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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PRISM SOLUTIONS, INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No Fee Required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials:
/ / Check box if any part of the fee is offset as provided by exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
February 24, 1998
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders to be
held at 3:00 p.m. on Friday, March 20, 1998 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. Returning the proxy does not deprive
you of your right to attend the meeting and to vote your shares in person.
Sincerely,
/s/ Warren M. Weiss
Warren M. Weiss
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
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 Friday, March 20, 1998 at
3:00 p.m. P.S.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 or her successor has been elected
and qualified or until his or her earlier resignation or removal. The
Company's Board of Directors intends to present the following nominees
for election as directors:
<TABLE>
<CAPTION>
James W. Ashbrook Thuan D. Phan
<S> <C>
Kevin A. Fong Nancy J. Schoendorf
Promod Haque Norris van den Berg
E. Floyd Kvamme Warren M. Weiss
</TABLE>
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
4,000,000 shares.
3. To approve an amendment to the Company's 1996 Employee Stock Purchase
Plan to increase the number of shares of Common Stock reserved thereunder
by 600,000 shares.
4. To ratify the selection of Coopers & Lybrand L.L.P. as independent
accountants for the Company for the fiscal year ending December 31, 1998.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement 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 February 16, 1998
are entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors
Earl C. Charles
CHIEF FINANCIAL OFFICER AND SECRETARY
Sunnyvale, California
February 24, 1998
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>
PRISM SOLUTIONS, INC.
1000 HAMLIN COURT
SUNNYVALE, CALIFORNIA 94089
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PROXY STATEMENT
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FEBRUARY 24, 1998
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 Friday,
March 20, 1998 at 3:00 p.m. P.S.T. (the "Meeting"). Only holders of record of
the Company's Common Stock at the close of business on February 16, 1998 (the
"Record Date") will be entitled to vote at the Meeting. At the close of business
on the Record Date, the Company had 17,761,760 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 February 24, 1998. An annual report for the
fiscal year ended December 31, 1997 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), Proposal No. 3 (a proposal to amend the Company's 1996
Employee Stock Purchase Plan to increase the number of shares reserved
thereunder) and Proposal No. 4 (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, 1998) 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 negative votes with respect to Proposal Nos.
2, 3 and 4. 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
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brought before 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 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 or postponements of the Meeting to permit further
solicitations of proxies. Any such adjournment or postponement 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, electronic means 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.
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 eight members. Accordingly, eight nominees will be elected at the Meeting
to be the eight 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.
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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............. 55 Chairman of the Board of Directors of the Company 1991
Warren M. Weiss............... 41 President and Chief Executive Officer of the Company 1997
Kevin A. Fong(1).............. 44 Venture Capitalist 1992
Promod Haque(2)............... 49 Venture Capitalist 1993
E. Floyd Kvamme(1)............ 60 Venture Capitalist 1992
Thuan D. Phan................. 43 Vice President, Vertical Solutions Strategic Business Unit 1998
of the Company
Nancy J. Schoendorf........... 43 Venture Capitalist 1993
Norris van den Berg(2)........ 59 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
and geo-demographic information 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. ("C.S.C.") and Management Science America.
Mr. Weiss holds a Bachelor of Science degree from Western Illinois University.
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. Mr. Fong joined Mayfield Fund ("Mayfield"), a venture capital firm,
in 1990 and has been a general partner of several funds affiliated with
Mayfield. 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., Information Advantage, 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
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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., Power Integrations, 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.
Mr. Phan has been Vice President, Vertical Solutions Strategic Business Unit
and a director of the Company since February 1998. Prior to joining the Company,
he founded Customer Focus International, Inc. ("CFI") and served as CFI's
President and Chief Executive Officer from 1989 until it was acquired by the
Company in January 1998. Before founding CFI, Mr. Phan was employed by Teradata
and prior to that was a Vice President in the Database Technology Group at
Security Pacific Bank's subsidiary, Security Pacific Automation Company. Mr.
Phan holds a Bachelor of Science degree in mathematics and computer science from
the University of Dallas.
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 worked in the computer
industry for 17 years including positions at Hewlett-Packard Company, Software
Publishing Corp. and Sun Microsystems. 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. Mr. Van den
Berg is also a director of Peregrine Systems, Inc. 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 nine (9) times in 1997, including by telephone conference.
Each of the eight 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 one (1)
time during 1997. 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 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 met separately from
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the Board two (2) times during 1997 and did not meet independently of the Board
but acted as a committee at seven (7) meetings of the Board during 1997. 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 January 15, 1998, 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 4,000,000 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. In March 1997 the Board amended the Incentive Plan to increase the
number of shares reserved for issuance thereunder from 2,000,000 shares to
3,500,000 shares. The stockholders of the Company approved the amendment in May
1997. 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 3,500,000 shares.
This proposal No. 2 seeks to increase the number of shares reserved for issuance
under the Incentive Plan from 3,500,000 shares to 7,500,000 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.
