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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of
[X] Definitive Proxy Statement the Commission only (as
[ ] Definitive Additional Materials permitted by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
WORLDTALK COMMUNICATIONS CORPORATION
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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)(1) 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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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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[LOGO]
WORLDTALK COMMUNICATIONS CORPORATION
5155 OLD IRONSIDES DRIVE
SANTA CLARA, CALIFORNIA 95054
-----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Worldtalk Communications Corporation (the "Company") will be held at the Santa
Clara Marriott, 2700 Mission College Blvd., Santa Clara, California on
Thursday, June 12, 1997 at 9:00 a.m. Pacific Daylight Time for the following
purposes:
1. To elect all five (5) directors of the Company, with each to serve
until his term expires and his successor has been elected and
qualified or until such director's earlier resignation, death or
removal.
2. To ratify the selection of KPMG Peat Marwick LLP as independent
accountants for the Company for the fiscal year ending December 31,
1997.
3. To amend to the Company's 1996 Equity Incentive Plan to increase the
number of shares reserved for issuance thereunder by 750,000 shares.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on April 15, 1997 are
entitled to notice of and to vote at the meeting or any adjournment thereof.
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.
By Order of the Board of Directors
/s/ STEPHEN R. BENNION
Stephen R. Bennion
Executive Vice President, Finance and Administration,
Chief Financial Officer and Secretary
Santa Clara, California
April 28, 1997
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Information Concerning Shares and Voting 1
Proposal No. 1 2
Proposal No. 2 4
Proposal No. 3 5
Security Ownership of Certain Beneficial Owners and Management 15
Executive Officers 16
Executive Compensation 18
Certain Transactions 23
Stockholder Proposals 23
Compliance Under Section 16(a) of the Securities Exchange Act of
1934 24
Other Business 24
</TABLE>
<PAGE> 4
WORLDTALK COMMUNICATIONS CORPORATION
5155 Old Ironsides Drive
Santa Clara, California 95054
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PROXY STATEMENT
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April 28, 1997
The accompanying proxy is solicited on behalf of the Board of
Directors of Worldtalk Communications Corporation, a Delaware corporation (the
"Company" or "Worldtalk"), for use at the Annual Meeting of Stockholders of the
Company to be held at the Santa Clara Marriott, 2700 Mission College Blvd.,
Santa Clara, California on Thursday, June 12, 1997 at 9:00 a.m. Pacific
Daylight Time (the "Meeting"). This Proxy Statement and the accompanying form
of proxy were first mailed to stockholders on or about April 28, 1997. An
annual report for the fiscal year ended December 31, 1996 is enclosed with this
Proxy Statement.
Record Date; Quorum
Only holders of record of the Company's Common Stock at the close of
business on April 15, 1997 (the "Record Date") will be entitled to vote at the
Meeting. A majority of the shares outstanding on the record date will
constitute a quorum for the transaction of business.
Outstanding Shares
At the close of business on the Record Date, the Company had
10,308,681 shares of Common Stock outstanding and entitled to vote, which were
held of record by approximately 137 stockholders (although the Company has been
informed that there are in excess of 1,600 beneficial owners).
Voting Rights; Required Vote
Holders of the Company's Common Stock are entitled to one vote for
each share held as of the Record Date. In the event that a broker, bank,
custodian, nominee or other record holder of Worldtalk Common Stock indicates
on a proxy that it does not have discretionary authority to vote certain shares
on a particular matter (a "broker non-vote"), then those shares will not be
considered present and entitled to vote with respect to that matter, although
they will be counted in determining whether or not a quorum is present at the
Meeting.
With respect to Proposal No. 1, directors will be elected by a
plurality of the votes of 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 and Proposal No. 3 require for approval the
affirmative vote of a majority of the shares of Common Stock that are (1)
present in person or represented by proxy at the Meeting, entitled to vote on
the matter and (3) voted for or against such proposal or the holder thereof
abstained and such abstention was not a broker non-vote.
VOTING OF PROXIES
The proxy accompanying this Proxy Statement is solicited on behalf of
the Board of Directors of Worldtalk for use at the Meeting. Stockholders are
requested to complete, date and sign the accompany-
<PAGE> 5
ing proxy and promptly return it in the enclosed envelope or otherwise mail it
to Worldtalk. 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 director nominee or proposal will be counted as votes in favor of
the nominees and the proposals set forth in the accompanying Notice of Meeting
and this Proxy Statement.
In the event that sufficient votes in favor of the proposals are not
received by the date of the Meeting, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitations of
proxies. Any such adjournment would require the affirmative vote of the
majority of the outstanding shares present in person or represented by proxy at
the Meeting.
The expenses of soliciting proxies to be voted at the Meeting will be
paid by the Company. Following the original mailing of the proxies and other
soliciting materials, the Company and/or its agents may also solicit proxies by
mail, telephone, telegraph or in person. Following the original mailing of the
proxies and other soliciting materials, the Company will request that brokers,
custodians, nominees and other record holders of the Company's Common Stock
forward copies of the proxy and other soliciting materials to persons for whom
they hold shares of Common Stock and request authority for the exercise of
proxies. In such cases, the Company, upon the request of the record holders,
will reimburse such holders for their reasonable expenses.
REVOCABILITY OF PROXIES
Any person signing a proxy in the form accompanying this Proxy
Statement has the power to revoke it prior to the Meeting or at the Meeting
prior to the vote pursuant to the proxy. A proxy may be revoked by any of the
following methods: (1) a written instrument delivered to the Company stating
that the proxy is revoked; (2) a subsequent proxy that is signed by the person
who signed the earlier proxy and is presented at the Meeting; or (3) 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
The Board of Directors of the Company (the "Board") is divided into
three classes, as nearly equal in number as possible. Each class serves three
years, with the terms of office of the respective classes expiring in
successive years. Directors of all three classes will stand for election at
the Meeting. The terms of office of directors elected in Class 1, Class 2 and
Class 3 will expire at the Annual Meetings of Stockholders held in 1998, 1999
and 2000, respectively. The Board proposes that the nominees named below, all
of whom are currently serving as directors, be re-elected to the specific
classes and for the terms indicated below and until their successors are duly
elected and qualified. The Board has no reason to believe that any of the
nominees will not serve if elected, but if any of them should become
unavailable to serve as a director, and if the Board designates a substitute
nominee, the proxy holder will vote for the substitute nominee designated by
the Board.
Directors will be elected by a plurality of the votes of shares of
Common Stock present in person or represented by proxy at the Meeting and
entitled to vote.
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CLASS 1--TERM EXPIRES AT THE 1998 ANNUAL MEETING OF STOCKHOLDERS
David J. Cowan, age 31, has served as a director of the Company since
March 1993. He has been a general partner of Bessemer Venture Partners, a
venture capital investment firm since August 1996. He has also been Manager of
Deer IV & Co. LLC, a venture capital investment firm since August 1996.
Previously he was an associate with Bessemer Venture Partners from August 1992
to August 1996. Since August 1996, Mr. Cowan has also served as President and
Chief Executive Officer of RoamPage, Inc., a computer software and service
firm. Mr. Cowan received a Master of Business Administration degree from
Harvard University in 1992. He also received an A.B. degree in Math and
Computer Science from Harvard University.
Wade Woodson, age 38, has served as a director of the Company since
March 1993. He is a general partner with Sigma Partners, a venture capital
organization, with which he has been affiliated since 1987. Mr. Woodson also
serves as a director of Tylan General, a process management components and
systems manufacturer and PSINet, a provider of Internet access services. Mr.
Woodson received a B.S. in Electrical Engineering from Stanford University, a
J.D. degree from Harvard University and a M.B.A. degree from the University of
California, Berkeley.
CLASS 2--TERM EXPIRES AT THE 1999 ANNUAL MEETING
Max D. Hopper, age 62, has served as a director of the Company since
September 1995. He has been Principal and Chief Executive Officer of Max D.
Hopper & Associates, a consulting and information management firm since January
1995. Mr. Hopper served AMR Corporation as Chairman of the SABRE Group and
Senior Vice President from November 1985 to January 1995. Mr. Hopper holds a
B.S. in Mathematics from the University of Houston.
