's employment or other relationship at any
time, with or without cause.
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Prism Solutions, Inc.
1996 Equity Incentive Plan
18. CORPORATE TRANSACTIONS.
18.1 Assumption or Replacement of Awards by Successor. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company (other than any stockholder
which merges (or which owns or controls another corporation which merges) with
the Company in such merger) cease to own their shares or other equity interests
in the Company, (d) the sale of substantially all of the assets of the Company,
or (e) any other transaction which qualifies as a "corporate transaction" under
Section 424(a) of the Code wherein the stockholders of the Company give up all
of their equity interest in the Company (except for the acquisition, sale or
transfer of all or substantially all of the outstanding shares of the Company
from or by the stockholders of the Company), any or all outstanding Awards may
be assumed, converted or replaced by the successor corporation (if any), which
assumption, conversion or replacement will be binding on all Participants. In
the alternative, the successor corporation may substitute equivalent Awards or
provide substantially similar consideration to Participants as was provided to
stockholders (after taking into account the existing provisions of the Awards).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation (if any) refuses to assume or substitute
Awards, as provided above, pursuant to a transaction described in this
Subsection 18.1, such Awards will accelerate in full immediately prior to such
transaction if such transaction occurs after the second anniversary of the
Effective Date (as defined in Section 19 of this Plan) or expire if such
transaction occurs before the second anniversary of such Effective Date at such
time and on such conditions as the Board shall determine.
18.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
18.3 Assumption of Awards by the Company. The Company, from
time to time, also may substitute or assume outstanding awards granted by
another company, whether in connection with an acquisition of such other company
or otherwise, by either; (a) granting an Award under this Plan in substitution
of such other company's award; or (b) assuming such award as if it had been
granted under this Plan if the terms of such assumed award could be applied to
an Award granted under this Plan. Such substitution or assumption will be
permissible if the holder of the substituted or assumed award would have been
eligible to be granted an Award under this Plan if the other company had applied
the rules of this Plan to such grant. In the event the Company assumes an award
granted by another company, the terms and conditions of such award will remain
unchanged (except that the exercise price and the number and nature of Shares
issuable upon exercise of any such option will be adjusted appropriately
pursuant to Section 424(a) of the Code). In the event the Company elects to
grant a new Option rather than assuming an existing option, such new Option may
be granted with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become
effective on the date on which the registration statement filed by the Company
with the SEC under the Securities Act registering the initial public offering of
the Company's Common Stock is declared effective by the SEC (the "EFFECTIVE
DATE"); provided, however, that if the Effective Date does not occur on or
before December 31, 1996, this Plan will terminate having never become
effective. This Plan shall be approved by the stockholders of the Company
(excluding Shares issued pursuant to this Plan), consistent with applicable
laws, within twelve (12) months before or after the date this Plan is adopted by
the Board. Upon the Effective Date, the Board may grant Awards pursuant to this
Plan; provided, however, that: (a) no Option may be exercised prior to initial
stockholder approval of this Plan; (b) no Option granted pursuant to an increase
in the number of Shares subject to this Plan approved by the Board will be
exercised prior to the time such increase has been approved by the stockholders
of the Company; and (c) in the event that stockholder approval of such increase
is not obtained within the time period provided herein, all Awards granted
hereunder will be canceled, any Shares issued pursuant to any Award will be
canceled, and any
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Prism Solutions, Inc.
1996 Equity Incentive Plan
purchase of Shares hereunder will be rescinded. So long as the Company is
subject to Section 16(b) of the Exchange Act, the Company will comply with the
requirements of Rule 16b-3 (or its successor), as amended, with respect to
stockholder approval.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This Plan
and all agreements thereunder shall be governed by and construed in accordance
with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or (if the Company is subject
to the Exchange Act or Section 16(b) of the Exchange Act) pursuant to the
Exchange Act or Rule 16b-3 (or its successor), as amended, thereunder,
respectively.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by
the Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have
the following meanings:
"AFFILIATE" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to
administer this Plan, or if no such committee is appointed, the Board.
"COMPANY" means Prism Solutions, Inc.
"DISABILITY" means a disability, whether temporary or
permanent, partial or total, within the meaning of Section 22(e)(3) of the Code,
as determined by the Committee.