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
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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 February 16, 1998, approximately 370
persons were eligible to participate in the Incentive Plan, 21,326 shares had
been issued upon the exercise of options under the Incentive Plan and 3,976,499
shares were subject to outstanding options under the Incentive Plan. As of that
date, 3,523,501 shares were available for future option grants (including the
4,000,000 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 February 16, 1998 was $3.75 per share. Over the term
of the Incentive Plan, the following Named Executive Officers (as defined below)
have been granted options to purchase shares of Common Stock under the Incentive
Plan as follows: Warren M. Weiss, 700,000 shares; Donald N. Taylor, 40,000
shares; Edmont N. Caffarra, 75,000 shares; Thomas J. Swanson, 83,000 shares; and
Philip M. Sakakihara, 70,000 shares.
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 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.
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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.
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.
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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 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 capital gain, taxed at a rate that
depends 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). A maximum 20% AMT
rate applies to the portion of alternative minimum taxable income that would
otherwise be taxable as net capital gain. 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 capital gain or loss. Special rules apply where all or a portion of
the exercise price is paid by tendering shares of Common Stock.
8
<PAGE>
MAXIMUM TAX RATES. The maximum tax rate applicable to ordinary income is
39.6%. Long-term capital gain will be taxed at a maximum rate of 20%. For this
purpose, in order to receive long-term capital gain treatment, the stock must be
held for more than eighteen months. Mid-term capital gain will be taxed at a
maximum rate of 28%. For this purpose, in order to receive mid-term capital gain
treatment, the stock must be held for more than one year but not more than
eighteen months. Capital gains will be offset by capital losses and up to $3,000
of capital losses may be offset annually against ordinary income.
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--AMENDMENT TO THE 1996 EMPLOYEE STOCK PURCHASE PLAN
On January 15, 1998, the Board adopted, subject to stockholder approval, an
amendment to the Company's 1996 Employee Stock Purchase Plan (the "Stock
Purchase Plan") to increase the number of shares reserved for issuance
thereunder by 600,000 shares. The stockholders of the Company are now being
asked to approve such amendment.
Below is a summary of the principal provisions of the Stock Purchase Plan
assuming approval of the amendment, which summary is qualified in its entirety
by reference to the full text of the Stock Purchase Plan.
SUMMARY OF THE 1996 EMPLOYEE STOCK PURCHASE PLAN
STOCK PURCHASE PLAN HISTORY
The Board adopted, and the stockholders approved, 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. This proposal
No. 3 seeks to increase the number of shares reserved for issuance under the
Stock Purchase Plan from 500,000 to 1,100,000.
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.
9
<PAGE>
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.
As of February 16, 1998, approximately 370 persons were eligible to
participate in the Stock Purchase Plan, 323,522 shares of Common Stock had been
issued pursuant to the Stock Purchase Plan and 776,478 shares of Common Stock
were reserved for future issuance pursuant to the Stock Purchase Plan (including
the 600,000 additional shares by which the Stock Purchase Plan is to be
increased under this proposal No. 3).
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
10
<PAGE>
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 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.
11
<PAGE>
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 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 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 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.
MAXIMUM TAX RATES. The maximum tax rate applicable to ordinary income is
39.6%. Long-term capital gain will be taxed at a maximum of 20%. For this
purpose, in order to receive long-term capital gain treatment, the stock must be
held for more than eighteen months. Mid-term capital gain will be taxed at a
maximum of 28%. For this purpose, in order to receive mid-term capital gain
treatment, the stock must be held for more than one year but not for more than
eighteen months. Capital gains are offset by capital losses and up to $3,000 of
capital losses may be offset 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.
12
<PAGE>
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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
AMENDMENT TO THE 1996 EMPLOYEE STOCK PURCHASE PLAN
PROPOSAL NO. 4--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 1998,
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.
NEW PLAN BENEFITS
The amounts of future option grants under the Incentive Plan and future
purchases under the Stock Purchase 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 1997 (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 and under the terms of the Stock Purchase Plan, such purchases are
based on participant contributions. 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, and future purchase
prices under the Stock Purchase Plan are not determinable because they are based
on the fair market value of the Company Common Stock at the beginning and end of
each Purchase Period.
13
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of January 31, 1998,
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>
Thuan D. Phan.............................................................. 2,470,439 14.0%
Kevin Fong
Mayfield Funds(2)........................................................ 2,082,787 11.8
E. Floyd Kvamme
KPCB VI Associates(3).................................................... 2,078,545 11.8
Promod Haque
Norwest Equity Partners Funds(4)......................................... 1,847,750 10.5
Nancy Schoendorf
Mohr Davidow Ventures III(5)............................................. 1,160,484 6.6
Norris van den Berg
JMI Equity Fund, L.P.(6)................................................. 762,284 4.3
Warren M. Weiss(7)......................................................... 654,361 3.6
James W. Ashbrook(8)....................................................... 557,856 3.2
Philip M. Sakakihara(9).................................................... 112,224 *
Donald N. Taylor(10)....................................................... 91,223 *
Thomas J. Swanson(11)...................................................... 50,837 *
Edmont N. Caffarra(12)..................................................... 52,842 *
All executive officers and directors as a group (16 persons)(13)........... 13,240,770 70.1
</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 January 31, 1998 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) 30,000 shares subject to options exercisable
within 60 days of January 31, 1998 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
14
<PAGE>
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) 30,000
shares subject to options exercisable within 60 days of January 31, 1998
held by Mr. Kvamme. E. Floyd Kvamme, a director of the Company, is a
general partner of 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)
30,000 shares subject to options exercisable within 60 days of January 31,
1998 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 245 Lytton Avenue, Suite 250, Palo Alto, California 94301.