Anthony Sun, age 44, has served as a director of the Company since
March 1995. He has been a general partner of Venrock Associates, a venture
capital firm, since 1980. He is a director of Award Software International,
Inc., a computer systems software company, Centura Software Corporation, a
client/server software company, Cognex Inc., a computer systems company,
Conductus Inc., a superconductive electronics company, Fractal Design
Corporation, a multimedia software tools company, Inference Corporation, a
client/server and Internet help desk software company and Komag Inc., a
computer storage component company. Mr. Sun received S.B.E.E, S.M.E.E. and
Engineer degrees from the Massachusetts Institute of Technology and a Master of
Business Administration degree from Harvard University.
CLASS 3--TERM EXPIRES AT THE 2000 ANNUAL MEETING
Mark A. Jung, age 35, is a founder and has served as Chief Executive
Officer and a Director of the Company since its inception in March 1992. He
also served as President of the Company from March 1992 to April 1997. From
June 1991 to February 1992, he served as Vice President, Worldtalk Division, of
Touch Communications, Inc., from which the Company purchased the assets to form
the Company. From September 1989 to May 1991, Mr. Jung served as Vice
President and General Manager, OSI Product Unit, of Retix, Inc., a supplier of
OSI Software. Prior to his employment at Retix, Mr. Jung was a consultant with
McKinsey & Co., Inc., a management consulting firm. Mr. Jung received his
Bachelor of Science degree in Electrical Engineering from Princeton University
and his Master of Business Administration from Stanford University.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
The Board met five times, including telephone conference meetings, and
acted by written consent once, during 1996. No director attended fewer than
75% of the aggregate of the total number of meetings
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of the Board (held during the period for which he was a director) and the total
number of meetings held by all committees of the Board on which such director
served (during the period that such director served).
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. Cowan and Woodson are the current members of the Audit
Committee. The Audit Committee met twice during 1996. The Audit Committee
meets with the Company's independent accountants to review the adequacy of the
Company's internal control systems and financial reporting procedures; reviews
the general scope of the Company's annual audit and the fees charged by the
independent accountants, reviews and monitors the performance of non-audit
services by the Company's auditors, reviews the fairness of any proposed
transaction between any officer, director or other affiliate of the Company and
the Company, and after such review, makes recommendations to the full Board,
and performs 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. Cowan and Sun are the current members of the Compensation
Committee. The Compensation Committee was formed in February 1996 and met four
times and acted by written consent twice during 1996. The Compensation
Committee reviews and approves compensation and benefits for the Company's key
executive officers, administers the Company's stock purchase and equity
incentive plans and makes recommendations 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 - RATIFICATION OF SELECTION
OF INDEPENDENT ACCOUNTANTS
The Company has selected KPMG Peat Marwick LLP as its independent
accountants to perform the audit of the Company's financial statements for
fiscal year 1997, and the stockholders are being asked to ratify such
selection. Representatives of KPMG Peat Marwick LLP 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 KPMG PEAT MARWICK LLP
------------------
4
<PAGE> 8
PROPOSAL NO. 3 - AMENDMENT TO THE 1996 EQUITY INCENTIVE PLAN
On March 11, 1997, the Board adopted, subject to stockholder approval,
an amendment to the Company's 1996 Equity Incentive Plan (the "Incentive Plan")
to increase the number of shares of Common Stock reserved for issuance
thereunder from 1,000,000 to 1,750,000 shares. The stockholders of the Company
are now being asked to approve this amendment.
The availability of additional stock and stock options 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
stock options to attract and retain qualified employees and remain competitive
in the industry. Below is a summary of the principal provisions of the
Incentive Plan, 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 February 1996. The purpose of the Incentive
Plan is to provide incentives to attract, retain and motivate qualified
employees, 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.
From inception of the Incentive Plan in February 1996 to December 31,
1996, options to purchase an aggregate of 543,800 shares of the Company's
Common Stock were granted under the Incentive Plan. Of these, options to
purchase a total of 486,300 shares were granted to all employees (including all
current officers who are non-executive officers). All executive officers as a
group received options to purchase an aggregate of 57,500 shares in the amounts
indicated: Mark Jung, director and Chief Executive Officer, 30,000 shares;
Stephen R. Bennion, Vice President, Finance and Administration, Chief Financial
Officer and Secretary, 12,500 shares; Steven M. Goldner, Vice President,
Engineering, 10,000 shares; and Christopher J. Andrews, Vice President,
Worldwide Sales, 5,000 shares. No other options were granted during the period
under the Incentive Plan to any other executive officer or director of the
Company, or any associate of any of the foregoing, and no person received 5% or
more of such options.
SHARES SUBJECT TO THE INCENTIVE PLAN. An aggregate of 1,000,000
shares of the Common Stock of the Company has been reserved by the Board for
issuance under the Incentive Plan. This Proposal No. 3 seeks to increase the
number of shares reserved for issuance under the Incentive Plan from 1,000,000
to 1,750,000 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 option will again become available for grant and purchase
under the Incentive Plan. This number of shares 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. Cowan and Sun, both of
whom are "disinterested persons," as that term is defined in the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and "outside directors,"
as that term is defined pursuant to Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code").
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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.
ELIGIBILITY. Employees, officers, directors, consultants, independent
contractors and advisors of the Company (and of any subsidiaries and
affiliates) are eligible to receive awards under the Incentive Plan (the
"Participants"). No 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 750,000
shares of Common Stock in the calendar year in which they commence their
employment with the Company. As of April 15, 1997, approximately 101 persons
were eligible to participate in the Incentive Plan. At that date, no shares
had been issued upon exercise of options granted under the Incentive Plan,
908,050 shares were subject to outstanding options and, 91,950 shares were
available for future option grants. The closing price of the Company's Common
Stock on the Nasdaq National Market was $5.00 per share as of April 15, 1997,
the Record Date.
STOCK OPTIONS. The Incentive Plan permits the granting of both
Incentive Stock Options ("ISOs") that qualify under Section 422 of the Code and
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 at the time the ISO is granted. In the case of an ISO granted to
a 10% shareholder, 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 at the time 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 at the time 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 and having a fair market value on the date
of surrender equal to the aggregate exercise price of the option or obtained by
the Participant in the public market; (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.
TERMINATION OF OPTIONS. Options are generally exercisable for a
period of ten years. Options granted under the Incentive Plan generally
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 or retention is
due to permanent and total disability or death, in which case the option may be
exercised at any time within 12 months after termination to the extent the
option was exercisable to 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
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terms, conditions and restrictions as the Committee may determine. Awards of
restricted stock may be subject to a right of repurchase in favor of the
Company. 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 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 under the Incentive Plan.
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. Such awards may be subject to a right of repurchase in favor of
the Company. 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
equivalent options in exchange for those 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) under the Incentive Plan. In connection with certain types of
acquisitions, the vesting of the outstanding stock options and awards will
accelerate to make certain of them exercisable in full; others accelerate and
become exercisable as to less than all of the shares subject to the option.
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 February 2006, ten
years from the date the Incentive Plan was adopted by the Board.
FEDERAL INCOME TAX INFORMATION.
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT OF
THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND PARTICIPANTS UNDER THE
INCENTIVE PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND
LOCAL TAX CONSEQUENCES FOR ANY PARTICIPANT WILL DEPEND UPON HIS OR HER
INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPANT HAS BEEN, AND IS, ENCOURAGED TO
SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF
PARTICIPATION IN THE INCENTIVE PLAN.
Incentive Stock Options. A Participant will not recognize income upon
grant of an ISO and will not incur tax on its exercise (unless the Participant
is subject to the alternative minimum tax described below). If the Participant
holds the stock acquired upon exercise of an ISO (the "ISO Shares") for one
year after the date the option was exercised and for two years after the date
the option was granted, the Participant generally will realize long-term
capital gain or loss (rather than ordinary income or loss) upon disposition of
the ISO Shares. This gain or loss will be equal to the difference between the
amount realized upon such disposition and the amount paid for the ISO shares.
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<PAGE> 11
If the Participant disposes of ISO Shares prior to the expiration of
either required holding period (a "disqualifying disposition"), then gain
realized upon such disposition, up to the difference between the fair market
value of the ISO Shares on the date of exercise (or, if less, the amount
realized on a sale of such shares) and the option exercise price, generally
will be treated as ordinary income. Any additional gain will be long-term or
short-term capital gain, depending upon the amount of time the ISO Shares were
held by the Participant.
Alternative Minimum Tax. The difference between the fair market value
of the ISO shares on the date of exercise and the exercise price is an
adjustment to income for purposes of the alternative minimum tax (the "AMT").