"DISINTERESTED PERSON" means a director who has not, during the
period that person is a member of the Committee and for one year prior to
commencing service as a member of the Committee, been granted or awarded equity
securities pursuant to this Plan or any other plan of the Company or any Parent,
Subsidiary or Affiliate of the Company, except in accordance with the
requirements set forth in Rule 16b-3(c)(2)(i)
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Prism Solutions, Inc.
1996 Equity Incentive Plan
(and any successor regulation thereto) as promulgated by the SEC under Section
16(b) of the Exchange Act, as such rule is amended from time to time and as
interpreted by the SEC.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading on
a national securities exchange, the average of the closing bid
and asked prices on the date of determination as reported in
The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Committee in
good faith.
"INSIDER" means an officer or director of the Company or any
other person whose transactions in the Company's Common Stock are subject to
Section 16 of the Exchange Act.
"OUTSIDE DIRECTOR" means any director who is not; (a) a current
employee of the Company or any Parent, Subsidiary or Affiliate of the Company;
(b) a former employee of the Company or any Parent, Subsidiary or Affiliate of
the Company who is receiving compensation for prior services (other than
benefits under a tax-qualified pension plan); (c) a current or former officer of
the Company or any Parent, Subsidiary or Affiliate of the Company; or (d)
currently receiving compensation for personal services in any capacity, other
than as a director, from the Company or any Parent, Subsidiary or Affiliate of
the Company; provided, however, that at such time as the term "Outside
Director", as used in Section 162(m) of the Code is defined in regulations
promulgated under Section 162(m) of the Code, "Outside Director" will have the
meaning set forth in such regulations, as amended from time to time and as
interpreted by the Internal Revenue Service.
"OPTION" means an award of an option to purchase Shares
pursuant to Section 5.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if at the time of the
granting of an Award under this Plan, each of such corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this
Plan.
"PLAN" means this Prism Solutions, Inc. 1996 Equity Incentive
Plan, as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
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1996 Equity Incentive Plan
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved
for issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of
Shares, pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
granting of the Award, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, director, consultant, independent contractor or
advisor to the Company or a Parent, Subsidiary or Affiliate of the Company,
except in the case of sick leave, military leave, or any other leave of absence
approved by the Committee, provided that such leave is for a period of not more
than ninety (90) days, or reinstatement upon the expiration of such leave is
guaranteed by contract or statute. The Committee will have sole discretion to
determine whether a Participant has ceased to provide services and the effective
date on which the Participant ceased to provide services (the "TERMINATION
DATE").
-12-
<PAGE> 42
PRISM SOLUTIONS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR ANNUAL MEETING, MAY 27, 1997
The undersigned hereby appoints James Ashbrook and Warren M. Weiss, and
each of them, as proxies, each with the power of substitution, and hereby
authorizes them to vote all shares of Common Stock which the undersigned is
entitle to vote at the 1997 Annual Meeting of the Company, to be held at the
principal office of the Company located at 1000 Hamlin Court, Sunnyvale,
California, on May 27, 1997, at 3:00 p.m. local time, and at any adjournments or
postponements thereof (1) as hereinafter specified upon the proposals listed on
the reverse side and as more particularly described in the Company's Proxy
Statement and (2) in their sole discretion upon such other matters as may
properly come before the meeting.
The undersigned hereby acknowledges receipt of (1) Notice of Annual
Meeting of Stockholders of the Company, (2) accompanying Proxy Statement, and
(3) Annual Report of the Company for the fiscal year ended December 31, 1996.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE
URGED TO SIGN AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO
THAT YOUR STOCK MAY BE REPRESENTED AT THE MEETING.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE:
1. ELECTION OF DIRECTORS
NOMINEES: James W. Ashbrook, Kevin A. Fong, Promod Haque, E. Floyd Kvamme,
Nancy S. Schoendorf, Norris van den Berg and Warren M. Weiss.
[ ] FOR [ ] WITHHELD
[ ] ______________________________________________________
For all nominees except as noted above
2. AMENDMENT OF THE 1996 EQUITY INCENTIVE PLAN TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK RESERVED THEREUNDER BY 1,500,000 SHARES
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFICATION OF THE SELECTION OF COOPERS & LYBRAND L.L.P. AS INDEPENDENT
AUDITORS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Mark here for address change and note at left [ ]
Mark here if you plan to attend the meeting [ ]
PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR. IF MORE THAN ONE NAME APPEARS, ALL
MUST SIGN.
SIGNATURE_______________DATE__________SIGNATURE___________________DATE__________