(5) Represents (i) 1,130,484 shares held of record by Mohr, Davidow Ventures
III and (ii) 30,000 shares subject to options exercisable within 60 days of
January 31, 1998 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 3000 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) 30,000 shares subject to options exercisable within 60 days of January
31, 1998 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) Includes 650,000 shares subject to options that are exercisable within 60
days of January 31, 1998.
(8) Includes 551,324 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 105,625 shares subject to options that are currently exercisable
within 60 days of January 31, 1998.
(10) Includes 87,292 shares subject to options that are exercisable within 60
days of January 31, 1998.
(11) Includes 23,135 shares subject to options that are exercisable within 60
days of January 31, 1998.
(12) Includes 46,396 shares subject to option that are exercisable within 60
days of January 31, 1998.
(13) Includes the shares of Common Stock subject to options referenced in the
above footnotes and an additional 187,187 shares of Common Stock subject
to options that are exercisable within 60 days of January 31, 1998 and
held by executive officers who are not specifically named in the above
table.
15
<PAGE>
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, 1996
and 1997 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 1997 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ------------------------------
---------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) COMPENSATION(3) OPTIONS COMPENSATION(4)
- ---------------------------------------- --------- ---------- ---------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Warren M. Weiss, President and Chief
Executive Officer(1).................. 1997 $ 213,148 $ 50,000 -- 700,000 --
Donald N. Taylor, Vice President,
International......................... 1997 164,738 140,533 $ 19,800 15,000 $ 22,149
1996 142,920 156,514 23,914 25,000 8,239
1995 58,405 22,516 2,604 75,000 6,630
Edmont N. Caffarra, Vice President,
Worldwide Professional Services....... 1997 120,312 169,478 -- 55,000 --
1996 111,875 61,289 -- 20,000(5) --
1995 87,500 47,961 -- 30,000 --
Thomas J. Swanson, Vice President, North
American Sales........................ 1997 128,542 95,424 -- 72,500 --
1996 100,104 90,185 -- 11,000(6) --
1995 84,103 92,710 -- 8,500 --
Philip M. Sakakihara, Vice President,
Development........................... 1997 183,750 35,000 -- -- --
1996 175,000 35,000 -- 70,000 --
1995 5,272 -- -- 80,000 --
</TABLE>
- ------------------------
(1) James W. Ashbrook held the position of Chief Executive Officer of the
Company until Mr. Weiss took over that position in February 1997.
(2) Includes any sales draws and commissions earned.
(3) Represents car allowances paid by the Company.
(4) Represents contributions by the Company into a pension plan as required
under United Kingdom law.
(5) Represents an option for 10,000 shares granted in 1996 and repriced in 1996
through the cancellation of the original option for 10,000 shares and a
regrant of a new option for 10,000 shares.
(6) Represents (i) an option for 500 shares granted in 1996 and repriced in
fiscal 1996 through the cancellation of the original option for 500 shares
and a regrant of a new option for 500 shares and (ii) an option for 10,000
shares granted in 1996 that was not repriced.
16
<PAGE>
The following table sets forth further information regarding the option
grants pursuant to the Company's Incentive Plan during 1997 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.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------------
NAME GRANTED(1) FISCAL 1997 SHARE DATE 5% 10%
- ------------------------------- ----------- --------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Warren M. Weiss................ 40,625 1.1% $ 8.2500 1/29/07 $ 210,778 $ 534,153
609,375 16.7 7.5625 5/26/07 2,898,197 7,344,600
50,000 1.4 7.5625 5/26/07 237,801 602,634
Donald N. Taylor............... 15,000 0.4 5.0000 4/16/07 47,167 119,531
Edmont N. Caffarra............. 2,000 0.1 5.6250 3/18/07 7,075 17,930
53,000 1.5 5.0000 4/16/07 166,657 422,342
Thomas J. Swanson.............. 2,500 0.1 5.6250 3/18/07 8,844 22,412
70,000 1.9 5.7500 8/21/07 253,130 641,481
Philip M. Sakakihara........... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Options granted under the Incentive Plan 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 options to purchase
40,625 shares and 609,375 shares, respectively, of the Company's Common
Stock granted to Mr. Weiss in January 1997 and May 1997, respectively, which
are now fully exercisable and an option for 50,000 shares granted in May
1997 to Mr. Weiss that becomes exercisable upon the earlier of (i) the
Company's Common Stock having a closing price of more than $25.00 per share
for more than 30 consecutive trading days or (ii) January 30, 2005. 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.