The AMT (imposed to the extent it exceeds the taxpayer's regular tax) is 26% of
an individual taxpayer's alternative minimum taxable income (28% in the case of
alternative minimum taxable income in excess of $175,000). Alternative minimum
taxable income is determined by adjusting regular taxable income for certain
items, increasing that income by certain tax preference items (including the
difference between the fair market value of the ISO shares on the date of
exercise and the exercise price) and reducing this amount by the applicable
exemption amount ($45,000 in the case of a joint return, subject to reduction
under certain circumstances). If a disqualifying disposition of the ISO Shares
occurs in the same calendar year as exercise of the ISO, there is no AMT
adjustment with respect to those shares. Also upon a sale of ISO shares that
is not a disqualifying disposition, alternative minimum taxable income is
reduced in the year of sale by the excess of fair market value of the ISO
shares at exercise over the amount paid for the ISO shares. Special rules
apply where all or a portion of the exercise price is paid by tendering shares
of Common Stock.
Nonqualified Stock Options. A Participant will not recognize any
taxable income at the time a NQSO is granted. However, upon exercise of a NQSO
the Participant will include in income as compensation an amount equal to the
difference between the fair market value of the shares on the date of exercise
and the Participant's exercise price. The included amount will be treated as
ordinary income by the Participant and may be subject to income tax and FICA
withholding by the Company (either by payment in cash or withholding out of the
Participant's salary). Upon resale of the shares by the Participant, any
subsequent appreciation or depreciation in the value of the shares will be
treated as capital gain or loss. Special rules apply where all or a portion of
the exercise price is paid by tendering shares of Common Stock.
Restricted Stock and Stock Bonus Awards. Restricted stock and stock
bonus awards will generally be subject to tax at the time of receipt, unless
there are restrictions that enable the Participant to defer tax. At the time
the tax is incurred, the tax treatment will be similar to that discussed above
for NQSOs.
Tax Rates - Ordinary Income and Capital Gains. The maximum tax rate
applicable to ordinary income is 39.6%. Long-term capital gain will be taxed
at a maximum rate of 28%. For this purpose, in order to receive long-term
capital gain treatment, the shares must be held for more than one year.
Capital gains may 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.
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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.
SUMMARY OF 1996 DIRECTORS STOCK OPTION PLAN,
1996 EMPLOYEE STOCK PURCHASE PLAN AND 1992 STOCK OPTION PLAN
Below is a summary of the principal provisions of the Company's 1996
Directors Stock Option Plan, 1996 Employee Stock Purchase Plan and 1992 Stock
Option Plan. There is no need for stockholder approval of these plans at the
Meeting, and none is being sought. These summaries are provided to inform
stockholders of the other equity-based plans adopted by the Company and are
qualified in their entirety by reference to the full text of such plans.
1996 DIRECTORS STOCK OPTION PLAN
Directors Plan History. The Board adopted and the stockholders
approved the 1996 Directors Stock Option Plan (the "Directors Plan") in
February 1996.
Shares Subject to the Directors Plan. The shares subject to options
under the Directors Plan are shares of the Company's authorized but unissued
Common Stock. The aggregate number of shares that may be issued pursuant to
the Directors Plan is 200,000 shares of Common Stock. In the event that any
outstanding option under the Directors Plan expires or is terminated for any
reason, the shares of Common Stock corresponding to the unexercised portion of
such option may again be available for the grant of options under the Directors
Plan. This number of shares is subject to proportional adjustment to reflect
stock splits, stock dividends and other similar events.
Administration. The Directors Plan is presently administered by the
Board. The interpretation by the Board of any of the provisions of the
Directors Plan or any option granted under the Directors Plan will be final and
conclusive.
Eligibility. Under the Directors Plan, the Company automatically
grants options to each director of the Company who is not an employee of, or
consultant to, the Company (or of any parent, subsidiary or affiliate of the
Company). As of April 15, 1996, four persons were eligible to receive options
under the Directors Plan.
Formula for Option Grants. Each eligible director who becomes a
director for the first time, or returns as a director after a break in service,
after April 11, 1996, the effective date of the Company's initial public
offering of its Common Stock (the "Effective Date"), will be automatically
granted an option to purchase 15,000 shares of Common Stock under the Directors
Plan (the "Initial Grant"). In addition, each eligible director who was a
member of the Board on the Effective Date, and who had not previously received
any option under the Company's prior Stock Option Plan, was automatically
granted an option for 15,000 shares on the Effective Date. Successive options
to purchase an additional 5,000 shares (a "Succeeding Grant") are granted to
each eligible director five days after each of the succeeding annual meetings
of stockholders beginning with the second annual stockholder meeting that is
held following the Effective Date. Each eligible director receives a
successive grant whether or not his or her prior option was granted under the
Directors Plan or any other of the Company's stock option plans, provided that
each such director has either served continuously as a member of the board for
at least one year prior to the grant date or since the Effective Date, as
applicable.
Terms of Option Grants. Options granted under the Directors Plan
shall be NQSOs. Each Initial Grant and Succeeding Grant will have a term of
ten years, unless terminated earlier due to the director's
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<PAGE> 13
termination as a director of the Company. The options granted under the
Directors Plan vest as to 25% of the shares subject to the option each calendar
year over a four-year period on a date that is five days after each annual
meeting of stockholders of the Company in such calendar year. If there is no
annual meeting of stockholders in any one year, the grant and vesting dates
described above for that year instead will be December 31.
The option exercise price will be the "fair market value" (as defined
in the Directors Plan) of the Common Stock of the Company as of the date of the
grant of the option. The option exercise price will be payable in cash (by
check) and in a number of other forms of consideration, including fully paid
shares of Common Stock owned by the non-employee director for more than six
months, by waiver of compensation due or accrued to the eligible director for
services rendered, through a "same day sale," through a "margin commitment," by
means of a full-recourse promissory note or through any combination of the
foregoing.
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
equivalent options in exchange for those granted under the Directors 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 connection with certain types of acquisitions, the vesting
of the outstanding stock options will accelerate as to certain of those options
to make them exercisable in full; others accelerate and become partially
exercisable.
Amendment of the Directors Plan. The Board, to the extent permitted
by law, and with respect to any shares at the time not subject to options, may
terminate or amend the Directors Plan; provided, however, that the Board may
not, without stockholder approval, increase the total number of shares of
Common Stock available for issuance under the Directors Plan or change the
class of persons eligible to receive options; and provided further that no
amendment may be made to the eligibility, award formula or terms and conditions
of options sections of the Directors Plan more than once every six months,
other than to comport with changes in the Code, ERISA or the rules thereunder.
In any case, no amendment of the Directors Plan may adversely affect any then
outstanding options or any unexercised portions thereof without the written
consent of the eligible director.
Term of the Directors Plan. Unless terminated earlier in accordance
with the provisions of the Directors Plan, the Directors Plan will terminate in
February 2006, ten years from the date the Directors Plan was adopted by the
Board.
Federal Income Tax Information. For the federal income tax
implications to the eligible directors and the Company of options granted under
the Directors Plan, please refer to the discussion of the tax implications of
NQSOs in "Federal Income Tax Information" in the discussion of the Incentive
Plan above.
ERISA and Section 401(a). The Directors Plan is not subject to any of
the provisions of ERISA and is not qualified under Section 401(a) of the Code.
1996 EMPLOYEE STOCK PURCHASE PLAN
Stock Purchase Plan History. The Board adopted, and the stockholders
approved, the Company's 1996 Employee Stock Purchase Plan (the "Stock Purchase
Plan") in February 1996. The purpose of the Stock Purchase Plan is to provide
employees of the Company designated by the Board as eligible
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<PAGE> 14
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. The stock subject to purchase
under the Stock Purchase Plan consists of 1,000,000 shares of the Company's
authorized but unissued Common Stock.
Administration. The Stock Purchase Plan is administered by the
Committee. The interpretation or construction by the Committee of any
provisions of the Stock Purchase Plan or of any option granted under it will be
final and binding on all Participating Employees.
Eligibility. All employees of the Company, or of any of its
subsidiaries, are eligible to participate in an Offering Period (as hereinafter
defined) under the Stock Purchase Plan except the following:
(a) employees who are not employed by the Company, or any of its
subsidiaries, one month before the beginning of such Offering
Period;
(b) employees who are customarily employed for less than 20 hours
per week;
(c) employees who are customarily employed for less than five
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, representing 5% or more of the total combined voting
power or value of all classes of stock of the Company or any
of its subsidiaries.
As of April 15, 1997, approximately 101 persons were eligible to
participate in the Stock Purchase Plan and 35,095 shares had been issued
pursuant to the Stock Purchase Plan.