17
<PAGE>
No options were exercised by any of the Named Executive Officers during
1997. 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, 1997. Also reported are values of "in-the-money" options that represent the
positive spread between the respective exercise prices of outstanding stock
options and $4.375 per share, which was the closing price of the Company's
Common Stock as reported on the Nasdaq National Market on December 31, 1997.
1997 FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
-------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -----------------
<S> <C> <C> <C> <C>
Warren M. Weiss........................................... 650,000 50,000 -- --
Donald N. Taylor.......................................... 84,792 30,208 $ 213,125 --
Edmont N. Caffarra........................................ 42,333 52,667 96,250 --
Thomas J. Swanson......................................... 17,948 73,552 21,313 --
Philip M. Sakakihara...................................... 101,250 48,750 -- --
</TABLE>
- ------------------------
(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,
1997, the last day of trading for the fiscal year.
18
<PAGE>
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 Company's 1996 Directors
Stock Option Plan. During 1997, Kevin Fong, E. Floyd Kvamme, Promod Haque, Nancy
Schoendorf and Norris van den Berg each received an option to purchase 10,000
shares of Common Stock at an exercise price of $7.5625 per share pursuant to the
Directors Stock Option Plan.
EMPLOYMENT AGREEMENTS
The Company is party to an employment agreement with James W. Ashbrook, the
Chairman of the Board of Directors, dated as of March 27, 1992, which initially
provided for an annual salary of $164,000. As of February 1997, Mr. Ashbrook
ceased being an executive officer but continues to draw his salary as an
employee of the Company.
The Company is party to employment agreements with Donald N. Taylor and
Philip M. Sakakihara, dated July 10, 1995 and December 8, 1995, respectively,
providing for initial annual salaries of $137,500 and $175,000, respectively.
Mr. Taylor is eligible to receive up to $87,500 in bonuses and commissions,
receives a car allowance and receives contributions of up to 5% of his earnings
to a United Kingdom pension plan. 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. Upon termination by the Company, the
respective officer will be entitled to any unpaid compensation accrued through
the effective date of his termination. If either of these officers is terminated
by the Company other than for cause (as defined in the agreement), the Company
will provide the terminated officer with a severance payment equivalent to six
months' salary.
The Company is also party to an employment agreement effective January 23,
1997 with Warren M. Weiss, its 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. In 1997, the Company did not
achieve these objectives. Mr. Weiss also received options described in the above
tables to purchase 700,000 shares of Common Stock. If Mr. Weiss is terminated by
the Company for any reason other than gross misconduct or the acquisition of the
Company, he will be entitled to severance payments of twelve months' salary. If
Mr. Weiss is terminated by the Company because the Company is acquired, or in
certain circumstances, because Mr. Weiss resigns from the Company in connection
with an acquisition of the Company, he will be entitled to severance payments
equal to the lesser of twelve months' salary or salary for the number of months
before obtaining a position with another firm. In addition, if in connection
with an acquisition of the Company, Mr. Weiss is terminated by the Company, or,
in certain circumstances, resigns from the Company, the vesting on his options
will accelerate.
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.
19
<PAGE>
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. The Committee administers the Company's
executive compensation plans and establishes the compensation of the Chief
Executive Officer. All decisions regarding the compensation of other executive
officers are presented by the Chief Executive Officer for Compensation Committee
review and approval. The Committee typically reviews base salary levels and
target bonuses for the Chief Executive Officer ("CEO") and other executive
officers of the Company at or about the beginning of each fiscal year.
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. Long-term
equity incentives for executive officers are effected through the granting of
stock options to help retain productive people and to more closely align their
interests with those of stockholders. 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 software industry compensation
surveys. The Company also regularly compares its pay practices with other
software companies through review of survey and proxy data.
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 be competitive with the Company for executive
talent.
FISCAL 1997 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, 1997 for each executive officer, including the CEO.
INCENTIVE COMPENSATION. The bonus awards for each executive are tied to
financial and other performance objectives and targets, fixed by the Committee
for the Chief Executive Officer, and by the Chief Executive Officer for the
other executive officers. During 1997, bonus awards were principally based on
the Company's achievement of its goals relating to revenue and operating income.
The target amount
20
<PAGE>
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 1997 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. 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 1997,
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 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.
COMPANY PERFORMANCE AND CEO COMPENSATION. Mr. Weiss was responsible for the
Company's business objectives for fiscal 1997. These objectives included
satisfactorily managing the Company's 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, Mr.
Weiss did not receive any bonus for fiscal year 1997. Mr. Weiss did not receive
any stock options in fiscal 1997, except those granted him upon his commencement
as a Prism employee in February 1997.
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 1997 to be in excess of $1,000,000 or
consequently affected by the requirements of Section 162(m).
COMPENSATION COMMITTEE
FLOYD KVAMME
KEVIN FONG
21
<PAGE>
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, 1997 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 INVESTMENT INVESTMENT INVESTMENT
PRICE VALUE INDEX VALUE INDEX VALUE
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
03/15/96................................... $ 24.50 $ 100.00 1,099.59 $ 100.00 836.91 $ 100.00
03/31/96................................... 26.50 108.16 1,101.40 100.16 818.00 97.74
06/30/96................................... 23.50 95.92 1,185.02 107.77 875.71 104.64
09/30/96................................... 9.38 38.27 1,226.92 111.58 929.01 111.00
12/31/96................................... 8.25 33.67 1,291.03 117.41 995.67 118.97
03/31/97................................... 5.63 22.96 1,221.70 111.11 948.56 113.34
06/30/97................................... 5.88 23.98 1,442.07 131.15 1,141.24 136.36
09/30/97................................... 7.06 28.83 1,685.69 153.30 1,382.62 165.21
12/31/97................................... 4.38 17.86 1,570.35 142.81 1,164.75 139.17
</TABLE>
22
<PAGE>
CERTAIN TRANSACTIONS
Since January 1, 1997, 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 interest that accrues at a rate of 8% per annum, compounded annually, are
payable in full by August 2005.
In July 1997, the Company purchased certain technology from Peregrine/Bridge
Transfer Corporation ("PBTC") for $1.3 million in prepaid royalties.
Additionally, the Company may be obligated to make an additional $2.7 million in
royalty payments over time. JMI Equity Fund, L.P., a 5% stockholder of the
Company of which Norris van den Berg, a director of the Company, is a general
partner ("JMI"), is a shareholder of Peregrine Systems, Inc. ("Peregrine"),
which had previously spun off a business unit to PBTC. In connection with the
spin-off, Peregrine transferred certain technology to PBTC which was eventually
purchased by the Company from PBTC. The transaction was done at arms-length, and
Mr. van den Berg abstained from all discussions of the Board related to approval
of the transaction.
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 October 27, 1998 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 Christopher Hyrne filed a Form 3
late.
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.
23
<PAGE>
PRISM SOLUTIONS, INC.
1996 EQUITY INCENTIVE PLAN
As Adopted January 18, 1996 and Amended through January 15, 1998
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 7,500,000 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>
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
-2-
<PAGE>
1996 Equity Incentive Plan
OPTION AGREEMENT"), and will be in such form and contain such provisions
(which need not be the same for each Participant) as the 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
-3-
<PAGE>
1996 Equity Incentive Plan
(b) twelve (12) months after the Termination Date when the Termination
is for Participant's 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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1996 Equity Incentive Plan
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
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1996 Equity Incentive Plan
fully paid with respect to such shares); or (2) were obtained by
Participant in the public market;
(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;
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1996 Equity Incentive Plan
(c) all elections will be subject to the consent or disapproval of the
Committee;
(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
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1996 Equity Incentive Plan
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.
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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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
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1996 Equity Incentive Plan
Awards granted hereunder will be canceled, any Shares issued pursuant to any
Award will be canceled, and any 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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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").
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PRISM SOLUTIONS, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
As Adopted January 18, 1996
Amended December 19, 1996 and January 15, 1998
1. ESTABLISHMENT OF PLAN. Prism Solutions, Inc. (the "COMPANY")
proposes to grant options for purchase of the Company's Common Stock to
eligible employees of the Company and its Subsidiaries (as hereinafter
defined) pursuant to this Employee Stock Purchase Plan (this "PLAN"). For
purposes of this Plan, "PARENT CORPORATION" and "SUBSIDIARY" (collectively,
"SUBSIDIARIES") shall have the same meanings as "parent corporation" and
"subsidiary corporation" in Sections 424(e) and 424(f), respectively, of the
Internal Revenue Code of 1986, as amended (the "CODE"). The Company intends
this Plan to qualify as an "employee stock purchase plan" under Section 423
of the Code (including any amendments to or replacements of such Section),
and this Plan shall be so construed. Any term not expressly defined in this
Plan but defined for purposes of Section 423 of the Code shall have the same
definition herein. A total of 1,100,000 shares of the Company's Common Stock
is reserved for issuance under this Plan. Such number shall be subject to
adjustments effected in accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide employees of the
Company and Subsidiaries designated by the Board of Directors of the Company
(the "BOARD") as eligible to participate in this Plan with a convenient means
of acquiring an equity interest in the Company through payroll deductions, to
enhance such employees' sense of participation in the affairs of the Company
and Subsidiaries, and to provide an incentive for continued employment.
3. ADMINISTRATION. This Plan shall be administered by a committee
appointed by the Board (the "COMMITTEE") consisting of at least two (2)
members of the Board, each of whom is a Disinterested Person as defined in
Rule 16b-3(c) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT").