Each offering period of Common Stock under the Stock Purchase Plan is
generally 24 months (the "Offering Period") presently commencing on November 1
and May 1 of each year and ending on April 30 and October 31 of each year. The
initial Offering Period commenced on April 11, 1996 and will end on April 30,
1998. Each Offering Period consists 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 business 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. The Board has the power to change
the duration of any Offering Period or Purchase Period without stockholder
approval provided that the change is announced at least 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
$25,000 per year or such other limit as may be imposed by the Code.
Participating Employees may elect to participate in any Offering
Period by enrolling as provided under the terms of the Stock Purchase Plan. No
Participating Employee may purchase more than the
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<PAGE> 15
maximum amount set by the Board prior to the commencement of an Offering
Period. Once enrolled, a Participating Employee will automatically participate
in each succeeding Offering Period unless the Participating Employee withdraws
from the Offering Period or the Stock Purchase Plan is terminated. After the
rate of payroll deductions for an Offering Period has been set by a
Participating Employee, that rate continues to be effective for the remainder
of the Offering Period (and for all subsequent Offering Periods in which the
Participating Employee is automatically enrolled) unless otherwise changed by
the Participating Employee. The Participating Employee may increase or lower
the rate of payroll deductions for any subsequent Offering Period, but may only
lower the rate of payroll deductions for an ongoing Offering Period. Not more
than one change may be made during a single Offering Period.
Purchase Price. The purchase price of shares that may be acquired in
any Purchase Period under the Stock Purchase Plan will be 85% of the lesser of:
(1) the fair market value of the shares on the Offering Date; or (2) 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 last trading date prior to
the date of determination, 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 Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as
amended (the "Securities Act").
Purchase of Stock Under the Stock Purchase Plan. The number of whole
shares a Participating Employee will be able to purchase in any Offering Period
will be determined by dividing the total amount withheld from the Participating
Employee during the Offering Period pursuant to the Stock Purchase Plan by the
purchase price for each share determined as described above. The purchase will
take place automatically on the last business day of the Offering Period. 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 on any single Purchase Date. At any time prior to 30
days before the commencement of an Offering Period, the Board may set a lower
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: (1) increase the number of shares that may be issued under
the Stock Purchase Plan; (2) change the designation of the employees (or class
of employees) eligible for participation in the Stock Purchase Plan; or (3)
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 (1) termination of the Stock Purchase
Plan by the Board, (2) issuance of all the shares of
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<PAGE> 16
Common Stock reserved for issuance thereunder, or (3) ten years from the
adoption of the Stock Purchase Plan by the Board.
Federal Income Tax Information.
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT OF
THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND EMPLOYEES PARTICIPATING
IN THE STOCK PURCHASE PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL,
STATE AND LOCAL TAX CONSEQUENCES FOR ANY PARTICIPATING EMPLOYEE WILL DEPEND
UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPATING EMPLOYEE IS
ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR REGARDING THE TAX
CONSEQUENCES FOR PARTICIPATION IN THE STOCK PURCHASE PLAN.
The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code.
Tax Treatment of the Participating Employee. Participating employees
will not recognize income for federal income tax purposes either upon
enrollment in the Stock Purchase Plan or upon the purchase of shares. All tax
consequences are deferred until a Participating Employee sells the shares,
disposes of the shares by gift or dies.
If shares are held for more than one year after the date of purchase
and more than two years from the beginning of the applicable Offering Period,
or if the Participating Employee dies while owning the shares, the
Participating Employee realizes ordinary income on a sale (or a disposition by
way of gift or upon death) to the extent of the lesser of (1) 15% of the fair
market value of the shares at the beginning of the Offering Period or (2) the
actual gain (the amount by which the market value of the shares on the date of
sale, gift or death exceeds the purchase price). All additional gain upon the
sale of the shares is treated as long-term capital gain. If the shares are
sold and the sale price is less than the purchase price, there is no ordinary
income and the Participating Employee has a long-term capital loss for the
difference between the sale price and the purchase price.
If the shares are sold or are otherwise disposed of including by way
of gift (but not death, bequest or inheritance) (in any case a "disqualifying
disposition") within either the one year or the two year holding periods
described above, the Participating Employee realizes ordinary income at the
time of sale or other disposition taxable to the extent that the fair market
value of the shares at the date of purchase is greater than the purchase price.
This excess will constitute ordinary income (currently not subject to
withholding) in the year of the sale or other disposition even if no gain is
realized on the sale or if a gratuitous transfer is made. The difference, if
any, between the proceeds of the sale and the fair market value of the shares
at the date of purchase is a capital gain or loss. Capital gains continue to
be offset by capital losses and up to $3,000 of capital losses may be used
annually against ordinary income.
Tax Treatment of the Company. The Company will be entitled to a
deduction in connection with the disposition of shares acquired under the Stock
Purchase Plan only to the extent that the Participating Employee recognizes
ordinary income on a disqualifying disposition of the shares. The Company will
treat any transfer of record ownership of shares as a disposition, unless it is
notified to the contrary. In order to enable the Company to learn of
disqualifying dispositions and ascertain the amount of the deductions to which
it is entitled, Participating Employees will be required to notify the Company
in writing of the date and terms of any disposition of shares purchased under
the Stock Purchase Plan.
ERISA and Section 401(a). The Stock Purchase Plan is not subject to
any of the provisions of ERISA and is not qualified under Section 401(a) of the
Code.
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<PAGE> 17
1992 STOCK OPTION PLAN.
Prior to the Company's public offering, the Company maintained the
1992 Stock Option Plan (the "1992 Plan"). Because this plan terminated on the
Effective Date of the Company's initial public offering, no further options
will be granted pursuant to the 1992 Plan. As of April 15, 1997, options to
purchase approximately 660,387 shares of the Company's Common Stock were
outstanding under the 1992 Plan. The terms of options granted under the 1992
Plan are substantially similar to those granted under the Incentive Plan.
NEW PLAN BENEFITS
The amounts of future option grants under the Incentive Plan are not
determinable because, under the terms of the Incentive Plan, such grants are
made in the discretion of the Committee. Future option exercise prices are not
determinable because they are based upon fair market value of the Company's
Common Stock on the date of grant. Similarly, the amounts of future stock
purchases under the Stock Purchase Plan are not determinable because, under the
terms of the Stock Purchase Plan, purchases are based upon elections made by
Participating Employees. Future purchase prices are not determinable because
they are based upon fair market value of the Company's Common Stock.
Only non-employee directors of the Company are eligible to participate
in the Directors Plan. The grant of options under the Directors Plan is not
discretionary. Under the Directors Plan, each eligible director who was a
member of the Board on the Effective Date, and who had not previously received
any option under the Company's prior 1992 Stock Option Plan (a group comprised
of Messrs. Cowan, Sun and Woodson) received an option for 15,000 shares on the
Effective Date. Successive options to purchase an additional 5,000 shares are
granted to each eligible director five days after each of the succeeding annual
meetings of stockholders beginning with the second annual stockholder meeting
that is held following the Effective Date. Any outside director who first
joins the Board following the Effective Date will automatically receive an
option to purchase 15,000 shares of the Company's Common Stock on the date of
his or her first appointment to the Board. The exercise prices of these
options are not determinable because they are equal to fair market value of the
Company's Common Stock on the date of grant.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT
TO THE 1996 EQUITY INCENTIVE PLAN
------------------------
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<PAGE> 18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 31,
1997, known to the Company regarding the beneficial ownership of the Company's
Common Stock by (1) each person known by the Company to be the beneficial owner
of more than 5% of the Company's Common Stock, (2) each director and nominee,
(3) each executive officer named in the Summary Compensation Table below and
(4) all directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND NATURE OF OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) COMMON STOCK(1)
------------------------ ----------------------- ---------------
<S> <C> <C>
David J. Cowan (2) . . . . . . . . . . . . . . . . . . . 1,586,210 15.4%
Bessemer Venture Partners III L.P.