As used in this Plan, references to the "Committee" shall mean either such
committee or the Board if no committee has been established. After
registration of the Company under the Exchange Act, Board members who are not
Disinterested Persons may not vote on any matters affecting the
administration of this Plan, but any such member may be counted for
determining the existence of a quorum at any meeting of the Board. Subject
to the provisions of this Plan and the limitations of Section 423 of the Code
or any successor provision in the Code, all questions of interpretation or
application of this Plan shall be determined by the Board and its decisions
shall be final and binding upon all participants. Members of the Board shall
receive no compensation for their services in connection with the
administration of this Plan, other than standard fees as established from
time to time by the Board for services rendered by Board members serving on
Board committees. All expenses incurred in connection with the
administration of this Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the Subsidiaries is
eligible to participate in an Offering Period (as hereinafter defined) under
this Plan except the following:
(a) employees who are not employed by the Company or Subsidiaries
ten days before the beginning of such Offering Period, except that employees
who are employed on the effective date of the registration statement filed by
the Company with the Securities and Exchange Commission ("SEC") under the
Securities Act of 1933, as amended (the "SECURITIES ACT") registering the
initial public offering of the Company's Common Stock is declared effective
by the SEC shall be eligible to participate in the first Offering Period
under the Plan;
(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;
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1996 Employee Stock Purchase Plan
(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 possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or any of its Subsidiaries or who, as a result of being granted an
option under this Plan with respect to such Offering Period, would own stock
or hold options to purchase stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company
or 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.
5. OFFERING DATES. The offering periods of this Plan (each, an
"OFFERING PERIOD") shall be of twenty-four (24) months duration commencing on
February 1 and August 1 of each year and ending on July 31 and January 31 of
each year; PROVIDED, HOWEVER, that notwithstanding the foregoing, the first
such Offering Period shall commence on the date on which price quotations for
the Company's Common Stock are first available on the Nasdaq National Market
(the "FIRST OFFERING DATE") and shall end on March 31, 1998. Each Offering
Period shall consist of four (4) six-month purchase periods (individually, a
"PURCHASE PERIOD") during which payroll deductions of the participants are
accumulated under this Plan. The first business day of each Offering Period
is referred to as the "OFFERING DATE". The last business day of each
Purchase Period is referred to as the "PURCHASE DATE". The Board shall have
the power to change the duration of Offering Periods or Purchase Periods with
respect to offerings without stockholder approval if such change is announced
at least fifteen (15) days prior to the scheduled beginning of the first
Offering Period or Purchase Period to be affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company's treasury department (the "TREASURY DEPARTMENT")
not later than the 15th day of the month before such Offering Date unless a
later time for filing the subscription agreement authorizing payroll
deductions is set by the Board for all eligible employees with respect to a
given Offering Period. An eligible employee who does not deliver a
subscription agreement to the Treasury Department by such date after becoming
eligible to participate in such Offering Period shall not participate in that
Offering Period or any subsequent Offering Period unless such employee
enrolls in this Plan by filing a subscription agreement with the Treasury
Department not later than the 15th day of the month preceding a subsequent
Offering Date. Once an employee becomes a participant in an Offering Period,
such employee will automatically participate in the Offering Period
commencing immediately following the last day of the prior Offering Period
unless the employee withdraws or is deemed to withdraw from this Plan or
terminates further participation in the Offering Period as set forth in
Section 11 below. Such participant is not required to file any additional
subscription agreement in order to continue participation in this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase
on the Purchase Date up to that number of shares of Common Stock of the
Company determined by dividing (a) the amount accumulated in such employee's
payroll deduction account during such Purchase Period by (b) the lower of (i)
eighty-five percent (85%) of the fair market value of a share of the
Company's Common Stock on the Offering Date, or (ii) eighty-five percent
(85%) of the fair market value of a share of the Company's Common Stock on
the Purchase Date, PROVIDED, HOWEVER, that the number of shares of the
Company's Common Stock subject to any option granted pursuant to this Plan
shall not exceed the lesser of (a) the maximum number of shares set by the
Board pursuant to Section 10(c) below with respect to the applicable Offering
Period, or (b) the maximum number of shares which may be purchased pursuant
to Section 10(b) below with respect to the applicable Offering Period. The
fair market value of a share of the Company's Common Stock shall be
determined as provided in Section 8 hereof.
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1996 Employee Stock Purchase Plan
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date;
For purposes of this Plan, the term "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 Board in good
faith, which in the case of the First Offering Period will be
the price determined by the Pricing Committee of the Board for
the Common Stock to be sold to the Company's underwriters.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF
SHARES.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made
as a percentage of the participant's compensation in one percent (1%)
increments not less than two percent (2%), nor greater than ten percent (10%)
or such lower limit set by the Committee. Compensation shall mean all W-2
compensation, including, but not limited to base salary, wages, commissions,
overtime, shift premiums and bonuses, plus draws against commissions;
PROVIDED, HOWEVER, that for purposes of determining a participant's
compensation, any election by such participant to reduce his or her regular
cash remuneration under Sections 125 or 401(k) of the Code shall be treated
as if the participant did not make such election. Payroll deductions shall
commence on the first payday following the Offering Date and shall continue
to the end of the Offering Period unless sooner altered or terminated as
provided in this Plan.
(b) A participant may lower (but not increase) the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than fifteen
(15) days after the Treasury Department's receipt of the authorization and
shall continue for the remainder of the Offering Period unless changed as
described below. Such change in the rate of payroll deductions may be made
at any time during an Offering Period, but not more than one (1) change may
be made effective during any Offering Period. A participant may increase or
decrease the rate of payroll deductions for any subsequent Offering Period by
filing with the Treasury Department a new authorization for payroll
deductions not later than the 15th day of the month before the beginning of
such Offering Period.