1025 Old Country Road, Suite 205
Westbury, NY 11590
Anthony Sun (3) . . . . . . . . . . . . . . . . . . . . . 1,267,584 12.3
Venrock Associates
30 Rockefeller Plaza, Rm. 5508
New York, NY 10112
Wade Woodson (4) . . . . . . . . . . . . . . . . . . . . 743,910 7.2
Sigma Partners
2884 Sand Hill Road, Suite 121
Menlo Park, CA 94025
Apex Investment Fund II, L.P. . . . . . . . . . . . . . . 575,680 5.6
233 South Wacker Drive, Suite 9600
Chicago, IL 60606
Mark A. Jung (5) . . . . . . . . . . . . . . . . . . . . 509,241 4.9
Stephen R. Bennion (6) . . . . . . . . . . . . . . . . . 194,906 1.9
Steven M. Goldner (7) . . . . . . . . . . . . . . . . . . 152,502 1.5
Chris Andrews (8) . . . . . . . . . . . . . . . . . . . . 66,732 *
Max D. Hopper (9) . . . . . . . . . . . . . . . . . . . . 53,750 *
All officers and directors as a group (8 persons) (10) . 4,574,834 44.0%
- ---------------------
</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 after March 31, 1997 are deemed
to be outstanding and to be beneficially owned by the person holding such
options for the purpose of computing the percentage ownership of such
person but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person.
(2) Mr. Cowan is a director of the Company and a general partner of Deer III
& Co. L.P. ("Deer"), the general partner of Bessemer Venture Partners
III, L.P. ("BVP III"). The share number includes 1,305 shares held of
record by Mr. Cowan; 3,750 shares subject to options exercisable within
60 days after March 31, 1997; 1,538,929 shares held of record by BVP III;
38,668 shares held of record by the general partners of Deer; and 3,558
shares over which BVP III exercises voting control, held of record by two
individuals, each of whom is a present or former employee or consultant
to Bessemer Securities Corporation, the sole owner of the limited partner
of BVP III. Deer is a general partnership whose voting partners are
Robert H. Buescher, David J. Cowan, G. Felda Hardymon and Christopher
F.O. Gabrieli. BVP disclaims beneficial ownership of securities held by
the general partners of Deer.
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<PAGE> 19
(3) Mr. Sun is a director of the Company and a general partner of Venrock
Associates and Venrock Associates II, L.P. The share number represents
3,750 shares of Common Stock subject to options exercisable within 60
days of March 31, 1997; 872,599 shares held of record by Venrock
Associates; and 391,235 shares held of record by Venrock Associates II,
L.P. Each fund disclaims beneficial ownership of the shares held by the
other.
(4) Mr. Woodson is a director of the Company and a general partner of Sigma
Partners II, L.P. and Sigma Associates II, L.P. The share number
represents 1,425 shares held by Mr. Woodson; 3,750 shares of Common Stock
subject to options exercisable within 60 days after March 31, 1997;
670,458 shares held by Sigma Partners II, L.P.; and 68,277 shares held by
Sigma Associates II, L.P. Each fund disclaims beneficial ownership of
the shares held by the other.
(5) Includes 9,375 shares subject to options exercisable within 60 days after
March 31, 1997 and 20,000 shares held by the Jung-Murdock Children's
Trust dated November 23, 1993 (the "Children's Trust"). Mr. Jung is an
advisory trustee to the Children's Trust and may be deemed to share
voting or dispositive control over the shares so held. Mr. Jung
disclaims beneficial ownership of the shares held by the Children's
Trust.
(6) Includes 3,906 shares subject to options exercisable within 60 days after
March 31, 1997.
(7) Includes 3,125 shares subject to options exercisable within 60 days after
March 31, 1997.
(8) Represents shares subject to options exercisable within 60 days after
March 31, 1997.
(9) Includes 3,750 shares subject to options exercisable within 60 days after
March 31, 1997.
(10) Represents the shares and options referenced in footnotes (2) through (9)
above.
EXECUTIVE OFFICERS
The executive officers of the Company, and their ages as of April 15,
1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark A. Jung 35 Chief Executive Officer
Bernard Harguindeguy 38 President and Chief Operating Officer
Stephen R. Bennion 53 Executive Vice President, Finance and
Administration, Chief Financial Officer and
Secretary
Christopher J. Andrews 40 Vice President, Worldwide Sales
Steven M. Goldner 45 Vice President, Engineering
</TABLE>
For information regarding the positions an offices held by Mr. Jung,
please refer to the discussion regarding nominees for election as
directors in "Nominees" under Proposal No. 1 above.
Mr. Harguindeguy has served as President and Chief Operating Officer
of the Company since April 1997. From December 1996 to March 1997, he served
as Vice President, Marketing and Business Development of the Company. From
August 1994 to December 1996, he served as Vice President, Marketing of
emotion, Inc., a company focused on the delivery of digital video and graphics
over networks. From February 1989 to August 1994, Mr. Harguindeguy was Acting
General Manager and Vice President of Worldwide Marketing for the Netware
Enterprise Division of Novell, Inc. Mr. Harguindeguy
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<PAGE> 20
received a Bachelor of Science degree in Electrical Engineering from the
University of California, Irvine and a Master in Engineering Management from
Stanford University.
Mr. Bennion has served as Chief Financial Officer and Secretary of the
Company since April 1995. He has served as Executive Vice President, Finance
and Administration of the Company since April 1997. From April 1995 to April
1997, he was the Company's Vice President, Finance and Operations. From
September 1994 to March 1995, he was Vice President and Chief Financial Officer
of Catapult Entertainment, Inc., a developer of video game networks. From
September 1991 to September 1994, Mr. Bennion served as Vice President and Chief
Financial Officer of Molecular Dynamics, a manufacturer of life sciences
instrumentation. From October 1988 to September 1991, Mr. Bennion served as
Vice President and Treasurer of MIPS Computer Systems, Inc., a developer of RISC
chips and computers. Mr. Bennion received his Bachelor of Science degree in
Accounting and Economics from Weber State University and is a Certified Public
Accountant.
Mr. Andrews joined the Company as Vice President, Sales in December
1995 and was made Vice President, Worldwide Sales in April 1997. From August
1990 to December 1995, he served as National Sales Manager of Netframe Systems,
a supplier of NFS Servers and from March 1989 to August 1990 as Sales Manager
at 3Com Corporation, a computer communications company. Mr. Andrews received a
Bachelor of Science degree in Biology and Economics from Drew University.
Mr. Goldner joined the Company as Vice President, Engineering, in
October 1994. Prior to joining the Company, Mr. Goldner was Vice President,
Engineering, of Polycom, Inc., a manufacturer of communications equipment, from
October 1992 to October 1994 and served as Director of Engineering, and in
other positions, at Sun Microsystems, Inc., a computer hardware vendor, from
May 1985 to October 1992. Mr. Goldner received his Bachelor of Science and
Master of Science degrees in Electrical Engineering from the University of
Michigan.
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<PAGE> 21
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to or earned
or paid for services rendered in all capacities to the Company during each of
1995 and 1996 by the Company's Chief Executive Officer and the Company's four
other most highly compensated executive officers who were serving as executive
officers at the end of 1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ -------------
OTHER SECURITIES
NAME AND PRINCIPAL FISCAL ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS (1) COMPENSATION OPTIONS COMPENSATION (2)
- -------- ---- ------ --------- ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Jung 1996 $ 137,936 $ 80,000 -- 30,000 $ 1,438
Chairman of the Board 1995 122,205 30,000 -- 206,022 1,160
and
Chief Executive Officer
Stephen R. Bennion 1996 130,531 40,000 -- 12,500 456
Executive Vice 1995 72,573 -- -- 191,000 190
President, Finance and
Administration, Chief
Financial Officer and
Secretary
Steven M. Goldner 1996 131,708 30,000 -- 10,000 284
Vice President, 1995 122,969 -- -- 57,277 153
Engineering
Christopher J. Andrews 1996 98,006 111,250 -- 5,000 17
Vice President, 1995 -- -- -- 162,500 --
Worldwide Sales
</TABLE>
____________________________
(1) Bonuses are paid at the discretion of the Compensation Committee based on
the achievement of certain objectives.
(2) Includes excess group term life insurance premiums.
The following table sets forth further information regarding the
option grants pursuant to the Company's 1996 Equity Incentive Plan during 1996
to each of the Named Executive Officers. In accordance with the rules of the
SEC, 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 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
PERCENT OF
TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM (2)
OPTIONS IN FISCAL PRICE PER EXPIRATION -------------------------
NAME GRANTED(1) 1996 SHARE DATE 5% 10%
- --------------------- ---------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Jung . . . . 30,000 4.2% $8.00 02/07/06 $150,935 $382,498
Stephen R. Bennion . 12,500 1.7% 8.00 02/07/06 62,889 159,374
Steven M. Goldner . . 10,000 1.4% 8.00 02/07/06 50,312 127,499
Christopher J. 5,000 0.7% 8.00 02/07/06 25,156 63,750
Andrews . . . . . .
- ----------------------------
</TABLE>
18
<PAGE> 22
(1) The incentive stock options shown in the table were granted at fair
market value and become exercisable with respect to 25% of the shares
on the first anniversary of the grant and with respect to an
additional 6.25% of the shares every three months that the optionee
renders services to the Company thereafter. The options shown in the
table will expire ten years from the date of grant, subject to earlier
termination upon termination of employment.
(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.
The following table sets forth certain information concerning the
exercise of options by each of the Named Executive Officers during fiscal 1996,
including the aggregate amount of gains on the date of exercise. In addition,
the table includes the number of shares covered by both exercisable and
unexercisable stock options as of December 31, 1996. Also reported are values
of "in-the-money" options that represent the positive spread between the
respective exercise prices of outstanding stock options and $7.50 per share,
which was the closing price of the Company's Common Stock as reported on the
Nasdaq National Market on December 31, 1996.
AGGREGATE OPTION EXERCISES IN FISCAL 1996 AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END (2)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Jung . . . . 0 0 0 30,000 0 0
Stephen R. Bennion . 0 0 0 12,500 0 0
Steven M. Goldner . . 0 0 0 10,000 0 0
Christopher J. 0 0 57,552 109,948 $ 316,536 $ 577,214
Andrews . . . . . .
Bernard Harguindeguy 0 0 0 0 0 0
</TABLE>
____________________________
(1) "Value Realized" represents the fair market value of the shares of
Common Stock underlying the option on the date of exercise less the
aggregate exercise price of the option.
(2) These values, unlike the amounts set forth in the column entitled
"Value Realized," have not been, and may never be, realized and are
based on the positive spread between the respective exercise prices of
outstanding options and the closing price of the Company's Common
Stock on December 31, 1996, the last day of trading for the fiscal
year.
DIRECTOR COMPENSATION
The Company reimburses the members of its Board of Directors for
reasonable expenses associated with their attendance at Board meetings. All
members of the Board of Directors who are not also employees of, or consultant
to, the Company, or of a parent, subsidiary or affiliate of the Company, are
eligible to receive options under the 1996 Directors Stock Option Plan. For a
discussion of the provisions of the Directors Plan, please refer to "1996
Directors Stock Option Plan" above.
19
<PAGE> 23
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Cowan and Sun. 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. REPORT ON EXECUTIVE COMPENSATION
The report on executive compensation 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, 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.
Final decisions regarding executive compensation and stock option
grants to executives are made by the Compensation Committee of the Board of
Directors (the "Committee"). Prior to the Company's initial public offering in
April 1996, the Board of Directors participated in compensation decisions and
granted stock options. The Committee is composed of two independent
non-employee directors, neither of whom have any interlocking relationships as
defined by the SEC.
GENERAL COMPENSATION POLICY
The Committee acts on behalf of the Board to establish the general
compensation policy of the Company for all employees of the Company. The
Committee administers the Company's incentive and equity plans, including the
1992 Stock Option Plan (which was terminated in April 1996), the 1996 Equity
Incentive Plan and the 1996 Employee Stock Purchase Plan. The Company no
longer grants options under the 1992 Stock Option Plan.
The Committee's philosophy in compensating the CEO is to relate
compensation directly to corporate performance. Thus, the Company's
compensation policy for the CEO relates a portion of his total compensation to
the Company profit objectives and individual objectives set forth at the
beginning of the Company's year. Consistent with this policy, a designated
portion of the CEO's compensation is contingent on corporate performance, and
is also based on his performance as measured against objectives established by
the Committee in its discretion. Long-term equity incentives for the CEO are
effected through the granting of stock options under the 1996 Equity Incentive
Plan. Stock options have value for the CEO only if the price of the Company's
stock increases above the fair market value on the grant date and the CEO
remains in the Company's employ for the period required for the shares to vest.
The base salary, incentive compensation and stock option grants of the
CEO are determined in part by the Committee 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 attempts to
compare the compensation of the Company's CEO with the compensation practices
of comparable companies to determine base salary, target bonuses and target
total cash compensation. In addition to his base salary, the Company's CEO is
eligible to receive cash bonuses and to participate in the 1996 Equity
Incentive Plan.
In preparing the performance graph for this Proxy Statement, the
Company used the CRSP Total Return Index for Nasdaq Computer & Data Processing
Services Stocks ("CRSP Index") as its published line of business index as the
Company believes that the CRSP Index is a good indicator of stock price
performance with respect to the Company's industry.
20
<PAGE> 24
FISCAL 1996 EXECUTIVE COMPENSATION
Base Compensation. The foregoing information was presented to the
Board on February 7, 1996. The Board reviewed the recommendations and
performance and market data outlined above and established a base salary level
to be effective January 1, 1996 for the CEO. Mr. Jung's salary was increased
to $140,000 from the $125,000 previously paid to him in fiscal 1995.
Incentive Compensation. A cash bonus is awarded to the extent that an
individual achieves predetermined individual objectives and the Company meets
predetermined profit objectives set by the Board at the beginning of the year.
Performance is measured at the end of the year. For fiscal 1996, the basis of
incentive compensation was Company revenue, percentage of growth of revenue and
profit margin after tax. The targets and actual bonus payments are determined
by the Committee, in its discretion.
Stock Options. In fiscal 1996, stock options were granted to certain
executive officers 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 1996, the Committee considered these
factors, as well as the number of options held by such executive officers as of
the date of grant that remained unvested. In the discretion of the Committee,
executive officers may also be granted stock options 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. As noted above, Mr. Jung's
base salary was increased to $140,000 commencing January 1, 1996. In addition,
as an incentive to Mr. Jung to achieve the objectives established by the
Committee for fiscal 1996, the Board of Directors exercised its discretion and
recommended that Mr. Jung be granted stock options to purchase 30,000 shares of
the Company's Common Stock. These objectives included satisfactorily managing
the Company's overall corporate business plan, such as meeting the Company's
profitability projections and the Company's sales targets, significantly
strengthening the Company's marketing position and successfully managing the
Company through its initial public offering. In granting the stock options to
Mr. Jung, the Board of Directors reviewed his prior outstanding option grants
and the number of options that remained unexercisable, and the number of shares
he already owned as of the dates the options were granted. The Committee
believes this was appropriate because Mr. Jung's total compensation, including
compensation derived from incentive compensation, is at a level it believes is
competitive with the average amount paid by other software companies based on
survey data. Based upon the criteria set forth under the discussion of
Incentive Compensation above, the Committee awarded Mr. Jung incentive
compensation of $80,000. All of Mr. Jung's incentive compensation was based
upon obtaining and surpassing corporate operating profit objectives. This
figure represents approximately 100% of the target bonus for Mr. Jung for
fiscal 1996. The Committee reviewed the compensation practices of comparable
companies in making these awards.
21
<PAGE> 25
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 for 1997. The 1996 Directors Stock Option 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).
BOARD OF DIRECTORS COMPENSATION COMMITTEE
DAVID J. COWAN ANTHONY.SUN DAVID J. COWAN
MAX D. HOOPER WADE WOODSON ANTHONY SUN
MARK A. JUNG
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, 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 (April 12, 1996) to
December 31, 1996 with the cumulative total return on the Nasdaq Stock Market
(U.S. Companies) and the CRSP Total Return Index for Nasdaq Computer & Data
Processing Services Stocks for the same period (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).
[CHARISMA GRAPH]
<TABLE>
<CAPTION>
WORLDTALK COMMUNICATIONS NASDAQ STOCK MARKET NASDAQ COMPUTER & DATA
CORPORATION U.S. INDEX PROCESSING SERVICES
------------------------- ---------------------- ----------------------
INVESTMENT INVESTMENT INVESTMENT
MARKET PRICE VALUE INDEX VALUE INDEX VALUE
------------ ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
04/12/96 . . . . . . . $ 8.00 $ 100.00 361.8 $100.00 779.1 $100.00
06/30/96 . . . . . . . 12.25 153.13 425.3 117.55 875.0 112.31
09/30/96 . . . . . . . 9.25 115.63 405.3 112.02 892.4 114.54
12/31/96 . . . . . . . 7.50 93.75 391.4 108.18 928.2 119.14
</TABLE>
22
<PAGE> 26
CERTAIN TRANSACTIONS
Since January 1, 1996, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which the
Company was or is to be a party in which the amount involved exceeds $60,000
and in which any director, executive officer, or holder of more than 5% of the
Company's Common Stock had or will have a direct or indirect material interest
other than normal compensation arrangements, which are described under
"Executive Compensation" above and the transactions described below:
In December 1995, the Company made loans to Mark A. Jung, Chairman of
the Board and Chief Executive Officer of the Company, and Stephen R. Bennion,
Vice President, Finance and Administration, Chief Financial Officer and
Secretary of the Company, for $105,000 and $60,000, respectively. In March
1996, Mr. Jung borrowed an additional $68,000 from the Company to cover certain
1995 federal and state tax liabilities. These loans, in the form of full
recourse promissory notes, bore simple interest at 5.83%, compounded
semiannually, the applicable federal rate in effect for loans first contracted
in December 1995. The loans were secured by an interest in 521,865 and 191,000
shares, respectively, of the Company's Common Stock owned by each officer. In
March 1997, Mr. Jung and Mr. Bennion repaid the principal amount of these
loans, together with accrued interest.