(c) All payroll deductions made for a participant are credited to
his or her account under this Plan and are deposited with the general funds
of the Company. No interest accrues on the payroll deductions. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.
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<PAGE>
1996 Employee Stock Purchase Plan
(d) On each Purchase Date, so long as this Plan remains in effect
and provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the
participant wishes to withdraw from that Offering Period under this Plan and
have all payroll deductions accumulated in the account maintained on behalf
of the participant as of that date returned to the participant, the Company
shall apply the funds then in the participant's account to the purchase of
whole shares of Common Stock reserved under the option granted to such
participant with respect to the Offering Period to the extent that such
option is exercisable on the Purchase Date. The purchase price per share
shall be as specified in Section 8 of this Plan. Any amount remaining in
such participant's account on a Purchase Date which is less than the amount
necessary to purchase a full share of Common Stock of the Company shall be
carried forward, without interest, into the next Purchase Period or Offering
Period, as the case may be. In the event that this Plan has been
oversubscribed, all funds not used to purchase shares on the Purchase Date
shall be returned to the participant, without interest. No Common Stock
shall be purchased on a Purchase Date on behalf of any employee whose
participation in this Plan has terminated prior to such Purchase Date.
(e) As promptly as practicable after the Purchase Date, the Company
shall arrange the delivery to each participant of a certificate representing
the shares purchased upon exercise of his option.
(f) During a participant's lifetime, such participant's option to
purchase shares hereunder is exercisable only by him or her. The participant
will have no interest or voting right in shares covered by his or her option
until such option has been exercised. Shares to be delivered to a
participant under this Plan will be registered in the name of the participant
or in the name of the participant and his or her spouse.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No employee shall be entitled to purchase stock under this Plan
at a rate which, when aggregated with his or her rights to purchase stock
under all other employee stock purchase plans of the Company or any
Subsidiary, exceeds $25,000 in fair market value, determined as of the
Offering Date (or such other limit as may be imposed by the Code) for each
calendar year in which the employee participates in this Plan.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator
may be purchased by a participant on any single Purchase Date.
(c) No employee shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. Not less than
thirty (30) days prior to the commencement of any Offering Period, the Board
may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the
"MAXIMUM SHARE AMOUNT"). In no event shall the Maximum Share Amount exceed
the amounts permitted under Section 10(b) above. If a new Maximum Share
Amount is set, then all participants must be notified of such Maximum Share
Amount not less than fifteen (15) days prior to the commencement of the next
Offering Period. Once the Maximum Share Amount is set, it shall continue to
apply with respect to all succeeding Purchase Dates and Offering Periods
unless revised by the Board as set forth above.
(d) If the number of shares to be purchased on a Purchase Date by
all employees participating in this Plan exceeds the number of shares then
available for issuance under this Plan, then the Company will make a pro rata
allocation of the remaining shares in as uniform a manner as shall be
reasonably practicable and as the Board shall determine to be equitable. In
such event, the Company shall give written notice of such reduction of the
number of shares to be purchased under a participant's option to each
participant affected thereby.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section
10 shall be returned to the participant as soon as practicable after the end
of the applicable Purchase Period, without interest.
11. WITHDRAWAL.
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1996 Employee Stock Purchase Plan
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Treasury Department a written notice to
that effect on a form provided for such purpose. Such withdrawal may be
elected at any time at least fifteen (15) days prior to the end of an
Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest,
and his or her interest in this Plan shall terminate. In the event a
participant voluntarily elects to withdraw from this Plan, he or she may not
resume his or her participation in this Plan during the same Offering Period,
but he or she may participate in any Offering Period under this Plan which
commences on a date subsequent to such withdrawal by filing a new
authorization for payroll deductions in the same manner as set forth above
for initial participation in this Plan.
(c) If the purchase price on the first day of any current Offering
Period in which a participant is enrolled is higher than the purchase price
on the first day of any subsequent Offering Period, the Company will
automatically enroll such participant in the subsequent Offering Period. A
participant does not need to file any forms with the Company to automatically
be enrolled in the subsequent Offering Period.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant
to remain an eligible employee, immediately terminates his or her
participation in this Plan. In such event, the payroll deductions credited
to the participant's account will be returned to him or her or, in the case
of his or her death, to his or her legal representative, without interest.
For purposes of this Section 12, an employee will not be deemed to have
terminated employment or failed to remain in the continuous employ of the
Company in the case of sick leave, military leave, or any other leave of
absence approved by the Board; PROVIDED that such leave is for a period of
not more than ninety (90) days or reemployment upon the expiration of such
leave is guaranteed by contract or statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall promptly deliver to the participant all payroll deductions credited to
such participant's account. No interest shall accrue on the payroll
deductions of a participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "RESERVES"), as well as
the price per share of Common Stock covered by each option under this Plan
which has not yet been exercised, shall be proportionately adjusted for any
increase or decrease in the number of issued and outstanding shares of Common
Stock of the Company resulting from a stock split or the payment of a stock
dividend (but only on the Common Stock) or any other increase or decrease in
the number of issued and outstanding shares of Common Stock effected without
receipt of any consideration by the Company; PROVIDED, HOWEVER, that
conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration". Such adjustment
shall be made by the Board, whose determination shall be final, binding and
conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
option.