In October 1996, the Company, pursuant to the terms of a Secured Full
Recourse Promissory Note, made a loan of $325,000 to Chris Andrews, the
Company's Vice President at an annual interest rate of 6.61%, compounded
semi-annually (the applicable federal rate for loans made in October 1996).
The principal amount of the loan, together with accrued interest, is due in
October 2001. This loan was made to Mr. Andrews to assist him in purchasing a
home and is secured by the real property purchased.
In January 1997, the Company entered into five year Employment
Agreements with Mr. Jung, Mr. Bennion, Mr. Andrews, Bernard Harguindeguy, the
Company's President and Chief Operating Officer, and Steven M. Goldner, the
Company's Vice President, Engineering. These Employment Agreements provide,
among other things, that upon certain corporate transactions, including changes
in control, (a) all shares of stock and options held by each officer will be
assumed, converted, substituted or replaced by the successor company or (b) the
successor company may provide substantially similar consideration to the
officers as was provided to stockholders or optionholders generally with
respect to any stock or options held by such officer. In case of a sale of the
Company, the successor company may not terminate an officer's employment prior
to the first anniversary of the sale of the Company, except for cause, without
giving written notice. During the notice period, which must continue until the
first anniversary of the sale of the Company, the officer will continue to
collect twelve months' salary and bonus at then-current levels regardless of
whether the officer's services are actually required by the Company or its
successor. All employee benefits will continue and each officer's options and
shares of stock will continue to vest during the period of notice, provided
that the officer was not terminated for cause. Upon request of the Company,
the officer must also provide certain consulting services, paid at an hourly
rate for services actually performed, during the twelve months following the
first anniversary of the sale of the Company. During this period, provided the
officer's consulting arrangement is not terminated for cause, the officer's
options and shares will continue to vest.
STOCKHOLDER PROPOSALS
Proposals of Stockholders intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be received by the Company at its
principal executive offices no later than December
23
<PAGE> 27
29, 1997 in order to be included in the Company's Proxy Statement and form of
proxy relating to the meeting.
COMPLIANCE UNDER SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and 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 and the Nasdaq National Market.
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.
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.
24
<PAGE> 28
WORLDTALK CORPORATION
1996 EQUITY INCENTIVE PLAN
As adopted on February 7, 1996
and Amended Through March 11, 1997
1. PURPOSE. The purpose of this Plan, as amended herein
(the "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 1,750,000 Shares (post 1-for-2 1996
reverse stock split). 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 but are not members of the Compensation Committee of the Board) 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 but are not members of the Compensation Committee of the Board) who
are eligible to receive up to a maximum of 750,000 Shares in the calendar year
in which they commence their employment. A person may be granted more than one
Award under this 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 direc-
<PAGE> 29
tion 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 other determinations necessary or advisable for
the administration of this Plan.
4.2 Committee Discretion. Any determination made by the
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company the
authority to grant an Award under this Plan to Participants who are not Insiders
of the Company.
4.3 Exchange Act Requirements. If two or more members of
the Board are Outside Directors, the Committee will be comprised of at least two
(2) members of the Board, all of whom are Outside Directors and Disinterested
Persons. During all times that the Company is subject to Section 16 of the
Exchange Act, the Company will take appropriate steps to comply with the
disinterested administration requirements of Section 16(b) of the Exchange Act,
which will consist of the appointment by the Board of a Committee consisting of
not less than two (2) members of the Board, each of whom is a Disinterested
Person.
5. OPTIONS. The Committee may grant Options to eligible persons
and will determine whether such Options will be Incentive Stock Options within
the meaning of the Code ("ISOS") or Nonqualified Stock Options ("NQSOS"), the
number of Shares subject to the Option, the Exercise Price of the Option, the
period during which the Option may be exercised, and all other terms and
conditions of the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this
Plan will be evidenced by an Award Agreement which will expressly identify the
Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form
and contain such provisions (which need not be the same for each Participant) as
the 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.
-2-
<PAGE> 30
5.3 Exercise Period. Options will 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:
(a) 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 (b) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set
forth in the Stock Option Agreement, exercise of an Option will always be
subject to the following:
(a) If the Participant is Terminated for any reason
except death or Disability, then the Participant may exercise such
Participant's Options only to the extent that such Options would have
been exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no later than
the expiration date of the Options.
(b) If the Participant is Terminated because of
Participant's death or Disability (or the Participant dies within three
(3) months after a Termination other than because of Participant's
death or disability), then Participant's Options may be exercised only
to the extent that such Options would have been exercisable by
Participant on the Termination Date and must be exercised by
Participant (or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the Termination Date
(or such shorter or longer time period not exceeding five (5) years as
may be determined by the Committee, with any such exercise beyond (a)
three (3) months after the Termination Date when the Termination is for
any reason other than the Participant's death or Disability, or (b)
twelve (12) months after the Termination Date when the Termination is
for Participant's 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 Sub-
-3-
<PAGE> 31
sidiary 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.
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.
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A Stock Bonus may be awarded for past services already rendered to the Company,
or any Parent, Subsidiary or Affiliate of the Company (provided that the
Participant pays the Company the par value of the Shares awarded by such Stock
Bonus in cash) pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that
will be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent, Subsidiary or Affiliate
and/or individual performance factors or upon such other criteria as the
Committee may determine.
7.2 Terms of Stock Bonuses. The Committee will determine
the number of Shares to be awarded to the Participant and whether such Shares
will be Restricted Stock. If the Stock Bonus is being earned upon the
satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee will determine: (a) the nature, length and
starting date of any period during which performance is to be measured (the
"PERFORMANCE PERIOD") for each Stock Bonus; (b) the performance goals and
criteria to be used to measure the performance, if any; (c) the number of Shares
that may be awarded to the Participant; and (d) the extent to which such Stock
Bonuses have been earned. Performance Periods may overlap and Participants may
participate simultaneously with respect to Stock Bonuses that are subject to
different Performance Periods and different performance goals and other
criteria. The number of Shares may be fixed or may vary in accordance with such
performance goals and criteria as may be determined by the Committee. The
Committee may adjust the performance goals applicable to the Stock Bonuses to
take into account changes in law and accounting or tax rules and to make such
adjustments as the Committee deems necessary or appropriate to reflect the
impact of extraordinary or unusual items, events or circumstances to avoid
windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus
may be paid currently or on a deferred basis with such interest or dividend
equivalent, if any, as the Committee may determine. Payment may be made in the
form of cash, whole Shares, including Restricted Stock, or a combination
thereof, either in a lump sum payment or in installments, all as the Committee
will determine.
7.4 Termination During Performance Period. If a Participant
is Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Stock Bonus only to the extent earned as of the date of Termination in
accordance with the Performance Stock Bonus Agreement, unless the Committee will
determine otherwise.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant to this
Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned
by Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were purchased
from the Company by use of a promissory note, such note has been fully
paid with respect to such shares); or (2) were obtained by Participant
in the public market;
(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; provided, further, that the portion
of the Purchase Price equal to the par value of the Shares, if any,
must be paid in cash;
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(d) by waiver of compensation due or accrued to the
Participant for services rendered; provided, further, that the portion
of the Purchase Price equal to the par value of the Shares, if any,
must be paid in cash;
(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 allow the Participant to satisfy the minimum withholding tax obligation by
electing to have the Company withhold from the Shares to be issued that number
of Shares having a Fair Market Value equal to the minimum amount required to be
withheld, determined on the date that the amount of tax to be withheld is to be
determined (the "TAX DATE"). All elections by a Participant to have Shares
withheld for this purpose will be made in writing in a form acceptable to the
Committee and will be subject to the following restrictions:
(a) the election must be made on or prior to the
applicable Tax Date;
(b) once made, then except as provided below, the
election will be irrevocable as to the particular Shares as to which
the election is made;
(c) all elections will be subject to the consent or
disapproval of the Committee;
(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
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(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 (if requested by the Participant), 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 or Exercise Agreement), the higher of Participant's original Purchase
Price or the Fair Market Value of such Shares on Participant's Termination Date;
or (B) with respect to Shares that are not "Vested" (as defined in the Award or
Exercise Agreement), at the Participant's 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
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<PAGE> 35
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.