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may,
in the exercise of its sole discretion in such instances, declare that the
options under this Plan shall terminate as of a date fixed by the Board and
give each participant the right to exercise his or her option as to all of
the optioned stock, including shares which would not otherwise be
exercisable. In the event of a proposed sale of all or substantially all of
the assets of the Company, or the merger or consolidation of the Company with
or into another corporation, each option under this Plan shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the participant shall have the right to
exercise the option as to all of the optioned stock. If the Board makes an
option exercisable in lieu of assumption or substitution in the event of a
merger, consolidation or sale of assets, the Board shall notify the
participant that the option shall be fully exercisable for a
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<PAGE>
1996 Employee Stock Purchase Plan
period of twenty (20) days from the date of such notice, and the option will
terminate upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the
price per share of Common Stock covered by each outstanding option, in the
event that the Company effects one or more reorganizations,
recapitalizations, rights offerings or other increases or reductions of
shares of its outstanding Common Stock, or in the event of the Company being
consolidated with or merged into any other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under this Plan may be assigned, transferred, pledged or
otherwise
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<PAGE>
1996 Employee Stock Purchase Plan
disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
void and without effect.
16. REPORTS. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total
payroll deductions accumulated, the number of shares purchased, the per share
price thereof and the remaining cash balance, if any, carried forward to the
next Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company if
the participant disposes of any of the shares purchased in any Offering
Period pursuant to this Plan if such disposition occurs within two (2) years
from the Offering Date or within one (1) year from the Purchase Date on which
such shares were purchased (the "NOTICE PERIOD"). Unless such participant is
disposing of any of such shares during the Notice Period, such participant
shall keep the certificates representing such shares in his or her name (and
not in the name of a nominee) during the Notice Period. The Company may, at
any time during the Notice Period, place a legend or legends on any
certificate representing shares acquired pursuant to this Plan requesting the
Company's transfer agent to notify the Company of any transfer of the shares.
The obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant
of any option hereunder shall confer any right on any employee to remain in
the employ of the Company or any Subsidiary, or restrict the right of the
Company or any Subsidiary to terminate such employee's employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies
as an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision
of this Plan which is inconsistent with Section 423 or any successor
provision of the Code shall, without further act or amendment by the Company
or the Board, be reformed to comply with the requirements of Section 423.
This Section 19 shall take precedence over all other provisions in this Plan.
20. NOTICES. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been
duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board,
this Plan will become effective on the date that is the First Offering Date
(as defined above); PROVIDED, HOWEVER, that if the First Offering 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, in any manner permitted by applicable corporate law, within
twelve (12) months before or after the date this Plan is adopted by the
Board. No purchase of shares pursuant to this Plan shall occur prior to such
stockholder approval. Thereafter, no later than twelve (12) months after the
Company becomes subject to Section 16(b) of the Exchange Act, the Company
will comply with the requirements of Rule 16b-3 with respect to stockholder
approval. This Plan shall continue until the earlier to occur of (a)
termination of this Plan by the Board (which termination may be effected by
the Board at any time), (b) issuance of all of the shares of Common Stock
reserved for issuance under this Plan, or (c) ten (10) years from the
adoption of this Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under this Plan in the event of such participant's death subsequent to the
end of an Purchase Period but prior to delivery to him of such shares and
cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under
this Plan in the event of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under this
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or
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<PAGE>
1996 Employee Stock Purchase Plan
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the
Company, in its discretion, may deliver such shares or cash to the spouse or
to any one or more dependents or relatives of the participant, or if no
spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of
such option and the issuance and delivery of such shares pursuant thereto
shall comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange or automated quotation system upon which
the shares may then be listed, and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or the extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance
with Section 21 hereof within twelve (12) months of the adoption of such
amendment (or earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan;
(b) change the designation of the employees (or class of employees)
eligible for participation in this 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.
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<PAGE>
PRISM SOLUTIONS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR ANNUAL MEETING, MARCH 20, 1998
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 1998 Annual Meeting of the Company, to be held at the
principal office of the Company located at 1000 Hamlin Court, Sunnyvale,
California, on March 20, 1998, 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, 1997.
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:
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY
WILL BE VOTED FOR THE COMPANY'S NOMINEES FOR ELECTION AND FOR PROPOSALS 2, 3
AND 4. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting or any adjournment or
postponement thereof to the extent authorized by rule 14a-4(c) of the
Securities Exchange Act of 1934.
1. ELECTION OF DIRECTORS
NOMINEES: James W. Ashbrook, Kevin A. Fong, Promod Haque, E. Floyd Kvamme,
Thuan D. Phan, 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 4,000,000 SHARES
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. AMENDMENT OF THE 1996 EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE NUMBER
OF SHARES OF COMMON STOCK RESERVED THEREUNDER BY 600,000 SHARES
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. 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