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
at least 90% of the issued and outstanding capital stock or other
equity interests in the Company,
(d) the sale of all or 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),
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<PAGE> 36
then, subject to Section 18.3 below, 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 and subject to Section 18.3 below, 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.
18.2 Termination of Awards. In the event of a transaction
described in clauses (a) through (e) of Section 18.1 and provided that the
successor corporation (if any) does not assume or substitute all outstanding
Awards as provided above, such Awards will expire on (and if the Company has
reserved to itself a right to repurchase shares issued upon exercise of Awards
at the original purchase price of such shares, such right shall terminate upon)
such event at such time and on such conditions as the Board shall determine upon
twenty (20) days advance written notice to Participants holding outstanding
Awards.
18.3 Acceleration of Vesting. In the event of a merger
described in either clause (b) or (c) of Section 18.1 above, the sale of all or
substantially all of the assets of the Company as a going concern in a single
transaction or series of related transactions or the sale or transfer of a
majority of the outstanding shares of the Company by the stockholders of the
Company in a single transaction or a series of related transactions other than
market transactions to unrelated purchasers (an "ACQUISITION") and:
(a) if the successor corporation, if any (the
"SUCCESSOR"), does not assume or substitute Awards as provided above in
Section 18.1, then each outstanding Award granted on or after October
18, 1996 that is not totally "Vested" (as defined in the Award or
Exercise Agreement) shall immediately accelerate and become exercisable
as to the number of shares that is equal to (i) the number of shares
then "Vested" at the closing of the Acquisition, plus (ii) the number
of shares that would have "Vested" had the Award been held for the year
after such closing. Awards granted before October 18, 1996 will
accelerate and become exercisable in full. Such acceleration shall be
under the terms described by the Board in the notice described in the
last sentence of Section 18.2; or
(b) if the Successor assumes or substitutes Awards as
provided above in Section 18.1, but any Participant's employment with
the Successor or any Parent, Subsidiary of Affiliate of the Successor
(as the definitions for such terms shall be revised to substitute the
Successor for the Company) is terminated by the Successor, such Parent,
Subsidiary or Affiliate without "cause" within one year after the
Acquisition, then the outstanding Awards held by the terminated
employee, as so substituted or assumed, and granted on or after October
18, 1996 shall provide that they will likewise immediately accelerate
and become exercisable on the date of such termination such that they
are exercisable for (i) the number of shares then "Vested" at the date
of such termination, plus (ii) the number of shares that would have
"Vested" had the Award been held for the year after such termination.
Awards granted before October 18, 1996 will accelerate vesting and
become exercisable in full upon such termination. For purposes hereof
"cause" for termination of any Participant's employment will exist at
any time after the happening of one or more of the following events:
(i) Participant's conviction of a felony involving moral turpitude;
(ii) any willful act or acts of dishonesty undertaken by the
Participant and intended to result in substantial gain or personal
enrichment of Participant, directly or indirectly, at the expense of
the Successor, such Parent, Subsidiary or Affiliate; (iii) any willful
act or misconduct which is materially and demonstrably injurious to the
Successor, such Parent, Subsidiary or Affiliate; (iv) substantial and
repeated neglect of Participant's responsibility, or malfeasance
thereof, that remains uncured after thirty (30) days written notice of
such neglect; or (v) the death or disability (within the meaning of
Section 22(e)(3) of the Code) of the Participant.
18.3 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."
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18.4 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 as of December 31, 1996
having never become effective. This Plan shall be approved by the stockholders
of the Company (excluding Shares issued pursuant to this Plan), consistent with
applicable laws, within twelve (12) months before or after the date this Plan is
adopted by the Board. Upon the Effective Date, the Board may grant Awards
pursuant to this Plan; provided, however, that: (a) no Option may be exercised
prior to initial stockholder approval of this Plan; (b) no Option granted
pursuant to an increase in the number of Shares subject to this Plan approved by
the Board will be exercised prior to the time such increase has been approved by
the stockholders of the Company; and (c) in the event that stockholder approval
of such increase is not obtained within the time period provided herein, all
Awards granted hereunder will be canceled, any Shares issued pursuant to any
Award will be canceled, and any 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. Unless earlier terminated as provided herein,
this Plan will terminate ten (10) years after the date this Plan is adopted by
the Board or, if earlier, the date of stockholder approval.
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.
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"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 Worldtalk Communications Corporation, dba Worldtalk Corporation,
a corporation organized under the laws of the State of Delaware, or any
successor corporation.
"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) (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 last
trading day prior to 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 last
trading day prior to 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 last trading day prior to 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 Par-
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<PAGE> 39
ent, 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 Worldtalk Corporation 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.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for issuance under
this Plan, as adjusted pursuant to Sections 2 and 18, and any successor
security.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares, pursuant to
Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain
of corporations beginning with the Company if, at the time of granting of the
Award, each of the corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with respect to a
Participant, that the Participant has for any reason ceased to provide services
as an employee, director, consultant, independent contractor or advisor to the
Company or a Parent, Subsidiary or Affiliate of the Company, except in the case
of sick leave, military leave, or any other leave of absence approved by the
Committee, provided that such leave is for a period of not more than ninety (90)
days, or reinstatement upon the expiration of such leave is guaranteed by
contract or statute. The Committee will have sole discretion to determine
whether a Participant has ceased to provide services and the effective date on
which the Participant ceased to provide services (the "TERMINATION DATE").
---------------------------------------------------------
-12-
<PAGE> 40
PROXY PROXY
WORLDTALK COMMUNICATIONS CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- June 12, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
The undersigned hereby appoints Mark A. Jung and Stephen R. Bennion or either of
them, as proxies, each with full power of substitution, and hereby authorizes
them to represent and to vote, as designated below, all shares of Common Stock,
par value $0.01 per share, of Worldtalk Communications Corporation (the
"Company"), held of record by the undersigned on April 15, 1997, at the Annual
Meeting of Stockholders of the Company to be held at Santa Clara Mariott,
2700 Mission College Blvd., Santa Clara, California 95052, on Thursday, June 12,
1997, at 9:00 a.m. Pacific Daylight time, and at any adjournments or
postponements thereof.
THIS PROXY WILL BE VOTED AS DIRECTED ON THE REVERSE SIDE. WHEN NO CHOICE IS
INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES LISTED IN
PROPOSAL 1 AND FOR PROPOSAL 2 AND PROPOSAL 3. In their discretion, the proxy
holders are authorized to vote upon such other business as may properly come
before the meeting or any adjournments or postponements thereof to the extent
authorized by Rule 14a-4(c) promulgated under the Securities Exchange Act of
1934, as amended.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 41
WORLDTALK COMMUNICATIONS CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY [X]
The Board of Directors recommends that you vote FOR the election of the
five nominees listed in Proposal 1 and FOR Proposal 2 and Proposal 3.
1. Election of Directors.
For Withhold For All
Nominees: Class 1: David J. Cowan and Wade Woodson All All Except
Class 2: Max D. Hopper and Anthony Sun [ ] [ ] [ ]
Class 3: Mark A. Jung
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(Except nominee(s) written above)
2. Ratification of the selection of KPMG Peat Marwick LLP as the
Company's independent accountants for the year ending December 31,
1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the amendment to the Company's 1996 Equity Incentive plan
to increase the number of shares reserved for issuance thereunder by
750,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated: __________, 1997
Signature(s)_____________________________________.
_________________________________________________
Please sign exactly as your name(s) appear(s) on your stock certificate. If
shares of stock stand of record in the names of two or more persons or in the
name of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the proxy. If shares of stock are held of record by a
corporation, the proxy should be executed by the president or vice president
and the secretary or assistant secretary. Executors, administrators or other
fiduciaries who execute the above proxy for a deceased stockholder should give
their full title. Please date the proxy.
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL
THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
